THE COMPETITION Commission yesterday blocked the R1.46 billion sale of Sasol's sodium cyanide business to Czech-based Draslovka, citing that the merger would result in the prevention of competition.
The commission said it found the proposed transaction would likely to result in a substantial prevention of competition due to inevitable post-merger price increases which would be detrimental to customers.
“The commission finds that these price increases would be as a direct result of the proposed transaction. The commission further finds that this transaction would have a substantial negative effect on the gold mining sector,” said the commission.
Sasol is South Africa's sole liquid cyanide producer and the gold mining sector is dependent on the group for the supply of liquid cyanide.
The anti-trust body said the cost of the solid form and the costs of dissolution of the solid form to the liquid form was significant and substantial in comparison to the liquid form, and a result, the two forms are not substitutable.
The commission said during its investigation customers had raised concerns that Draslovka might charge import parity prices for locally produced liquid sodium cyanide post-merger.
The commission said import parity pricing involved pricing a product produced in South Africa as if it was being imported from another country to South Africa and included the associated costs of importation.
“According to the concerned customers, a post-merger increase in the price of locally produced liquid cyanide to an import parity level would have a significant negative impact on local gold mining customers and its long-term profitability and sustainability as the procurement of liquid cyanide constitutes a significant portion of the local gold mining customers' input costs,” said the commission.
The commission said during engagements on an appropriate pricing remedy, the merging parties proposed that a reference price be linked to the import parity price.
“Given the commission's understanding that Sasol was pricing its liquid cyanide significantly below the import parity price for solid cyanide, this meant that merger would result in significant price increases,” said the commission.
The commission based its decision on the landmark ruling by the Constitutional Court in the Mediclinic/Motlasana medical matter. The apex court found a price increase arising from a merger may, on its own, constitute a substantial lessening or prevention of competition.
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