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Johannesburg - The Department of Trade and Industry has asked the Competition Commission to prohibit a proposed takeover of paint company Freeworld Coatings [JSE:FWD] by a Japanese multi-national, Kansai Paint Company.
"The DTI has argued that the takeover be prohibited. Alternatively and failing which, the DTI has submitted that the Commission should impose conditions which ensure that public interest and competition concerns set out in the DTI submission are met," the department said on Wednesday night.
The DTI's concerns include the argument that the hostile takeover is likely to weaken competition in a market which is already highly concentrated and prone to collusive behaviour in other jurisdictions.
It also argues that the takeover constitutes a direct threat to the government-supported localisation drive since Freeworld is the only local manufacturer of automotive coatings supplied to the Original Equipment Manufacturers (OEMs) in the sector.
"Other suppliers import products procured by the OEMs. Job losses would be an inevitable consequence of a curtailment or cessation of local manufacture," the DTI said.
"The DTI further argues that Freeworld has made a very significant contribution to uniquely South African product development and commercialisation in a partnership with Stellenbosch University, a contribution previously recognised by the DTI when the company received a DTI award for innovation.
"Freeworld, it is argued, is also an exemplar with respect to black economic empowerment."
The DTI said it had taken this step because it was of the view that increased competition, local manufacture and local product development, particularly in the strategic automotives sector which was characterised by "high economic and employment multipliers", was critically important.
DTI acting director general Lionel October said the move by the DTI should not be construed as "opposition" to foreign direct investment.
"On the contrary, the DTI is doing everything possible to encourage inward investment, especially in relation to the production sectors of the economy where higher levels of competition, local production and innovation are vital ingredients in government's drive to address the structural weaknesses of the economy and to work closely with the private sector to reverse the decline of South Africa's industrial base, global competitiveness, exports and employment," October said.
Should the Commission decide against prohibition the DTI was of the view that the Competition Commission should place a set of conditions on the acquisition in line with competition and public interest concerns, which secured the protection of South Africa's industrial capacity, employment and intellectual property.
"The DTI has argued that the takeover be prohibited. Alternatively and failing which, the DTI has submitted that the Commission should impose conditions which ensure that public interest and competition concerns set out in the DTI submission are met," the department said on Wednesday night.
The DTI's concerns include the argument that the hostile takeover is likely to weaken competition in a market which is already highly concentrated and prone to collusive behaviour in other jurisdictions.
It also argues that the takeover constitutes a direct threat to the government-supported localisation drive since Freeworld is the only local manufacturer of automotive coatings supplied to the Original Equipment Manufacturers (OEMs) in the sector.
"Other suppliers import products procured by the OEMs. Job losses would be an inevitable consequence of a curtailment or cessation of local manufacture," the DTI said.
"The DTI further argues that Freeworld has made a very significant contribution to uniquely South African product development and commercialisation in a partnership with Stellenbosch University, a contribution previously recognised by the DTI when the company received a DTI award for innovation.
"Freeworld, it is argued, is also an exemplar with respect to black economic empowerment."
The DTI said it had taken this step because it was of the view that increased competition, local manufacture and local product development, particularly in the strategic automotives sector which was characterised by "high economic and employment multipliers", was critically important.
DTI acting director general Lionel October said the move by the DTI should not be construed as "opposition" to foreign direct investment.
"On the contrary, the DTI is doing everything possible to encourage inward investment, especially in relation to the production sectors of the economy where higher levels of competition, local production and innovation are vital ingredients in government's drive to address the structural weaknesses of the economy and to work closely with the private sector to reverse the decline of South Africa's industrial base, global competitiveness, exports and employment," October said.
Should the Commission decide against prohibition the DTI was of the view that the Competition Commission should place a set of conditions on the acquisition in line with competition and public interest concerns, which secured the protection of South Africa's industrial capacity, employment and intellectual property.
