Mergers & Acquisitions

Competition Tribunal approves Glencore’s bid to acquire Chevron South Africa via OTS

Competition Tribunal approves Glencore’s bid to acquire Chevron South Africa via OTS

South Africa’s Competition Tribunal has conditionally approved Glencore’s proposed acquisition of Chevron South Africa Proprietary Limited (CSA), via Off The Shelf Investments Fifty Six (RF) Proprietary Limited (OTS), which exercised its right of first refusal to purchase Chevron South Africa’s assets. During its acquisition process, Glencore said it will be supporting OTS as its technical and financial partner.

South Africa’s competition watchdog approved the bid in August, but the Competition Tribunal makes the final ruling on such deals.

In March 2017, Chevron South Africa agreed to sell its 75% stake, which is owned and controlled by Chevron Global Energy Inc. (CGEI), to China’s state-owned oil and gas giant Sinopec. The sale, which included Chevron’s 100% holding in Chevron Botswana Proprietary Limited (Chevron Botswana), was valued for about USD 900 million.

The remaining 25% stake of Chevron South Africa is held by local shareholders, in accordance with South African regulations.

In October 2017, Glencore announced that it had entered into an agreement with OTS, to acquire from OTS a 75% stake in Chevron South Africa and certain related interests and the entire issued share capital of Chevron Botswana, following the closing of OTS’ exercise of its pre-emptive right to acquire these assets from Chevron. OTS is a Broad-Based Black Economic Empowerment consortium.

The aggregate consideration (subject to adjustment for debt and working capital of the companies at closing) is USD973 million. The consideration will be payable in cash on closing and will be funded from Glencore’s own cash resources. Glencore said at that time that it intends to manage its overall oil asset portfolio to ensure that, including this transaction, net additional capital investment is limited to less than USD500 million over the next 12 months.

The Competition Tribunal had approved the sale of Chevron South Africa to Sinopec in March 2018, but the Competition Tribunal said Glencore-backed OTS had the right of first refusal to close the transaction.

Last month, the Competition Commission, South Africa’s competition watchdog, recommended to the Competition Tribunal to approve the proposed acquisition by OTS.

“The Competition Commission found that the proposed transaction raises public interest concerns in the form of impact on employment, impact on industrial sector or region and the impact on the ability of small businesses to become competitive. As such, the Commission recommends that the proposed merger be approved subject to a number of conditions aimed at addressing the identified public interest issues.

The conditions include amongst others, (i) preservation of jobs post-merger; (ii) continuation with CSA retirees’ medical aid subsidy; (iii) establishment of a development fund focused on inter alia the development of small businesses and black-owned businesses; (iv) continuation of CSA’s branded marketer programme on terms no less favourable to CSA’s branded marketers; (v) funding commitment by OTS of certain rebranding-related costs post-merger; (vi) maintenance of a certain level of B-BBEE shareholding in CSA post-merger; and (vi) commitment to a significant investment being made to deal with refinery capacity and related matters.

The acquired assets include a 5 million tonne-per-year oil refinery in Cape Town, a lubricants blending plant in Durban, as well as more than 820 petrol stations, 220 convenience stores and other oil storage and distribution facilities across South Africa and Botswana.

The demand in South Africa for refined petroleum has increased by nearly 5% annually over the past five years, to a current total of about 27 million tonnes.

Glencore began marketing activities in South Africa in 1974, and mining in 1988. Global trader Glencore has a strong presence in both the coal and ferroalloy sectors and is a major contributor to the local, provincial, and South African economies.

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