Kansai Paint's Takeover of Freeworld Opposed by South Africa's Government

South Africa’s government asked antitrust regulators to stop Kansai Paint Co.’s takeover of Freeworld Coatings Ltd. (FWD), the second foreign purchase authorities in Africa’s largest economy have tried to block this year.

The Department of Trade and Industry asked the Competition Commission to prohibit the deal because it is “likely to weaken competition in a market which is already highly concentrated and prone to collusive behaviour,” the Pretoria-based ministry said. It also threatens government efforts to produce automotive paint locally and may cause job losses, it said.

South Africa’s departments of economic development, agriculture and trade and industry on March 22 won an application to delay until May antitrust hearings on Wal-Mart Stores Inc. (WMT)’s acquisition of a controlling stake of Massmart Holdings Ltd., citing doubts it was in the public interest.

Kansai offered to buy all of Freeworld for 12 rand a share, valuing the South African paint manufacturer at 2.45 billion rand ($361 million). The Competition Tribunal last year allowed insurers Momentum Group and Metropolitan Holdings Ltd. to merge on condition that no jobs, bar those of managers, were cut.

If the Kansai deal is approved, the Competition Commission should recommend to the Tribunal that conditions are imposed that will “secure the protection of South Africa’s industrial capacity, employment and intellectual property,” the Department of Trade and Industry said in an e-mailed statement.

No FDI Opposition

“This intervention should not be construed as opposition by the department to foreign direct investment,” it said. “On the contrary, the Department of Trade and Industry is doing everything possible to encourage inward investment.”

More than 90 percent of Freeworld’s shareholders have accepted the offer, Kansai said March 18. The takeover will boost competition and give Kansai a decorative coatings business in South Africa, an area in which it doesn’t operate. Kansai supplies two types of coatings used in South Africa’s automotive industry, the only area that may be of concern to competition authorities, the Osaka-based company said on Dec. 13.

Kansai “is prepared to accept appropriate conditions to address public interest concerns relating to the proposed merger,” the company said today in a statement. “Kansai is committed to addressing the apparent concerns of government on a pro-active basis.”

Antitrust Fine Risk

Freeworld today postponed its annual general meeting of shareholders until April 28 as most investors have agreed to support the takeover. Voting the shares at the AGM may result in a “prior implementation of the proposed transaction,” breaching antitrust rules with the risk of fines being imposed on Kansai and Freeworld, it said.

“Kansai is very disappointed and surprised at the adjournment of the AGM,” Nauman Malik, Kansai’s global head of strategy, said in the statement.

The Competition Commission will make its decision on the transaction by no later than April 18, Kansai and Freeworld said.

To contact the reporter on this story: Sikonathi Mantshantsha in Johannesburg at smantshantsh@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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