German company Aton's acquisition of engineering firm Murray & Roberts has hit an obstacle as competition regulators believe the transaction is anti-competitive.
The Competition Commission on Friday issued a statement indicating it has recommended to the Competition Tribunal that the acquisition be prohibited.
Murray & Roberts' share price tanked by more than 20% on the news. The share which opened at R14.49 on Friday was trading R13.80 before the Commission's ruling was released. The share dropped to as low as R11.01. By 16:20 it was trading 14% weaker at R11.81.
Aton, a German-based investment holding company, controls a number of firms and through Redpath SA provides a range of mining services in sub-Saharan Africa, according to the Commission. Aton's proposed bid to acquire Murray & Roberts, which is also known as a mining contractor, was announced in March 2018.
In its investigation into the acquisition, the Commission found that the parties are "close competitors". "This transaction will, for both parties, result in the removal of their closest and strongest competitor," the Commission said.
Among the concerns received during its investigation is that a merger could "throttle" competition.
"Further, the merger will create a company that potentially has the financial muscle to buy projects or to discount projects to such an extent that other companies cannot compete," the Commission said.
Murray & Roberts issued a notice to its shareholders indicating that the Commission did not provide "full reasons" for its recommendation that the acquisition be prohibited.
"The independent board of Murray & Roberts together with its advisers will review the reasons for the recommendation once received," the group said.
Aton in turn can contest the Commission's recommendation, Murray & Roberts said.
"Should Aton decide to contest the recommendation, a pre-hearing conference will be convened by the Competition Tribunal within 10 business days of the recommendation," the notice read. At the pre-hearing the Tribunal will then determine dates for the merger hearing before making a final call on whether to prohibit the merger or approve it. If Aton does not contest the Commission's decision then the mandatory offer fails.
Murray & Roberts' independent board will continue to engage with regulators and update shareholders accordingly.