COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 42/LM/Jul01
In the large merger between:
New Republic Bank Limited, a subsidiary of Saambou Holdings Limited
and
FBC Fidelity Bank Limited, a subsidiary of Nedcor Bank Limited
________________________________________________________________
Reasons for Decision
________________________________________________________________
APPROVAL
On 12 September 2001 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between New Republic Bank Limited and FBC
Fidelity Bank Limited without conditions in terms of section 16(2)(a). The reasons
for the approval of the merger appear below.
The Parties
1. The primary acquiring firm is New Republic Bank Limited (“NRB”), a
subsidiary of Saambou Bank Limited, which is ultimately controlled by
Saambou Holdings Limited.
2. NRB is acquiring 13,750 rental and installment sale agreements from
FBC, a subsidiary of Nedcor Bank Limited.
Background
3. FBC was placed under curatorship in October 1999. A year later, Nedcor
acquired the entire issued ordinary share capital of FBC, by virtue of a
scheme of arrangement in terms of section 311 of the Companies Act.
4. Prior to FBC going into curatorship in October 1999, certain brokers,
engaged in the business of selling, servicing and delivering office
automation equipment, would discount the rental and instalment sale
agreements in favour of FBC.
5. These discounting agreements essentially took the following form:
a. The broker entered into a discounting agreement with a bank;
b. The bank gains approval to make available funds up to a certain
limit;
c. Brokers, having agreed with their clients that they will raise finance
for the deals it brokers, completes the installment sale
documentation;
d. Once the client signs this, it is submitted to the bank advancing the
finance;
e. The bank pays out the discounted sum to the broker who then pays
the proceed to the suppliers less his commission.
f. The bank then collects the rental or installments.
6. With the continuity of FBC’s rental and instalment sale agreement
business being interrupted by the curatorship, FBC subsequently
discontinued its relationships with the brokers. It concentrated merely on
the collection of outstanding installments, as well as the disposal of blocks
of agreements.
The merger transaction
7. In terms of this transaction, NRB is continuing to restructure and integrate
its affairs by acquiring a portion of FBC’s assets, namely some 13,750
rental and instalment sale agreements. These are discounted agreements
of the type discussed above, and particularly relate to the office
automation equipment supply business.
8. Nedcor, by means of this transaction, seeks to relinquish this noncore
debtor’s book acquired pursuant to rescuing FBC from liquidation. Nedcor
lacks the infrastructure and strategic intention to expand this particular
market within its own operations. Accordingly, this transaction will relieve
Nedcor of the burden of managing and administering such book.
9. The assets being transferred constitute only about 9% of FBC’s range of
assetbased products. It will retain the installment sale and vehicle financing part
of its business, as well as the franchise operations.
of its business, as well as the franchise operations.
10. Following the merger, the assets being transferred will be integrated into
Planet Finance Bank, a division of Saambou Limited and NRB will
continue to conclude these agreements with the brokers.
EVALUATING THE MERGER
The relevant market
11. NRB’s activities comprise a wide range of banking services, including the
provision of mortgages, term loans and other advances, including
instalment sales.
12. FBC provide a full range of assetbased products, including home loans,
commercial property lonas; SMME franchise finance, term and personal loans
and micro loans. FBC also offers transmission savings accounts and fixed or
notice deposit facilities.
13. Notwithstanding the overlap between both parties with regard to the
provision of like products, particularly home loans and micro loans, this
transaction relates specifically to the a sale of a portion of the business of
FBC to NRB, namely its rental and instalment sale agreements. The
Commission accordingly defined the relevant market as the market for the
provision of rental sale and installment sale agreement services . It seems
that the market can be narrowed further, since the discounted agreements
being acquired by NRB relates primarily to the financing of movable
equipment, namely, office automation equipment. It is the Tribunal’s view
that office equipment financing is a specialised product market, separate
from the market for other types of asset financing such as vehicle
financing. This is so especially since it is an accepted practice in the office
automation market that most of these transactions are concluded via
brokers, whereas other asset finance transactions entail direct dealings
with the client.
Geographical Market
14. The Commission stated that the market was national since both NRB and
FBC provide their rental and installment sale agreement services
throughout the country. By extension, rental and installment sale
agreements with respect to office automation equipment would also be
agreements with respect to office automation equipment would also be
entered into on a nationwide basis. We accordingly accept this definition.
Market Shares
15. The parties and Commission relied on figures obtained from the DI900
Reserve Bank returns. When questioned by the Tribunal as to whether
these figures were specific to the office equipment rental market, or
included other forms of financing, such as vehicle financing, they advised
that the latter position was the case. They informed us that the DI900
Reserve bank returns (from which their figures were extracted) provided
no separate breakdown in respect of installment sale and rental
transactions in the office automation equipment market. Therefore, in the
table below the office equipment, rental and installment sale market is
subsumed into the figures for other types of leases, e.g. vehicles.
Competitor Market Share in respect of rental and installment sale
agreements
Institution Value (RM) % of Total
First National Bank 23 569 28.9%
ABSA Bank 19 532 23.9%
Standard Bank 17 658 21.6%
Nedcor Bank 11 185 13.7%
BoE Bank 2 547 3.1%
Citibank 1 204 1.5%
Saambou 1 186 1.4%
FBC Fidelity Bank 745 0.9%
TOTAL 77,626 100%
Source: NRB’s Form CC4(2)Schedule 5
16. On the parties’ estimates, the combined market share of the merged entity
would be 2.3% postmerger.
Impact on competition
17. While the postmerger market share of 2.3% is not significant enough to
reduce competition in the market, we must consider that on the parties’
admission, this figure includes other forms of asset financing, such as
vehicle financing. Since these turnover figures might be quite large for
banks such as Stannic and FNB, this could distort shares when we
consider the narrower office equipment financing market. Were the parties
able to obtain separate figures for this latter market, such market shares
could well be more inflated than the figure of 2.3%.
18. After further questioning, it nevertheless appeared that the market for
office equipment financing is very competitive, with all the major banks
participating therein. Furthermore, entry barriers are low since banks can
quite easily get involved in this type of financing provided they have
adequate funds and sophisticated collection systems.
19. On balance, the Tribunal is therefore of the opinion that this transaction
will not substantially lessen competition in respect of rental and installment
sale transactions in the office automation equipment market.
Public Interest Considerations
20. The parties submit that this transaction will have no effect on employment.
_____________ 21 September 2001
D.H. Lewis Date
Concurring: N. Manoim, D. Terblanche