Why Sh137 billion Tanga Cement acquisition attempt flopped

Dar es Salaam. The bid by Twiga Cement’s parent company to acquire a controlling stake in Tanga Cement Plc has hit a brick wall after the Fair Competition Tribunal (FCT) blocked the planned merger because it was contrary to the law.

In October 2021, Scancem International DA (Scancem) – a subsidiary of Heidelberg Cement AG, which owns Twiga Cement – and AfriSam Mauritius Investment Holdings Limited, owner of Tanga Cement, issued a joint statement that they had finalised the terms upon which the former would acquire a 68.33 percent stake in Tanga Cement.

The Fair Competition Commission (FCC) approved the proposed Sh137.33 billion takeover, but with the caveat that the acquiring firm should not shut down the operations of Tanga Cement; that it should continue to produce and promote the Simba Cement (Tanga Cement) brand, and that it was barred from laying off existing employees at Tanga Cement.

However, some players were opposed to the decision on the grounds that allowing the merger to go ahead would prevent, restrict or distort competition in the market in violation of the Fair Competition Act, 2003, the law administered by the Ministry of Investment, Industry and Trade under the FCC.

It was on these grounds that Chalinze Cement Company Limited and the Tanzania Consumer Advocacy Society (TCAS) lodged an appeal with the FCT, which delivered its verdict on September 23, 2022.

“Pursuant to the provisions of Section 11 (1) of the FCA (Fair Competition Act), having quashed and set aside the decision of FCC, the Tribunal prohibits the merger between Scancem International DA and Tanga Cement,” the three-member FCT panel said in its verdict.

The judgment by the quasi-judicial FCT was delivered by Lady Justice Salma Maghimbi, Dr Godwill Wanga and Mr Boniface Nyamo-Hanga. It blocked the planned merger on the grounds that it would have created a position of market dominance by the merging firms in a post-merger scenario.

“Consequently, the decision of the FCC to approve the merger with conditions is hereby quashed and set aside…this is a prohibited merger as it contravenes Section 11 (1) of the FCA,” says the judgment, which was delivered in the presence of State Attorney Narindwa Sekimanga and lawyers representing the FCC, Scancem International DA, Chalinze Cement Company Limited and TCAS.

In their key objection to the merger, the appellants argued that the merged firms would have commanded a 47.26 percent share of the cement market in Tanzania if the deal went ahead. This, they further argued, would have been well above the 35 percent threshold allowed by the FCA.

Allowing a single firm to control more than 35 percent of the market share, the appellants contended, would make it possible for the company to materially and profitably restrain or reduce competition in the market, and also arbitrarily raise or fix prices.

In the judgment – which requires all parties to bear their own costs of the appeal – the FCT noted that the FCC failed to provide clear evidence of the economic benefits of the merger to the welfare of the people of Tanzania.

“This failure rendered its merger decision illogical,” the judgment reads.

However, in their defence before the FCT, the respondents questioned whether Chalinze Cement Company Limited and TCAS met the threshold test under the FCA to oppose the deal.

But the FCT cited Case T-133/95 and T-204/96 between International Express Carriers Conference (IECC) and the Commission of the European Communities, (1998) ECR II-2645 where it was held that the commission had powers not to pursue the complaint of an association of undertakings in case the members therein were not involved in the type of business transactions complained of.

“…it was undisputed that Chalinze was involved in the business that the appeal was discussing and hence suffice to say that they have pecuniary and material grievances,” the FCT says in its verdict.

The case would have been different if the appellant (Chalinze) was not involved in the relevant market subject of the merger in question, it adds.

In the case of TCAs, the point of reference was Case T-37/92, Bureau Europeen des Unions des Consommateurs (BEUC) vs the Commission of the European Communities, (1994) ECR II-285 where the Court of First Instance affirmed that consumers associations can equally lodge complaints with the Commission. Similarly, in case number IV/D-2/34.466, Greek Ferries, OJ L 109/24 of April 27, 1999, the Commission also accepted a complaint from an individual consumer in its decision of December 9, 1998.

“In all these cases, complaints from both consumer associations and competitors were entertained and determined. On that same basis, we find that the appellants in the name of Chalinze and TCAS are competent to be heard before this Tribunal,” the FCT says in its verdict.

In its submission, the FCC said as far as the cement market was concerned, the merged firm would still command less than 35 percent of the market. FCC argued that in reaching the decision to approve the merger with conditions, it used three market metrics, namely sales volume, installed capacity and revenues.

But while buying FCC’s idea to measure a firm’s market share by sales volumes, the FCT was satisfied beyond any doubt that submissions before it showed that the merged firm would command a market share (in terms of sales volumes) of 47.26 percent, which was against the law.

It was the Tribunal’s view that in some of its own analyses, the FCC had noted that the merged firm’s market share (by sales volumes) would be 52.11 percent.

“We have also noted that the post-merger effect will be an increased concentration by reducing the number of players in the market,” the judgment reads.

Following the verdict, Tanga Cement Plc board chairman Lawrence Masha issued a public statement last Friday, informing the firm’s shareholders of the FCT decision.

“Heidelberg Cement and AfriSam are still considering ways of proceeding but the FCT judgment has created a very difficult position for the buyout to be effected,” he said.