The Competition Commission has recommended that the proposed merger between Allied Technologies (Altech) and NamITech be prohibited, and has referred the case to a higher level - the Competition Tribunal.
The commission said it had made its recommendation because the transaction would remove an effective competitor from the market and create significant competition concerns in both horizontal (competitor) and vertical (supply chain) relationships.
The Competition Tribunal is the final arbitrator on mergers, although complainants have the option of going to an appeal court as well.
Altech, which wants to acquire NamITech, is ultimately owned by electronics group Altron, which is due to present its interim results on Monday, 13 October.
NamITech is the primary target firm. Packaging group Nampak owns 51.8% of NamITech, which has two black economic empowerment (BEE) shareholders: Clidet, whose entire ordinary share capital is owned by Pamodzi Investment Holdings, and the Mphatllalatsane Investment Company.
Altech and NamITech compete in the area of PVC card technology, particularly in the banking sector. Altech has stated that acquiring NamITech will complement and enhance its existing smart card technology business both locally and internationally. However, the commission is of the view that NamITech and Altech individually have high market shares in the combined manufacture of secure and non-secure cards, and that the merger would not lead to any additional synergies.
According to Nkonzo Hlatshwayo, manager of mergers and acquisitions at the Competition Commission: "As the financial services sector migrates from secure PVC cards to smart card technology over the next three to five years, we believe the proposed merged entity will monopolise the combined secure PVC magnetic stripe and secure smart card market, as these are the only two local companies with the capability of providing cards to the banking sector."
Hlatshwayo says the Competition Commission is also concerned that post-merger concentrations in the secure and non-secure PVC card market and in the secure smart card market will allow for market power in the form of charging monopoly prices and raising rivals costs.
From a vertical perspective, Hlatshwayo maintains that the competitive concerns arise because Altech is the exclusive SA agent for DataCard personalisation equipment. Competitors have expressed concern that the merged entity will be in a strong position to raise rivals` costs and gain access to confidential business information, which would effectively place them at a significant competitive disadvantage compared to the merged entity.
Hlatshwayo says the proposed merger raised serious BEE concerns for the commission. "On the one hand, NamITech`s BEE partner, Pamodzi, would benefit handsomely from a BEE shareholding perspective. On the other hand, Gijima, a newly established wholly owned BEE smart card manufacturing company, would effectively face insurmountably higher barriers to entry in an already highly-concentrated market, particularly with respect to supplying the financial services sector."
According to the Competition Commission, the parties involved in the transaction were given an opportunity to propose remedies to address the competition concerns. The parties declined to do so.
Related story:
Altech to buy NamITech for R560m
Share