The Competition Commission has prohibited a proposed transaction whereby Africa Forestry Fund II (AFF) intended to acquire Vuka Forestry Holdings and Glen Village Trading.

The commission found that there were substantial short- and long-term anticompetitive effects that were likely to arise from the proposed transaction. This would result in a negative public interest outcome in the broader forestry industry in the Mpumalanga and Limpopo regions.

AFF forms part of entities, including MTO Forestry, Ramanas Farms, Imvelo Forests and Peak Timbers, collectively referred to as ASF Group.

ASF Group is active in the plantation of hardwood trees which are harvested and sold as transmission pole logs, building and fencing pole logs, mining timber logs and pulp wood.

Vuka is involved in the treatment and production of poles for use in transmission, building and fencing applications.

The commission on Wednesday said the proposed transaction would result in an overlap in the business activities of the parties in relation to the supply of treated building and fencing poles but that did not raise competition concerns, as the parties’ combined post-merger market shares would have remained relatively low.

However, the commission found that the transaction raised several competition concerns from a supplier/customer (vertical) relationship perspective with respect to transmission pole logs.

ASF supplies transmission pole logs to Vuka and its competitors, which they use as inputs to produce treated transmission logs.

“Barriers to entry and expansion in the upstream market for supply of transmission poles, where ASF was active, were high, given the applicable regulatory requirements such as permits, limited land, capital requirements and time taken to grow trees, such that it was unlikely that market entry would take place in a timely and sufficient manner,” the commission said.

Additionally, the commission stated that downstream competitors of Vuka were dependent, to varying degrees, on ASF for the supply of transmission pole logs that were required for their pole treatment operations.

There would be several ways through which ASF could implement such exclusive strategies, the commission observed.

The merged entity would also have incentives to embark in input foreclosure strategies in transmission pole logs. 

The commission invited the parties to submit possible remedies that could address the foreclosure and public interest concerns; however, no workable remedies were proffered by the parties that could alleviate the concerns.