Senmin takeover bid knocked back

The Competition Commission has again prohibited the proposed acquisition of chemical manufacturer Cellulose Derivatives by Senmin International.

The merger filed with the commission was essentially the same transaction that was previously prohibited by the competition authority in February 2009.

The competition body was concerned about the likelihood of foreclosure resulting from the merger, and in the investigation of the new transaction, the watchdog found that market dynamics had not substantially changed since 2009.

Senmin is a wholly owned subsidiary of Chemical Services, controlled by AECI and is involved in the manufacture, marketing and distribution of mining chemicals.

The target firm, Cellulose Derivatives is the only local manufacturer of technical grade carboxymethylcellulose, which is mainly used in platinum mines for mineral extraction.

Cellulose Derivatives sells this product to distributors in South Africa, with Senmin being the biggest distributor.

A striking feature of the industry is that there is no direct interaction between the end-customers and the manufacturer because all mining houses source their CMC requirements through distributors, largely because Cellulose Derivatives, which manufactures the base CMC, does not have chemical engineers who are required to blend the CMC to the mines specifications.

Distributors such as Senmin have chemical engineers who ensure that the CMC meets its customers' requirements.

"The merger will create a market structure in which Senmin, a dominant distributor of CMC, will be vertically integrated with the only producer of CMC in SA," the commission said.