Why did Akzo Nobel's acquisition of Kansai Coatings Africa business fail?
Recently, China Foreign Coatings Network learned that after reviewing the review request, the South African Competition Court issued an order prohibiting the merger of global coatings company Akzo Nobel and Kansai Coatings Africa's shares.
According to the South African Competition Commission, as the largest and second largest manufacturer of local decorative coatings, if the two companies merge, it may significantly reduce competition in the local decorative coating manufacturing and supply market, and have adverse effects on other market participants.
It is reported that the legislation related to merger and acquisition control in South African enterprises is mainly the Competition Law No. 89 of 1998. The enforcement agencies for merger and acquisition control in South Africa include the Competition Commission, the Competition Court, and the Competition Appeal Court. Among them, the South African Competition Commission is a statutory body established by the South African government under Competition Act No. 89 of 1998, which has the authority to investigate, control, and evaluate restrictive business practices, abuse of dominance, and mergers to achieve fairness and efficiency in the South African economy.
in June 2022, Akzo Nobel reached an agreement with Kansai Paint to acquire Kansai Paint's paint and coatings business in Africa, in order to further enhance Akzo Nobel's influence in the African market. This acquisition agreement is scheduled to be completed in 2023, depending on regulatory approval.
Kansai Coatings operates in 12 countries in Africa, with a comprehensive revenue of approximately 280 million euros. This transaction includes Plascon, a brand with over 100 years of history in Kansai, South Africa. Plascon and Akzo Nobel's brand Dulux are the oldest decorative paint brands in Africa. The acquisition intention also includes automotive and protective coatings, as well as wood paint and coil steel coatings.
Former CEO of Akzo Nobel, Theodore Vanlancker, stated at the time, "Acquiring Kansai Paint's business in Africa will help us further expand our paint and paint business in the region, laying a solid foundation for future development. Kansai Paint, like us, is committed to innovation and sustainable development, and we look forward to combining our professional capabilities to bring customers a wider range of innovative products and more sustainable solutions."
Kunishi Mori, President of Kansai Coatings, previously stated: In the African business, platform integration between both parties will generate synergies and expand the expansion area, including North Africa. The decorative paint business is Akzo Nobel's core business, so it has the ability to unlock the full potential of this part of the business and help promote African economic development. I believe Akzo Nobel is the most suitable company to take over our African business. In addition, Akzo Nobel will leverage its ample financing capabilities to leverage this Actively reinvest in key businesses and areas such as' B to B business, India, and Europe 'that can maximize the advantages of Kansai Coatings, in order to continuously improve the company's value
However, in November 2022, the Competition Commission rejected Akzo Nobel's proposed merger to acquire Kansai's paint and coatings business in the region. In South Africa, it is well known that Akzo Nobel controls Akzo Nobel Powder Coatings South Africa Company; Akzo Nobel South Africa Limited; ICI Dulux Limited; Akzo Nobel also produces Dulux brand coating products for various fields, mainly divided into decorative coatings and industrial coatings.
In South Africa alone, Akzo Nobel has three manufacturing plants, two of which are located in the province of Hauden (Alberton and Vanderbil Park), and the largest one is located in the province of Umbogintwini. The products produced by these factories are not only sold domestically, but also exported to other countries in Africa.
On the other hand, Kansai Plascon Africa Limited and Kansai Plascon East Africa Limited are controlled by Kansai Paint and comply with the laws of the Republic of South Africa and Mauritius. In South Africa, both companies operate through Kansai Plascon Africa Limited, which mainly produces Plascon branded decorative coatings and industrial coatings.
It is reported that decorative coatings account for the largest share of net sales of Plascon Africa Limited in Kansai. Overall, these entities have four manufacturing plants, two of which are located in Krugersdorp and Claywille provinces, one in Kwa Zulu Natal province (Mobeni), and the other in Gqeberha province.
There are four manufacturing factories in Kansai overseas. One is in Malawi, one is in Zambia, and two are in Zimbabwe. The committee also pointed out in the report that Plascon Africa Limited in Kansai produces colorants.
As the largest and second largest manufacturer of local decorative coatings, if these two companies merge, the committee found that the result would be a significant reduction in competition in the decorative coating manufacturing and supply market.
The committee also found that the merging parties are close competitors in terms of price, quality, and product range, and the merger will eliminate competition between the two well-known brands, thereby reducing consumer choices.
In addition, the committee believes that the proposed merger may lead to significant investments related to the manufacturing and supply of colorants and the issue of loss of collateral redemption rights, as the merging parties have both the ability and motivation to cancel the rights of some of their competitors to obtain colorants.
Due to these findings and the lack of evidence to suggest that the merger of specific technologies, efficiency, or other competitive benefits would outweigh and offset the impact of any entity's submission to prevent or reduce competition, the committee subsequently prohibited the transaction from continuing.
On November 21st of this year, the South African Commission once again banned the proposed merger. Although they have not provided any reasons, according to initial analysis, this transaction may significantly prevent or reduce competition in the South African decorative paint manufacturing and supply market.
It is reported that the merging parties have submitted a review request to the committee court, seeking order to approve the merger, but need to divest the Micatex brand (a sub brand of Plascon brand) in Kansai, and sign commitments for the supply of colorants and other public interest related commitments.
According to foreign media reports, the South African Competition Court heard testimony from factual and economic expert witnesses within more than 10 days, including evidence from market testing reports on the proposed divestment. After considering all the submitted evidence, the proposed transaction was once again prohibited. The reasons for making the ruling will be announced later.
