Robor’s acquisition of Macsteel tube and pipe business gets nod in embattled sector
The companies are conducting due diligence on each other as the merger of their tube and pipe business nears finality after nod from the Competition Tribunal
The Competition Tribunal has approved with conditions steel tube and pipe manufacturer Robor’s acquisition of Macsteel’s tube and pipe business.
The transaction, which entails the merger of two of the country’s big steel tube and pipe manufacturers, will result in consolidation in the local industry which is battling overcapacity and heightened competition.
The tribunal’s decision follows the Competition Commission’s recommendation for the approval of the transaction, which it said was unlikely to result in a substantial lessening of competition.
Macsteel CEO Mike Benfield said on Friday that the two companies were conducting a quick due diligence on each other “to ensure that the joint venture that will materialise will be sustainable”.
Benfield said the due diligence could be completed within three weeks. “It will move quickly,” he said.
The merger, which could be finalised by the end of February, was likely to result in the retrenchment of about 311 employees. “People’s lives are at stake here. These are breadwinners. We are so sensitive to that. We do not want to prolong this agony,” Benfield said.
In its recommendation to the tribunal, the commission imposed a condition that the merging entities should not retrench additional employees as a result of the merger. It also said that the 311 employees should have a right of first refusal in the event that vacancies became available within the merged entity.
The poor state of the steel tube and pipe sector necessitated consolidation, Benfield said. “The sector has to consolidate. Capacity has to be removed,” he said.
Benfield said Macsteel’s tube and pipe business had seen “sizeable” losses for a number of years. He said reducing capacity would allow for production efficiencies.
“That is not going to change the market price because there is still competition. The imported finished goods are a further counter force to the ability to manipulate prices. We are price takers because of the significant competition,” he said.
The merged entity produces the combined volume in one facility, instead of two, said Benfield, adding that post-merger, Macsteel would mothball its tube mill in Boksburg. As a result, cost per unit produced was likely to drop. “That is the logic we are chasing," he said.
Macsteel did not want a controlling stake in the merged entity because the company’s key strength is in wholesale and retail. “We do not want control,” said Benfield.
Explaining the rationale for the proposed merger, Robor CEO Gordon Gilmer said Robor, which is 47.6% owned by Tiso Blackstar Group, had been underutilising its plants for many years “as a result of the lack of GDP spend. The rationale is to utilise at least one of the plants more efficiently, as opposed to two half utilised assets”.
He reiterated that the local tube and pipe sector was grappling with overcapacity with installed capacity most likely double the current requirements. The installed tube and pipe capacity was estimated at more than 750,000 tons a year, Gilmer said.
Tiso Blackstar, the owner of Business Day, has indicated that it wanted to dispose of its interest in Robor within a year. Plans to sell the stake were on course and Tiso Blackstar CEO Andrew Bonamour said on Monday the company was in advanced talks with an unnamed party.