Genesis analysis leads to sawmill demerger

Genesis was commissioned to assist AC Whitcher, a small sawmilling company operating in the Tsitsikamma area, in opposing a large vertical integration between forestry and sawmilling companies, MTO Forestry and Boskor Sawmill.

The merger transaction had initially been approved without conditions by the Competition Commission in March 2007. However, as a result of MTO Forestry’s conduct, AC Whitcher, an MTO customer, was foreclosed from the market for saw-logs.

The company therefore launched an application with the Competition Tribunal and later the Competition Appeal Court (CAC) for the commission’s decision to be reviewed, relying on the economic evidence provide by Genesis to highlight the anti-competitive effects of the merger.

The CAC ruled in August 2009 that the commission’s decision to approve the merger be set aside and reviewed. Upon review, the commission approved the merger with conditions on 27 January 2011.

Key to the case was the project team’s analysis of the geographic definition and spatial effects of the merger, which revealed its likely anti-competitive consequences. At the time of the merger evaluation, there had also been evidence that input foreclosure was taking place, which was successfully demonstrated to the CAC and commission.

The merging parties nevertheless sought a review of the commission's revised decision before the tribunal. During this subsequent review, Genesis was presented with the unique opportunity to assess the conduct of the merged entity ex post.

Following lengthy litigation proceedings, the case founded on this analysis resulted in the parties deciding to demerge.