Competition Commission stops merger of paper recycling companies

The Competition Commission said on Wednesday that it would prohibit the proposed merger whereby Corruseal Group (Pty) Ltd intended to acquire Neopak (Pty) Ltd.

The commission said such a merger would likely result in a substantial prevention and lessening of competition.

Neopak and Corruseal are both active in the recycled paper value chain.

The commission said the supply chain of Corruseal is integrated.

It said Corruseal's activities include the collection and recycling of waste paper, the manufacture and supply of recycled containerboard paper (the “upstream” market), and the manufacture of corrugated sheets and box packaging products using recycled containerboard paper as an input (the “downstream” market”).

The commission said Neopak is a manufacturer and supplier of recycled containerboard paper.

It said Neopak is only active in the upstream market for the manufacture and supply of recycled containerboard paper and does not have its own downstream operations.

The commission found that Neopak is considered an important independent, non-integrated supplier of recycled containerboard paper to firms that manufacture packaging products. The commission said the merger would thus result in the loss of the Neopak as a non-integrated firm.

Commenting after the commission’s decision, Angelo Tzarevski — associate director in the competition and antitrust practice at Baker McKenzie in Johannesburg — said transactions are rarely prohibited by the competition authorities.

“By way of example, during the commission's 2020/2021 financial year, of the 242 mergers notified that year, only two were prohibited.

“A transaction is prohibited when it raises substantial competition and/or public interest concerns that cannot be addressed by suitable remedies,” Tzarevski said.

Tzarevski said the overwhelming majority of prohibitions are occasioned by competition concerns that cannot be outweighed by pro-competitive outcomes or public interest gains.

He said this appears to be the case in the Corruseal/Neopak transaction.

Among the concerns identified by the commission was the likelihood that the transaction would increase concentration in the paper manufacturing market, which the commission regards as highly concentrated already.

“It is open for parties in an intermediate merger to challenge the commission's prohibition decision before the Competition Tribunal through a request for consideration.

“Whether the parties in the Corruseal and Neopak transaction intend to follow this route remains to be seen,” he said.

TimesLIVE