COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM125Nov23
In the matter between:
Woolworths (Pty) Ltd Primary Acquiring Firm
And
Absolute Pets (Pty) Ltd Primary Target Firm
Panel: AW Wessels (Presiding Member)
I Valodia (Panel Member)
A Kessery (Panel Member)
Heard on: 27 March 2024
Order issued on: 02 April 2024
Reasons issued on: 30 April 2024
REASONS FOR DECISION
Introduction
[1] On 2 April 2024, the Competition Tribunal (“Tribunal”) conditionally approved the
large merger whereby Woolworths (Pty) Ltd (“Woolworths”) intends to acquire
93.45% of the issued share capital of Absolute Pets (Pty) Ltd (“Absolute Pets”)
from SPE Mid -Market Fund I Partnership (“SPE Fund”), represented by SPE
Mid-Market Fund I General Partner Proprietary Limited (“SPE Fund General
Partner”) (“SPE”) and Absolute Pets’ management (collectively referred to as
“the sellers”). Upon implementing the proposed transaction, Woolworths will
solely control Absolute Pets.
Parties to the transaction and their activities
Primary acquiring firm
[2] Woolworths is a private company which is wholly owned by Woolworths
Holdings Limited (“WHL”). WHL is a public company listed on the Johannesburg
Stock Exchange. No single shareholder controls WHL. Woolworths has interests
in numerous entities in South Africa, including Woolworths Financial Services
(Pty) Ltd (“Woolworths Financial Services”), Universal Product Networks (RF)
(Pty) Ltd, Woolworths Developments (RF) (Pty) Ltd, Virtual Market Place (RF)
(Pty) Ltd and NowNow Foods (RF) (Pty) Ltd.
[3] Woolworths sells clothing, food and general merchandise (including pet food and
pet products) through a chain of retail stores (356 stores across South Africa) as
well as online.
[4] In the sale of pet products, Woolworths’ offering consists of dry and wet pet food,
treats, accessories and toys, clothing and fashion, hygiene, and cleaning
products, and grooming products for cats and dogs. Woolworths sells its own
private label pet care brands in pet food, treats, accessories, and hygiene and
cleaning products, namely Posh Pets, Fresh Pet and Country Road. It also sells
other pet-related products from the third-party suppliers.
[5] In August 2023, Woolworths introduced an insurance for cats and dogs, namely
WPETInsure. WPETInsure is offered through Woolworths Financial Services,
administered by OnePlan and underwritten by Absa Insurance Company
Limited.
Primary target firm
[6] Absolute Pets is a private company incorporated in terms of the laws of South
Africa. It is controlled by SPE Fund (as to %) represented by the SPE Fund
General Partner which is 100% controlled by Sanlam Investment Management
(Pty) Ltd (“Sanlam Investment Management”), which is 100% controlled by
Sanlam Investment Holdings (Pty) Ltd.
[7] Absolute Pets is a specialist pet products retailer with 157 stores across South
Africa. It also offers a broad range of pet products online. Its pet product offering
consists of dry and wet food, accessories and toys, hygiene and cleaning
products, clothing and fashion products, and heath and travel items for cats and
dogs, as well as small pets such as birds, hamsters, rabbits and fish. It also
offers pet-related services such as pet spa and grooming. Absolute Pets sells its
own private label pet care brands in food, treats, accessories, and hygiene and
cleaning products, including Absolute Pets, Lokuno, Olly and Max, Petwise
Treats and Cute Companions. Absolute Pets also sells pet food and other p et-
related products from third-party suppliers.
[8] Absolute Pets also offers pet insurance which is underwritten by Dotsure Limited.
Transaction and rationale
Transaction
[9] Woolworths will acquire 93.45% of the issued share capital of Absolute Pets
from “the sellers”. Upon implementation of the proposed transaction Woolworths
will solely control Absolute Pets.
[10] Woolworths intends to acquire the remaining management-retained
shareholding in Absolute Pets of 6.55% over an agreed period post completion
of the proposed transaction.1
1 The sale shares are to be acquired from the respective sellers in the following proportions:
Rationale
[11] The proposed transaction essentially provides Woolworths with an opportunity
to expand its national presence in the pet care market, and to scale and
strengthen its existing pet business.
[12] The seller seeks to realise its investment in Absolute Pets to benefit its
stakeholders.
Competition assessment
[13] The proposed transaction gives rise to a horizontal overlaps in the markets for
(i) pet food for cats and dogs (including wet and dry pet food), (ii) pet treats for
cats and dogs, (iii) pet accessories and toys for cats and dogs, (iv) pet hygiene,
cleaning and grooming products for cats and dogs, and (v) dog clothing and
fashion (collectively referred to as “pet-related products”). The proposed
transaction also gives rise to a horizontal overlap in the market for the provision
of pet insurance.
[14] Insofar as the market for the provision of pet insurance is concerned, we note
that the merging parties will continue to face competition from OUTsurance,
MediPet, First for Women, Hollard, PetMeUp, PawPaw, and others. Further, the
merging parties are not underwriters but brokers in relation to pet insurance and
accordingly, will also face competition from other brokers. On this basis, we
agree with the Commission that the proposed transaction is unlikely to
substantially prevent or lessen competition in the market for the provision of pet
insurance.
[15] The Commission assessed the broad market for the sale of pet-related products
and found that Woolworths and Absolute Pets do not sell the same or similar
brands of pet -related products. Woolworths does not sell any of the brands of
pet-related products which are sold by Absolute Pets. Further, the Commission
found that Woolworths and Absolute Pets are not close competitors because of
the differences in quality and nutritional value of their respective product
offerings. While the types of brands of pet-related products sold by Woolworths
are the same or similar to brands sold by other retail grocery stores, the brands
of pet -related products sold by Absolute Pets are similar and comparable to
other brands sold by specialist pet stores and veterinary clinics.
[16] The Commission considered the horizontal overlap between the merging parties’
activities in the broad market for the sale of pet-related products though the retail
channel (retail grocery stores) and through the non-retail channel (specialist pet
stores and veterinary clinics), in South Africa, as well as within a 5 km radius of
each target store.
[17] The Commission found that Woolworths has a small market share of less than
5% in the market for the sale of pet -related products through the retail channel
in South Africa. The Commission also found that there are a number of other
competing specialist pet stores, e -commerce platforms and veterinary clinics
active in the market for the sale of pet-related products in South Africa. Further,
grocery stores are expanding their networks into the pet-related products market
by offering stand -alone specialist pet -stores. There are therefore numerous
alternative non -retail channels in South Africa which will continue to place a
competitive constraint on the merged entity post implementation of the proposed
transaction.
[18] On this basis, we agree with the Commission that the proposed transaction is
unlikely to substantially prevent or lessen competition in the market for the sale
of pet-related products through the retail and non-retail channels in South Africa.
[19] Regarding the sale of pet-related products through retail and non-retails
channels within a 5km radius of each target store, the Commission found that
there are 155 areas where there is a Woolworths store within a 5 km radius of
there are 155 areas where there is a Woolworths store within a 5 km radius of
an Absolute Pets store. Of the 155 areas, there are 9 areas with five or less
competing stores (retail and non-retail channels). In 146 of the overlapping areas
there are more than five other alternative competing stores (retail and non-retail
channels) which will continue to place a competitive constraint on the merged
entity post implementation of the proposed transaction.
[20] On this basis, we agree with the Commission that the proposed transaction is
unlikely to substantially prevent or lessen competition in the market for the sale
of pet-related products through the retail and non -retail channels within a 5km
radius of each target store.
Conclusion on competition assessment
[21] We are of the view that the proposed transaction is unlikely to substantially
lessen or prevent competition in any market in South Africa.
Public interest
Employment
[22] The merging parties submitted that the proposed transaction will not result in
any adverse effect on employment and there will be no job losses or merger -
specific retrenchments as a result of the proposed transaction.
[23] We are of the view that the proposed transaction is unlikely to raise employment
concerns.
Spread of ownership
[24] Pre-transaction, Woolworths has a shareholding by historically disadvantaged
persons (“HDPs”) of approximately % and Absolute Pets has a
shareholding by HDPs of approximately %.
[25] Post-transaction, Absolute Pets will have a shareholding by HDPs of
approximately %. The proposed transaction results in a dilution of
shareholding by HDPs of approximately %. The merging parties further
submitted that the dilution will be reduced t o % when Woolworths acquires
the remaining management-retained shareholding in Absolute Pets.
[26] In order to remedy the dilution in shareholding by HDPs, the merging parties
have committed to within three years from the implementation date of the
merger: (i) establish new Absolute Pets’ stores in South Africa; (ii)
create permanent employment opportunities in South Africa to service
the new Absolute Pets’ stores; and (iii) support the effective participation and
expansion of small, medium and micro enterprises owned by HDPs that operate
within Woolworths’ pet care products supplier base in an amount equal to R
in aggregate. The merging parties also committed to establishing an
evergreen employee share ownership plan for the benefit of qualifying workers
(workers employed at Absolute Pets) which shall acquire 5% of the issued share
capital of the merged entity2.
Conclusion on public interest
[27] We are not aware of any other public interest concerns arising in this case.
Based on the above, we are of the view that the proposed transaction does not
raise any public interest concerns.
Third party views
[28] The Department of Trade, Industry and Competition (“dtic”) raised concerns 3
relating the dilution of HDP shareholding and the quantification and qualification
of growth strategies related to the merging parties. These concerns were
addressed by the merging parties commitments which are reflected in the
conditions attached hereto as Annexure A.
2 The merged entity is Absolute Pets subject to Woolworths’ control following the implementation date.
3 The dtic filed a Form CC5(2), Minister’s Notice of Intention to Participate, on behalf of the Minister of
Trade, Industry and Competition, on 13 November 2023.
Mr Andreas Wessels and Prof. Imraan Valodia concurring
Tribunal Case Manager : Baneng Naape
For the Merging Parties : Robert Wilson & Dudu Mogapi on behalf of
Webber Wentzel, and Tayla Theron & Richardt
van Rensburg on behalf of Edward Nathan
Sonnenbergs
For the Commission : Tarryn Sampson and Grashum Mutizwa
ANNEXURE A
WOOLWORTHS PROPRIETARY LIMITED
AND
ABSOLUTE PETS PROPRIETARY LIMITED
CT CASE NUMBER: LM125Nov23
CONDITIONS
1. DEFINITIONS
The following expressions shall bear the meanings assigned to them below, and cognate
expressions bear corresponding meanings –
1.1 "Acquiring Firm" means Woolworths Proprietary Limited;
1.2 "Approval Date" means the date referred to on the Tribunal’s merger clearance
certificate (Notice CT 10), being the date on which the Merger is approved in terms
of the Competition Act;
1.3 "Commission" means the Competition Commission of South Africa, a statutory
body established in terms of section 19 of the Competition Act;
1.4 "Competition Rules" means the Rules for the Conduct of Proceedings in the
Commission;
1.5 "Competition Act" means the Competition Act, 89 of 1998, as amended;
1.6 "Conditions" means these conditions;
1.7 "Days" means any calendar day other than a Saturday, a Sunday or an official
public holiday in South Africa;
1.8 "ESOP" means the employee share ownership plan referred to in clause 3;
1.9 "ESOP Establishment Period" means 18 months from the Implementation Date;
1.10 "HDP" means a historically disadvantaged person as defined in section 3(2) of the
Competition Act;
1.11 "Implementation Date" means the date, occurring after the Approval Date, on
which the Merger is implemented by the Merging Parties;
1.12 "Merged Entity" means the Target Firm subject to the control of the Acquiring
Firm following the Implementation Date;
1.13 "Merger" means the proposed acquisition by the Acquiring Firm of 93.45% of the
issued shares in the Target Firm;
1.14 "Merging Parties" means the Acquiring Firm and the Target Firm;
1.15 “Qualifying Workers” means Workers employed at the Target Firm;
1.16 "SME" means small and medium sized entity;
1.17 "Target Firm" means Absolute Pets Proprietary Limited; and
1.18 "Tribunal" means the Competition Tribunal of South Africa, a statutory body
established in terms of section 26 of the Competition Act; and
1.19 "Workers" means an employee as defined in the Labour Relations Act 66 of 1995
(as amended) and, in the context of ownership, refers to ownership by a broad
base of Workers.
2. EXPANSION COMMITMENTS
Within 3 (three) years from the Implementation Date, the Acquiring Firm shall in
aggregate:
2.1 establish new Target Firm stores in South Africa. The Acquiring Firm
shall establish at lea st Target Firm stores within the first year after the
Implementation Date, at leas t Target Firm stores within the second year
after the Implementation Date, and at least Target Firm stores within the
third year after the Implementation Date; and
2.2 create at least permanent employment opportunities in South Africa to
service the new Target Firm stores to be established in accordance with clause
2.1 above. The permanent employment opportunities within the Target
Firm shall be calculated based on 3 (three) permanent employment opportunities
per new store. The Acquiring Firm shall therefore create at least
new permanent employment opportunities within the first year after the
Implementation Date, at least new permanent employment
opportunities within the second year after the implementation Date, and at least
new permanent employment opportunities within the third year after
the Implementation Date;
2.3 provided that should the Acquiring Firm establish or create fewer or more new
Target Firm stores or permanent employment opportunities in South Africa in any
one of the 3 (three) years referred to in clauses 2.1 and 2.2, the fewer or more new
Target Firm stores or new employment opportunities shall be made up during or
count towards the remaining years referred to in clauses 2.1 and 2.2.
3. ESTABLISHMENT OF AN ESOP
The Merged Entity shall, during the ESOP Establishment Period, establish the ESOP for
the benefit of Qualifying Workers, which by the end of the ESOP Establishment Period
shall acquire 5% (five per cent) o f the issued share capital of the Merged Entity in
accordance with the design principles attached hereto as Annexure A.1.
4. THE PROMOTION AND DEVELOPMENT OF HDPS AND SMES IN THE MERGED
ENTITY'S SUPPLY CHAIN
Over a period of 3 (three) years following the Implementation Date, the Acquiring Firm
shall support the effective participation and expansion of HDP-owned SMEs that operate
within the Acquiring Firm's pet care products supplier base in an amount equal to
R in aggregate. The R will be
made available as financial support to assist suppliers in becoming financially viable and
to facilitate the promotion and development of HDP-owned SMMEs in Woolworths and
Absolute Pets. Financial support may include loans, short-term funding and working
capital support.
5. MONITORING OF COMPLIANCE WITH THE CONDITIONS
5.1 The Acquiring Firm shall inform the Commission in writing of the Implementation
Date within 5 (five) Days of the Implementation Date.
5.2 Prior to the implementation of the ESOP, the Acquiring Firm must provide the
Commission with the salient details pertaining to the ESOP. This information will
Commission with the salient details pertaining to the ESOP. This information will
include the rights of Qualifying Workers in respect of the ESOP and the total
number of Qualifying Workers at the time of implementation of the ESOP.
5.3 Within 10 (ten) Days of the adoption and implementation of the ESOP, the
Acquiring Firm shall provide the Commission with an affidavit attested to by a
senior official of the Acquiring Firm, detailing the steps taken by the Acquiring Firm
and Merged Entity and confirming their compliance with the Conditions.
5.4 For the duration of the Conditions, the Acquiring Firm shall, within 10 days of each
anniversary of the Implementation Date, provide the Commission with an affidavit
attested to by a senior official of the Acquiring Firm, confirming compliance with
the Conditions.
5.5 The Commission may request such additional information from the Acquiring Firm
and the Merged Entity, which the Commission may, from time to time, deem
necessary for purposes of monitoring the extent of compliance with these
Conditions.
6. APPARENT BREACH
Should the Commission receive any complaint in relation to non -compliance with the
above Conditions, or otherwise determines that there has been an apparent breach by
the Merging Parties of these Conditions, the breach shall be dealt with in terms of Rule
39 of the Commission Rules read together with Rule 37 of the Tribunal Rules.
7. VARIATION OF CONDITIONS
The Merging Parties and/or the Commission may at any time, on good cause shown,
apply to the Tribunal for the Conditions to be waived, relaxed, modified and/or
substituted.
8. GENERAL
All correspondence concerning these Conditions must be submitted to the following
email address: mergerconditions@compcom.co.za and ministry@thedtic.gov.za.
Participation Benefits • Workers will be entitled to dividends based on their participation
rights in the ESOP calculated with reference to units allocated to
them.
• Workers will cease to participate in the ESOP for "bad leaver" events
such as resignations and dismissals.
• Death, retirement at the normal age, and retrenchment will not affect
Workers' participation in the ESOP.
• The value of the ESOP will be determined with reference to the
shares it acquires in the Merged Entity and the valuation of the shares
at the Implementation Date.
• The Merged Entity will provide vendor finance for the ESOP to
acquire the shares in the Merged Entity, which vendor finance will be
settled over a fixed period.
• The vendor financing will be interest-free.
• The dividend policy will provide for a "trickle" dividend in the ratio of
40:60, i.e. at least 40% of any dividends declared will flow to the
Workers who participate in the ESOP, and at least 60% will be used
to service the vendor financing.