Prohibition of Namibian cement merger due to potential collusion

August 12, 2020

On 3 August 2020, the Namibian Competition Commission (NCC) prohibited the acquisition of Schwenk Namibia (Pty) Ltd (SN) by West China Cement Ltd (WCC) due to concerns of collusion in Namibian cement sector. In particular, the NCC was concerned that the transaction would increase the likelihood of coordination between SN’s subsidiary, Ohorongo Cement (Pty) Ltd (Ohorongo), and its main competitor, Whale Rock Cement (Pty) Ltd (WRC). Despite the lack of clarity on NCC’s finding that WRC was linked to WCC, the prohibition reiterates the NCC’s robust application of the Namibian merger control regime.

Until the opening of WRC (trading as Cheetah Cement) in 2018, Ohorongo was the only cement factory in Namibia. Ohorongo is majority owned by the Schwenk Group (69.8%) through SN with the residual shareholding distributed across the Development Bank of Namibia, the Development Bank of Southern Africa and the Industrial Development Corporation. As part of the transaction, WCC, a leading cement manufacturer and distributor in North Western China, would acquire control over Ohorongo.

The NCC’s review of the transaction focussed on the relationship between WCC and WRC, as Ohorongo’s main competitor in the Namibian cement sector. WRC is a joint venture involving China’s Asia-Africa Business Management (AABM). While the NCC’s investigations revealed a link between WCC and WRC, the NCC did not specify the nature of the relationship presumably between WCC and AABM.

The NCC was however satisfied that the link was sufficient to increase the likelihood of coordination between Ohorongo and WRC through the sharing of competitively sensitive information. In light of the NCC’s view that Ohorongo enjoyed a dominant position in the Namibian cement sector, it considered that the transaction would further strengthen Ohorongo’s position in the sector.

The NCC’s reliance on coordinated effects implies that there was not a straight-forward shareholding link between WCC and WRC as otherwise it would have simply aggregated the market positions of Ohorongo and WRC. Irrespective of the lack of clarity on the basis of the NCC’s finding, the prohibition of the transaction reiterates the NCC’s robust application of the Namibian merger control regime.

Since the NCC became operational in December 2009, the NCC has not shied away from prohibiting high-profile transactions (including the proposed AfriSam/Ohorongo merger in 2010) or from imposing stringent conditions on material foreign direct investments in line with Namibian industrial policy. For example, the NCC approved last year’s Chinese acquisition of the Rössing Uranium mine on the basis of a comprehensive package of conditions including the maintenance of at least 95% local employers for the lifespan of the mine as well as the procurement of at least 80% of services/products from locally owned businesses.

The author would like to thank Uzair Bulbulia for his assistance in writing this blog.