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January 07, 2012

South Africa: benefits of Pioneer-Pannar seed companies' merger over-stated

by Amanda Visser

The benefits and improved efficiency from a merger by seed breeders Pannar Seed and Pioneer Hi-Bred were overstated and not sufficient to offset the harm if the merger was allowed, South Africa's Competition Tribunal has said.

However, the parties said yesterday they disagreed with the tribunal’s reasons for prohibiting their deal, saying they believed the transaction would bring farmers more product choice and better products faster.

They will continue their appeal process and will study the tribunal’s reasons to amend or supplement their documents before the Competition Appeal Court.

The tribunal last week for the first time set out its reasons for prohibiting the transaction that would have led to a permanent change to the market structure by reducing the number of major competitors in the maize seed market from three to two.

The transaction would have resulted in a duopoly, with the three largest players, Monsanto, Pioneer and Pannar, being reduced to two players.

The three together hold 95% of SA’s national hybrid maize seed market. The Competition Commission, which has the jurisdiction to decide on intermediate mergers such as the one between Pannar and Pioneer, prohibited the transaction early this year, saying it would substantially lessen or prevent competition in the hybrid maize seed market.

The parties then took the commission’s decision on review to the tribunal, which in October also prohibited it after a public hearing that lasted three weeks.

In a statement, the parties said they were closely reviewing the tribunal’s reasons. "Pioneer and Pannar disagree with the tribunal’s decision, but it would be inappropriate to comment on specific points or any future actions by Pioneer and Pannar until we’ve had time for a thorough review."

However, they said they remained confident that their transaction "would increase the pace and scope of research and innovation, bringing farmers in SA and throughout Africa more product choices and better products faster and more efficiently than either company could do on its own".

The transaction was approved by several other authorities, including in Kenya, Malawi, Namibia and Zambia.

The tribunal said the proposed merger was likely to give rise to "very significant anticompetitive unilateral price increases" in the overall South African hybrid maize seed market.

"The efficiencies claimed by the merging parties, namely cost savings by Pannar from accessing Pioneer’s global licensing agreements, and dynamic efficiencies from merging their genetic pools and breeding technologies, were overstated," the tribunal said.

The parties suggested capping prices, but the tribunal found this was not a workable remedy as it was of limited duration and only related to Pannar’s products.

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