COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 30/LM/May01
In the large merger between
Comparex Holdings Limited
and
Persetel Q Data Africa (Pty) Ltd
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Reasons for Competition Tribunal’s Decision
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Approval
1. The Competition Tribunal issued a Merger Clearance Certificate on 11
July 2001 approving without conditions the merger between Comparex
Holdings Ltd (“Comparex”) and Persetel Q Data Africa (Pty) Ltd (“PQ
Africa”). The reasons for our decision to approve the merger are set out
below.
The Parties
2. The parties to this transaction are Comparex, the acquiring firm, and
PQ Africa, the target firm. Comparex currently holds 50% minus one of
the ordinary shares in P Q Africa. Comparex further holds 21 651 723
preference shares in P Q Africa, as a result its total shareholding in PQ
Africa currently stands at 57,2%.
3. Comparex is a JSElisted public company whose main operations in
South Africa are conducted by Comparex International (Pty) Ltd
(Comparex International) and PQ Africa, the target firm in this
transaction. According to the parties, in the previous financial year the
turnover of PQ Africa constituted 96% of the total turnover of
Comparex.
4. Prior to 1997, Comparex held all the shares in PQ Africa. During 1997
Comparex underwent a restructuring process and effectively entered
into a joint venture with Real Africa Holdings (RAH) and National
Information Technology Consortium (NITAC). RAH is an empowerment
company listed on the JSE whilst NITAC is a consortium of historically
disadvantaged persons or companies with interests in the information
technology business. RAH and NITAC combined to form Persetel Data
Africa Holdings (PQAH) and, through PQAH, acquired a 50% plus one
ordinary shareholding in PQ Africa. In terms of the latest addendum to
PQ Africa’s shareholders’ agreement, PQAH has an option to
exchange its shares in PQ Africa, on a onetoone basis, for shares in
Comparex. PQAH has the right to exercise this option by no later than
31 October 2002; Comparex may exercise the option anytime before
30 November 2002.
5. Comparex anticipates that it will exercise the exchange option before
30 November 2002 and wishes to obtain our approval beforehand,
hence this decision. In the view of Comparex the exercise of the
exchange option will give PQAH’s shareholders the opportunity to
realize the value of their shareholding in PQ Africa by holding shares in
a listed entity (Comparex), which shares are more easily tradeable than
those in an unlisted entity such as PQ Africa.
6. Comparex International provides a variety of services through its
division Nanoteq and its associates Perago Financial Systems
Enablers (Pty) Ltd (Perago) and Mosaic Software (Mosaic). Nanoteq is
a division of Comparex International Trading (Pty) Ltd, a wholly owned
subsidiary of Comparex International whilst Mosaic is a South African
branch and external company of Mosaic Software Holdings Limited, a
company registered in the United Kingdom.
7. Nanoteq specializes in the protection of electronic information and has
particular expertise in the area of encryption. Nanoteq provides this
service to both the corporate world and the government.
8. Perago is involved in the development of innovative payment systems.
8. Perago is involved in the development of innovative payment systems.
It provides consultancy services in the field of interbank settlement
systems and national clearing systems which facilitates the payment of
monies owed between banks as a result of the daytoday transactions
by the banks’ customers.
9. Mosaic specializes in the provision of electronic funds transfer products
and services to the private sector. For example, it provides the
technology making possible the transfer money from a customer’s
account to that of the merchant pursuant to a credit card payment by
the customer.
10. PQ Africa, on the other hand, provides a variety of consultancy
services focusing on information communications technology
competency.
11. Firstly, PQ Africa supplies integrated technology solutions and a variety
professional services to its customers in both the private and public
sectors. This part of its business is focused on several areas of
information communications technology competency. Services offered
include systems integration, outsourcing, package implementation and
project management.
12. It also supplies a range of servers and network systems. The network
systems connect the servers and all supporting hardware and software.
Further, through a business partnership with the EMC Corporation, PQ
Africa sells and installs storage facilities for digital data.
13. Finally, PQ Africa provides a variety of ebusiness solutions including
connectivity, web hosting and design, secure transaction management
and electronic claims processing. It also provides services in the field
of electronic payment systems, call center services and digital
authentification.
Evaluating the Merger
14. Based on the above information supplied to us by the parties, we find
no overlap between the products/services provided by the merging
parties.
15. This is hardly surprising. Comparex previously wholly owned PQ Africa
and its decision to dilute its interest in 1997 was a business decision to
add value to the company through the introduction of empowerment
shareholders. Yet notwithstanding the fact that the empowerment
shareholders held the majority of the ordinary shares de facto control
remained with Comparex. Comparex was able to do so via a variety of
mechanisms, including,
a. Clauses in the shareholders agreement which required their
assent on a variety of important operational decisions in order
for them to be effective;
b. The fact that the empowerment shareholders did not appoint
their full complement of directors meant that Comparex
their full complement of directors meant that Comparex
nominees constituted the majority of the board; and
c. The fact that the PQ Africa C.E.O. reported directly to the
Comparex C.E.O.
16. Thus Comparex was in a position to ensure that the companies ran in a
complementary rather than a competitive manner. Although the
merging parties had contemplated arguing that the transaction did not
constitute a merger, because there had been no change in control,
they had for practical reasons abandoned this point and we were not
asked to consider it.
17. Post merger if the option is exercised the empowerment firms will
receive approximately 16% of the equity in Comparex. This equity even
if held collectively would not make them the largest shareholder (Old
Mutual with about 22% post merger is) so there are no control
consequences for Comparex as a result of the transaction. 1
18. As a result we find that the merger is not likely to prevent or lessen
competition in any market.
Public Interest
19. The parties informed us that no employment losses would result from
the merger. They impressed upon us that this transaction was no more
than a reacquisition of shares by Comparex and that no changes would
result to the operations of PQ Africa. The employees of the two
companies have no trade union representation and, according to the
Commission, made no submissions regarding the merger. In the case
of the employees of PQ Africa, a notice of the merger was served on
the employee forum which represents their interests. Notice of the
merger was served directly to the employees of Comparex.
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NM Manoim Date
Concurring: S. Zilwa; P Maponya
1 We were advised at the hearing that the empowerment shareholders would unbundle these shares to
their constituent shareholders so they would be considered as passive investors in Comparex.
Furthermore, it would appear from the parties’ submission to the Commission that upon the exercise of
the exchange option, Comparex is entitled to immediately purchase back from the empowerment
shareholders, at the then prevailing market price, all the shares received by them pursuant to the option.