SOUTH AFRICA – The Competition Commission of South Africa has recommended that the Competition Tribunal approve the proposed transaction of Consol’s Group’s acquisition by Ardagh Group after reaching a consensus.
The acquisition was first announced in November 2021, aAt the time, Ardagh said it would pay R10.1 billion (US$670m) for Consol, and finance the acquisition through a combination of its cash resources, as well as by assuming Consol’s existing debt of R5.7 billion (US$378.5m).
Headquartered in Johannesburg, and founded in 1946, Consol is a leading producer and supplier of glass packaging on the African continent headquartered in South Africa.
It serves a broad range of leading international, regional and domestic customers, principally in the food and beverage industries including the beer, alcoholic beverage, wine, fruit juice, soft drinks, mineral water and spirits industries, as well as for pharmaceuticals and cosmetics industries.
The company also has a small retail presence, supplying empty glass containers to various retailers for sale to consumers.
Meanwhile, Ardagh Group, is a global supplier of sustainable, infinitely recyclable, metal and glass packaging for brand owners.
Through its subsidiaries, it is also involved in the supply of glass manufacturing equipment and the sale of glass moulds.
The group does not have any glass manufacturing facility in SA and only exports its glass products to its customers in SA.
The deal also includes Consol’s operation spanning Nigeria, Kenya and Ethiopia, enabling Ardagh expand its European and North America presence in glass packaging into Africa.
Terms and conditions merging parties need to abide with
However, the commission found that the proposed transaction raised significant public interest concerns.
To remedy this concern, the merging parties agreed they will establish a new employee share ownership programme, which will hold a 7% shareholding in Consol.
Also, Ardagh will incur all reasonable capital expenditure, including raising necessary debt funding required to finalise the construction of the glass manufacturing facility planned by Consol, and invest in the construction of a new glass manufacturing facility.
Consol Glass had announced plans of establishing a new R1.5 billion factory in 2020, which was indefinitely put on hold due to the reduction in demand for glass products driven by the Covid-19 pandemic and government’s ban on the sale of alcohol.
Further, Ardagh committed to procuring recycled glass, or cullet, for use in its operations in the ordinary course, and will favour historically disadvantaged persons in such procurement. Consol shall also increase its pre-merger procurement of cullet from small or historically disadvantaged person vendors.
Additionally, within a specified time frame, Ardagh shall expand Consol’s existing cullet owner-driver scheme and support small, medium-sized and microenterprise customers through a reduction of minimum order quantities.
Meanwhile, Ardagh will use reasonable endeavours to introduce a new production line of glass-related products.
The commission was also concerned about the effect of the merger on the market for food jars and wide-mouth jars. The merging parties agreed they will continue to supply food jars or wide-mouth jars.
“The commission is of the view that the proposed remedies or conditions adequately address the public interest concerns resulting from the proposed merger,” it stated.
While Consol and Ardagh have received node for their proposed merger, the commission has prohibited the acquisition of industry peer Neopak Limited by Corruseal Group, citing the merger is likely to result in a substantial prevention and lessening of competition.
The Commission found that Neopak is considered an important independent supplier of recycled containerboard paper to firms that manufacture packaging products, thus the merger would thus result in the loss of the Neopak as a non-integrated firm.
The investigation further showed that the merger will result in the creation of an entity having high market shares irrespective of whether production capacity, production volumes or domestic sales volumes are used to measure their size.
This brought to the fore the concern that the merged entity will have the ability to act unilaterally for example by 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.