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Tribunal greenlights merger of SA's biggest ostrich firms, but Ts and Cs apply

Aug 15 2019 10:05
Lameez Omarjee, Fin24

The Competition Tribunal has approved the merger between SA's two largest ostrich firms, despite the Competition Commission previously rejecting the merger as it would result in a "near monopoly" in the market for ostrich meat and feathers.

But now the merger between Klein Karoo International and Mosstrich has been approved - but not without several conditions. The companies supply ostrich slaughter and ostrich feather-related services to ostrich farmers and tannery services for ostrich skins. These products are largely exported, according to the Tribunal. The parties currently have abattoir facilities in Oudtshoorn, Mossel Bay, De Aar and Graaff-Reinet and tannery facilities in Mossel Bay and Oudtshoorn.

The Tribunal on Thursday released a statement on the merger between Klein Karoo International and Mosstrich, outlining the conditions.

The Competition Commission in December 2018 had previously rejected the merger, saying that it would eliminate competition between the two companies and they would control the entire value chain of the ostrich industry.

The companies filed an application with the Tribunal in January 2019 to challenge the Commission's decision. At a hearing before the Tribunal between July 1 and July 8, they argued the merger is necessary to stabilise the ostrich industry which is suffering a significant decline. The parties also tendered enhanced competition conditions which resulted in the Tribunal granting the merger subject to conditions.

The conditions the Tribunal has imposed on the merger is to ensure the availability in SA of ostrich feathers to producers of various feather-related products, ostrich meat such as ostrich steak and access to the merging parties' abattoirs and tanneries in South Africa.

The conditions are:

1. Tender condition on ostrich feathers

The merged entity will have to offer at least 40% of its slaughter line ostrich feathers on tender in each financial year.

"The tender process will be managed by independent auditors on behalf of the merged entity and such auditors will be required to annually submit a certificate to the Commission confirming compliance with this condition," the Tribunal said. This tender condition will remain in place indefinitely.

"Third parties such as ostrich farmers who bring their ostriches to the merging parties for slaughter, must be allowed to retain their feathers (if they so wish) on terms that are fair, reasonable and non-discriminatory," the Tribunal said.

2. Volume supply condition on ostrich meat

The entity will have to comply with certain annual volume conditions in relation to their supply of ostrich meat in South Africa for local consumption. "This means that it must make a certain percentage of its ostrich steaks and fillets, as well as ostrich trimmings, available for sale in South Africa in each financial year. The percentages relating to the volume condition will remain confidential."

This condition remains indefinitely.

3. General access to merging parties' abattoirs and tanneries

For as long as the entity has excess capacity, it should offer access to its abattoirs and tanneries to any party requiring access. The terms of the access should be "fair, reasonable and non-discriminatory in respect of pricing, quality and timeliness".

If the entity has to decline offering access, it must provide specific written reasons within seven days of receiving the request.

4. Contract access to merging parties' abattoirs and tanneries

"The merging parties agreed that the current agreements between Mosstrich and two of its customers, Buffelskom Boerdery and Ostriland, will be amended to remain in place indefinitely – subject to a 24-month notice period in which either party may cancel the agreement," the Tribunal said.

The percentage annual inflation increase of tanning or slaughtering fees will not exceed tannery or abattoir cost inflation and shall be subject to determination by an expert.

"Buffelskom and Ostriland will not be restricted from competing with the merged entity for the duration of the agreement, during the notice period or thereafter," the Tribunal said.

5. Employment conditions

The entity will not retrench any employees as a result of the merger for a period of three years from the date that the merger is implemented. 

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