Competition Tribunal blocks merger between Neopak and Corruseal

SOUTH AFRICA – The Competition Tribunal has issued an order prohibiting the proposed merger between paper and packaging company Corruseal Group and recycled containerboard and paper company Neopak Holdings.

The Tribunal has stated that the merger is likely to result in a substantial prevention of competition in the upstream and downstream markets.

“The Commission found that the merged entity will have the ability to act unilaterally by, for example, raising the prices of recycled containerboard, refusing to supply competitors of Corruseal who also rely on Neopak for recycled containerboard, or supplying downstream competitors on poor terms,” said the Tribunal in a statement.

The commission said the investigation revealed that the merger would result in the merged entity having high market shares irrespective of whether production capacity, production volumes or domestic sales volumes are used to measure their size.

The Commission said it further found that barriers to entry into the upstream market were high.

“There has been no significant production capacity installed in the upstream market for at least the last five years,” it added.

“Moreover, the Commission found that the supply of recycled containerboard paper from the upstream market to the downstream market is tight.”

This lack of capacity means that vertically integrated companies such as Corruseal, prioritize supplying their downstream market activities with inputs as opposed to supplying external customers (i.e., companies that don’t have an integrated value chain, the commission said.

Corruseal and Neopak had approached the Tribunal with a request for consideration after the Competition Commission (“the Commission”) prohibited the proposed transaction on grounds that it would likely result in a substantial prevention or lessening of competition.

In their request for consideration to the Tribunal, Corruseal and Neopak sought to have the proposed merger unconditionally approved by the Tribunal or, alternatively, approved subject to conditions.

The Tribunal’s order follows a hearing held in November and December 2022 and February 2023, during which several factual witnesses as well as economic experts testified before the Tribunal.

The Tribunal had also granted Mpact Operations (Pty) Ltd (“Mpact”) and APL Cartons (Pty) Ltd (“APL”) specific intervention rights after the firms brought applications to intervene in the matter.

Mpact had intervened amid concerns the proposed transaction would increase the concentration of the 100% recycled containerboard market with the result that there will be a substantial lessening or prevention of competition.

Meanwhile, APL had intervened amid consideration of the potential harm of its foreclosure as a consequence of Corruseal limiting or eliminating APL’s ability to procure recycled paper at competitive prices from Neopak’s mill.

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