Imperial Holdings Limited and Megafreight Investments (Pty) Ltd / Megafreight Services (Pty) Ltd / J.H.Bachmann & Company (Pty) Ltd (35/LM/Jun01) [2001] ZACT 32 (2 August 2001)

60 Reportability
Competition Law

Brief Summary

Competition — Merger approval — Merger between Imperial Holdings Ltd and Megafreight Investments (Pty) Ltd, Megafreight Services (Pty) Ltd, and J.H. Bachmann & Company (Pty) Ltd approved without conditions — Merger assessed as pro-competitive in concentrated freight clearing and forwarding market — Post-merger entity to enhance competition against dominant firms while addressing public interest considerations regarding employment.

COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA


Case No: 35/LM/Jun01

In the large merger between

Imperial Holdings Limited

and

Megafreight Investments (Pty) Ltd
Megafreight Services (Pty) Ltd
J.H.Bachmann & Company (Pty) Ltd



REASONS FOR THE TRIBUNAL’S DECISION



Approval

The Competition Tribunal issued a Merger Clearance Certificate on 31 July 2001
approving the merger between Imperial Holdings Ltd and Megafreight Investments (Pty)
Ltd, Megafreight Services (Pty) Ltd and J.H. Bachmann & Company (Pty) Ltd without
conditions. The reasons for approving the merger are set out below.


The merger transaction

In terms of the transaction:

1. Imperial Holdings Ltd (“Imperial”) is acquiring 60% of the shares in Megafreight
Services (Pty) Ltd from M egafreight Investments (Pty) Ltd and various minority
shareholders.

2. Megafreight Services (Pty) Ltd is acquiring all the shares in J.H. Bachmann &
Company (Pty) Ltd from Imperial and a minority shareholder, Mr Denzil Ashort.


Thus in effect post merger I mperial will control a larger freight business than it did
before as it included the businesses of both JH Bachman and Megafreight, which were
comparatively of the same size.

2
According to the parties the reason for the transaction is that the merged entit y would
become a much stronger competitor in the market. The merger will allow Imperial to
increase its client base and strengthen its market penetration in various ports in South
Africa as well as its buying power with the various airlines and shipping li nes. Moreover,
Imperial’s financial backing will allow Megafreight Services to purchase the technology
that it requires to enlarge its client base. The merger will also give the company
international exposure.


Evaluating the merger

The relevant market

Both Megafreight Services and J.H. Bachmann offer freight clearing and forwarding
services to their clients.1 The geographic market is the national market since both parties
offer their services all the ports and airports countrywide.

Impact on competition

The post-merger market shares of the of the largest players are:


Safcor* 20%
Renfreight* 20%
Union Transport 20%
Grindrod Rohlig 10%
Kuehne & Nagel 10%
Merged entity 3%
Others 17%

TOTAL 100%

*Although the two companies trade as separat e entities Bidfreight is the holding
company of both these companies.


The CR3 concentration ratio of the three largest players in this market is 60% of which
one company, Bidfreight, indirectly holds 40% of the market. It is, therefore, a
concentrated market in which the majority of firms are competing for less than half of the
market. The merger between Imperial and J.H. Bachmann can thus be regarded as pro -
competitive since two small companies are joining forces in order to compete against the
dominant firms.


1 Definition given by the International Federation of Freight Forwarders Association: It is a service offered
by an agent on behalf of its clients to ensure that interna tionally traded goods move from point of origin to

point of destination to arrive at the right time and place, in good condition, and at the most economic cost.

3
Public interest consideration

There are no trade unions involved and retrenchments would be dealt with in accordance
with existing labour legislation. The parties indicated that retrenched staff would be able
to find employment fairly easy since there is a shortage of skilled workers in this
industry. The parties would also assist the retrenched employees in finding new jobs. A
representative of the employees attended the hearing and indicated that staff had no
objection to the transaction.





2 August 2001

D.H. Lewis

Concurring: N.M. Manoim and U. Bhoola