Shem Oirere, Africa Correspondent10.02.23
Dutch multinational company AkzoNobel has been prohibited from acquiring Kansai Paints in three African markets for fear of creating a monopoly.
A regional competition commission under the Common Market for Eastern and Southern Africa (COMESA), an economic community in Africa with 21 member states stretching from Tunisia to Eswatini, has halted the merger saying the transaction would have created “significant market share accretion and reduced choice in the market for decorative coatings in Eswatini, Zambia and Zimbabwe.”
COMESA Competition Commission’s Director and CEO Dr. Willard Mwemba said on September 4, 2023 the “merging parties are each other’s closest competitors in terms of price and quality” and that the remedies offered by AkzoNobel and Kansai Paints “were not sufficient to address these concerns.”
AkzoNobel had earlier announced plans to bolster its business footprint in Africa through the acquisition of Kansai Paint’s paints and coatings operations in the continent subject to regulatory approvals.
Kansai Paints is present in 12 African countries, through Kansai Plascon Africa (KPAL) and Kansai Plascon East Africa (KPEA) with a regional consolidated revenue of around $297.3 million.
The AkzoNobel/Kansai transaction included the Plascon brand, which boasts of more than 100 years of heritage in South Africa with the Dutch company saying the brand, “together with our own Dulux brand, they’re the longest-established paint brands in the region.”
AkzoNobel said the intended acquisition was inclusive automotive and protective coatings, and coatings for wood and coil.
“Acquiring Kansai Paint’s activities in the region will help us to further expand our paints and coatings business in Africa and provide a strong platform for future growth,” AkzoNobel CEO, Thierry Vanlancker said.
“Kansai Paint shares our commitment to innovation and sustainability, and we look forward to combining our expertise, which will result in a wider range of innovative products and more sustainable solutions for our customers,” he said.
As for Kansai Paint’s president Kunishi Mori, the transaction will enable AkzoNobel “to unlock the full potential of the business, thereby contributing to the development of the African economy.”
Although AkzoNobel anticipated an addition to its existing business in at least nine African countries, Mwemba said there were several concerns emerging from the proposed merger upon investigation, which made the transaction be extended to September 3, 2023 although the Commission was notified of the agreement on November 8, 2022.
The Commission dismissed as “insufficient” the remedies offered by AkzoNobel and Kansai Paint in addressing the concerns raised on the likely impact of the transaction on the decorative coatings market in Eswatini, Zambia and Zimbabwe.
“There was also a serious risk that the divestiture remedy proposed in relation to the Zimbabwe market could have had unintended consequences of partitioning the COMESA Common Market, a situation that is inimical to the single market imperative of the COMESA treaty objective,” said Mwemba.
He said within the decorative coatings segment, there is a distinction between premium paints and medium-to-economy paints but with the intended merger, all the involved brands, in particular AkzoNobel’s Dulux in Southern Africa and Sadolin in Eastern Africa “are consistently recognized as premium paints in majority of the COMESA member states, the exception being the Indian Ocean islands. The merger would have resulted in the creation/or strengthening of market power in the broad market for decorative coatings in the relevant geographic clusters identified, which would have increased the merging parties’ ability to engage in unilateral conduct post-merger without significant competitive constraints from remaining players in the market,” Mwemba explained.
In fact, the COMESA Competition Commission’s CEO said, “the merged entity would also have benefited from the combination of two of the strongest paint brands in the COMESA market in addition to the combination of significant balance sheets.”
Furthermore, customers and retails would have limited options should the merging parties engage in in abusive business conduct because of lack of effective substitutes due to the “popularity of their brands and perceived quality level.”
Meanwhile, COMESA Competition Commission said AkzoNobel and Kansai Paints merger is approved in East Africa on condition the merging parties divest of the Sadolin brand in East Africa to a third party.
The buyer of the Sadolin brand in East Africa, Dr. Mwemba said “must be capable of ensuring continued sales of the brand in Uganda in the foreseeable future. AkzoNobel and Kansai Paints have six months from date of the merger to notify the Commission of the preferred buyer of the Sadolin brand in Uganda as well as the license agreement for the Commission’s review and approval before the divestiture moves forward.
“If within six months the Commission is not notified of the preferred buyer, the transaction shall be prohibited in the East African region,” said Mwemba. Although the divestiture is for Sadolin brand in Uganda, the Commission says the prospective buyer will not be limited to the Ugandan market but also would have access to the Kenya, Burundi and Rwanda markets.
Moreover, the buyer of Sadolin brand must “not have any structural relationship with the merging parties.”
Elsewhere, the COMESA Competition Commission has conditionally approved the AkzoNobel/Kansai Paints transaction in Malawi.
According to Mwemba, “stakeholders in Malawi expressed concerns the merger would lead to closing down of manufacturing plants by Kansai Plascon Malawi Ltd as it happened with Dulux Paints Malawi Ltd when it was acquired by AkzoNobel.”
The risk of closing down the manufacturing plant in Malawi “would have inevitably resulted in job losses and would have affected competition and consumer choice in the market through the exit of a key player who is perceived to offer higher quality products.”
Consequently, the Commission has decided to approve the merger on condition the parties involved “continue production at the manufacturing plant in Malawi for three years from the date of the merger approval.”
However, the Commission has approved the transaction in relation to industrial coatings within the COMESA markets since the transaction would “not result in significant market share accretion or lead to any substantial lessening of the competition.”
The determination by COMESA Competition Commission of the suitability of the merger coincides with AkzoNobel’s completion of the acquisition of the Chinese Decorative Paints business of Sherwin-Williams that generates an estimated €100 million and has at least 300 employees.
“The acquisition will further boost the company’s position in China and will allow us further market segmentation and reinforce our position outside of the premium segment,” AkzoNobel said in a statement.
A regional competition commission under the Common Market for Eastern and Southern Africa (COMESA), an economic community in Africa with 21 member states stretching from Tunisia to Eswatini, has halted the merger saying the transaction would have created “significant market share accretion and reduced choice in the market for decorative coatings in Eswatini, Zambia and Zimbabwe.”
COMESA Competition Commission’s Director and CEO Dr. Willard Mwemba said on September 4, 2023 the “merging parties are each other’s closest competitors in terms of price and quality” and that the remedies offered by AkzoNobel and Kansai Paints “were not sufficient to address these concerns.”
AkzoNobel had earlier announced plans to bolster its business footprint in Africa through the acquisition of Kansai Paint’s paints and coatings operations in the continent subject to regulatory approvals.
Kansai Paints is present in 12 African countries, through Kansai Plascon Africa (KPAL) and Kansai Plascon East Africa (KPEA) with a regional consolidated revenue of around $297.3 million.
The AkzoNobel/Kansai transaction included the Plascon brand, which boasts of more than 100 years of heritage in South Africa with the Dutch company saying the brand, “together with our own Dulux brand, they’re the longest-established paint brands in the region.”
AkzoNobel said the intended acquisition was inclusive automotive and protective coatings, and coatings for wood and coil.
“Acquiring Kansai Paint’s activities in the region will help us to further expand our paints and coatings business in Africa and provide a strong platform for future growth,” AkzoNobel CEO, Thierry Vanlancker said.
“Kansai Paint shares our commitment to innovation and sustainability, and we look forward to combining our expertise, which will result in a wider range of innovative products and more sustainable solutions for our customers,” he said.
As for Kansai Paint’s president Kunishi Mori, the transaction will enable AkzoNobel “to unlock the full potential of the business, thereby contributing to the development of the African economy.”
Although AkzoNobel anticipated an addition to its existing business in at least nine African countries, Mwemba said there were several concerns emerging from the proposed merger upon investigation, which made the transaction be extended to September 3, 2023 although the Commission was notified of the agreement on November 8, 2022.
The Commission dismissed as “insufficient” the remedies offered by AkzoNobel and Kansai Paint in addressing the concerns raised on the likely impact of the transaction on the decorative coatings market in Eswatini, Zambia and Zimbabwe.
“There was also a serious risk that the divestiture remedy proposed in relation to the Zimbabwe market could have had unintended consequences of partitioning the COMESA Common Market, a situation that is inimical to the single market imperative of the COMESA treaty objective,” said Mwemba.
He said within the decorative coatings segment, there is a distinction between premium paints and medium-to-economy paints but with the intended merger, all the involved brands, in particular AkzoNobel’s Dulux in Southern Africa and Sadolin in Eastern Africa “are consistently recognized as premium paints in majority of the COMESA member states, the exception being the Indian Ocean islands. The merger would have resulted in the creation/or strengthening of market power in the broad market for decorative coatings in the relevant geographic clusters identified, which would have increased the merging parties’ ability to engage in unilateral conduct post-merger without significant competitive constraints from remaining players in the market,” Mwemba explained.
In fact, the COMESA Competition Commission’s CEO said, “the merged entity would also have benefited from the combination of two of the strongest paint brands in the COMESA market in addition to the combination of significant balance sheets.”
Furthermore, customers and retails would have limited options should the merging parties engage in in abusive business conduct because of lack of effective substitutes due to the “popularity of their brands and perceived quality level.”
Meanwhile, COMESA Competition Commission said AkzoNobel and Kansai Paints merger is approved in East Africa on condition the merging parties divest of the Sadolin brand in East Africa to a third party.
The buyer of the Sadolin brand in East Africa, Dr. Mwemba said “must be capable of ensuring continued sales of the brand in Uganda in the foreseeable future. AkzoNobel and Kansai Paints have six months from date of the merger to notify the Commission of the preferred buyer of the Sadolin brand in Uganda as well as the license agreement for the Commission’s review and approval before the divestiture moves forward.
“If within six months the Commission is not notified of the preferred buyer, the transaction shall be prohibited in the East African region,” said Mwemba. Although the divestiture is for Sadolin brand in Uganda, the Commission says the prospective buyer will not be limited to the Ugandan market but also would have access to the Kenya, Burundi and Rwanda markets.
Moreover, the buyer of Sadolin brand must “not have any structural relationship with the merging parties.”
Elsewhere, the COMESA Competition Commission has conditionally approved the AkzoNobel/Kansai Paints transaction in Malawi.
According to Mwemba, “stakeholders in Malawi expressed concerns the merger would lead to closing down of manufacturing plants by Kansai Plascon Malawi Ltd as it happened with Dulux Paints Malawi Ltd when it was acquired by AkzoNobel.”
The risk of closing down the manufacturing plant in Malawi “would have inevitably resulted in job losses and would have affected competition and consumer choice in the market through the exit of a key player who is perceived to offer higher quality products.”
Consequently, the Commission has decided to approve the merger on condition the parties involved “continue production at the manufacturing plant in Malawi for three years from the date of the merger approval.”
However, the Commission has approved the transaction in relation to industrial coatings within the COMESA markets since the transaction would “not result in significant market share accretion or lead to any substantial lessening of the competition.”
The determination by COMESA Competition Commission of the suitability of the merger coincides with AkzoNobel’s completion of the acquisition of the Chinese Decorative Paints business of Sherwin-Williams that generates an estimated €100 million and has at least 300 employees.
“The acquisition will further boost the company’s position in China and will allow us further market segmentation and reinforce our position outside of the premium segment,” AkzoNobel said in a statement.
