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October 17, 2011

South African competion regulator turns down Pioneer-Pannar merger

South Africa’s Competition Tribunal has prohibited the merger between the US multinational Pioneer Hi-Bred International, and SA's Pannar Seed.

The verdict - delivered on October 14 - came after a three-week hearing in which the tribunal heard evidence from several witnesses about the potential impact of the deal on the maize seed market in SA, including the effects on small and subsistence farmers.

In terms of the proposed tie-up, Pioneer would acquire control of Pannar. They are the second and third largest maize seed producers and suppliers in SA, respectively. The only other significant player in this market is Monsanto SA. Thus the proposed merger would reduce the number of players in this market from three to two, the tribunal noted.

The Competition Commission, which had initially assessed the intermediate merger, prohibited the transaction in December 2010 on the basis that it would substantially lessen competition in the local maize seed market. The commission said it would release the reasons for its October 14 ruling in due course.

After the commission turned down the merger in December 2010, Pioneer and Pannar applied to the tribunal to unconditionally approve it. However, they later suggested certain conditions to address the commission's concerns. But the commission objected to these conditions as it said they would not offset the significant competitive harm created by the merger.

Competition commissioner Shan Ramburuth said in December maize was a staple food in South Africa. Higher concentration in the seed market "may disincentivise local innovation and increase the likelihood of price increases to the detriment of farmers and consumers", he said.

Pioneer intended to expand the two businesses' existing SA research capabilities, making SA one of Pioneer's major research hubs outside the United States in addition to existing hubs in Brazil, China and India.

The research hubs were intended to help stimulate a transfer of skills and technology to SA, with benefits to farmers and consumers throughout Africa. The partnership allows Pannar access to Pioneer's complementary plant genetics and advanced breeding technologies.

The companies said they were disappointed. "We will be studying the detail of the
decision and will decide on any future action." and SAPA

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