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Pioneer, Pannar Seed merger analysed
![Pioneer, Pannar Seed merger analysed](https://biz-file.com/c/1206/104404.jpg)
The CAC's conditions of approval include several offered by the merger parties before, such as a cap on price increases for Pannar maize hybrids and open pollinated maize varieties for three years, and that subsistence farmers will not suffer a price increase for three years and thereafter increases capped at CPI for five years.
In addition the parties had to establish an International Research and Technology Hub in South Africa to improve expertise in crops important to the country, and food security in Africa bolstered by the condition that they will be involved to spreading know-how amongst developing farmers to increase productivity and welfare. The merged entity would also be obliged to make available the Africa genetic maize material public institutions for research and development, and to potential competitors identified by the CAC for breeding programs for use in South Africa.
Public interest factors are used
"The CAC's conditions to the approval show that the public interest factors in merger cases are being used more often to promote the purposes of the Competition Act especially to foster effective competitiveness of smaller firms and businesses through investment in research, education, skills and training, and of course to maintain local industry and expertise," Petra Krusche, director in the competition and regulatory practice at Cliffe Dekker Hofmeyr explains.
Krusche sums up the judgment by saying that from a competition and public interest perspective, the fundamental objection by the competition authorities, thus far, against the merger was rooted in the prospect that the number of substantial competitors in the market for hybrid maize seed development and supply would be reduced from three to two. Pannar and Pioneer, each with a market share between 15%-30% of the local hybrid maize seed market wished to merge, leaving effectively only a merged Pannar/Pioneer and the dominant third player, Monsanto, "the source of almost all germplasm licensed to smaller independent seed companies in SA".
Positive aspects must be preserved
In their decision, the CAC said that this assumption is usually warranted, but not when the failure of one of the competitors is likely and albeit uncertain. In that case eventually the market will only be served by two competitors in any event. Better then would be to ensure that positive aspects of the merger "are preserved and exploited in the public interest".
Central to the analysis of the merger was Pannar's expertise in breeding and supplying of a hybrid maize seed, especially suitable for African farming conditions. Hybrid maize seed is used by all SA commercial farmers and subsistence farmers are increasingly turning to hybrids to increase their yield. Some 95% of maize grown here is derived from hybrid seeds. Pannar's germplasm has been described as unique from an SA perspective, resistant to African diseases and pests, with the requisite late maturity for the longer growing season and can produce more than one cob. The Tribunal had found that Pannar's germplasm is "sufficiently diverse and extensive", and thus valuable and attractive, and the CAC described it as a "valuable local asset".
Krusche says that in the judgment, the CAC disagreed and found that there was no indication that other firms were interested or capable of making more of the Pannar assets and that the evidence, according to CAC, "cannot justify the denial of the preservation and exploitation of Pannar's germplasm by way of the proposed merger".
Refusal of merger would be interference
The CAC was critical that the Tribunal did not recognise that the firms identified as possible suitable bidders for Pannar, were, according to the CAC, mismatched by virtue of attributes of their products and own strategy, and thus improbable merger candidates. The CAC warned that merger analysis must remain focussed on competition, not on the competitors and speculative arrangements with new entrants. The refusal of a merger in these circumstances would have involved an interference with the affairs of private firms not in the public interest.
The CAC indicated that Pioneer's capabilities were likely the best fit for Pannar and by the conditional approval of the merger, placed the parties in the position to do what they had had set out to do two years ago. They had said that Pannar's inability to compete effectively in the market and increasing reliance on large competitor Monsanto for genetic plant material at a price higher than that paid by Pioneer, would be solved by the merger with Pioneer.
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