COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 10/LM/Feb02
In the large merger between:
Bidvest Group Limited
And
Voltex Holdings Limited
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Reasons
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Approval
1. On 13 March 2002 we approved without conditions the merger
between the Bidvest Group Limited (Bidvest) and Voltex Holdings
Limited (Voltex). The reasons for the decision to approve the merger
appear below.
The Transaction
2. The acquiring firm is Bidvest, a public company listed on the JSE
Securities Exchange under the Industrial Services Sector. Bidvest
comprises a group of companies involved in providing a wide range
of services in South Africa. A summary of the services provided by
the various subsidiaries of Bidvest appears in paragraph 6 below.
3. Voltex, the target firm, primarily conducts business as a wholesaler of
electrical goods.
4. Bidvest is acquiring from Power Technology Limited (Powertech)
32,5% of the issued share capital in Voltex. Bidvest currently holds
approximately 32,34% of the issued share capital in Voltex. Minority
shareholders account for about 34,61% shareholding in Voltex.
Bidvest and Powertech have exercised joint control of Voltex since
1998.
5. The reason given by Powertech for selling its share in Voltex is that
the disposal forms part of a strategy of its holding company, Allied
Electronics Limited, to simplify its group structure. Bidvest, on the
other hand, is purchasing because in its opinion Voltex’s electrical
wholesaling distribution operations fall directly within the scope of its
commercial products division, which encompasses trading and
distribution operations. The purchase is also in line with Bidvest’s
philosophy of preferring to own 100% of its subsidiaries.
The Relevant Market
6. Bidvest, through various subsidiaries, provides a diverse range of
business activities in South Africa. The following is a summary of the
services provided by the various Bidvest subsidiaries:
• freight management Bidfreight.
• Provision of a wide range of outsourcing activities, for example,
security and contract cleaning, laundry services etc Bidserv
• Distribution of a wide range of products to catering and hospitality
business Caterplus
• Manufacturing and distribution of products to bakery, meat, food
industries Combined Foods
• provision of a wide range of services relating to travel and foreign
currency Rennies Financial Services
• provision of strategic direction and corporate services to Bidvest
Group Bid Corp Services
• provision of packaging closures, fastenings, strapping, stationery,
adhesive tape, coding and labels Bidpac
• office products , for example, stationery, furniture, computers etc
Bidoffice
7. As stated above, Voltex’s primary business is the wholesale of
electrical products.
8. Overlaps in the acquiring firm and target firm products occur in two
areas: first, both the supply and distribute electrical insulation tape.
Second, both firms are involved in the manufacture and sale of
product labeling material 1, more specifically selfadhesive product
labeling material.
The electrical insulation tape market
9. Voltex imports electrical insulation tape from Taiwan and sells to
electrical contractors; electrical wholesalers, equipment
manufacturers, industry and mines. Bidvest, on the other hand,
produces insulation tape through a subsidiary, Buffalo Executape for
sale to the same customers, excluding electrical contractors and
wholesalers. The relevant product market according to the
Commission is therefore the market for the supply and distribution of
electrical insulation tape. The relevant geographic market is South
Africa. The parties have branches all over South Africa and the
Commission found no evidence that the market is limited to specific
regions.
The product labeling market
10.Another overlap occurs in the manufacture and sale of the product
labeling material, specifically selfadhesive labeling material. Product
labeling materials are produced via a twostep manufacturing process.
In the upstream market, labeling materials manufacturers obtain
paper, film, release liners, adhesives, silicones and other materials for
the production of semifinished labels. These are sold to printing
companies, also known as “converters” in the downstream market
where the label material is further processed and converted into
finished products in accordance with the product manufacturers
finished products in accordance with the product manufacturers
1 The parties also sell the equipment used to mark and apply product labels, including pricing guns,
barcode printers and plastic tags for attaching labels to clothing.
specifications. The finished product is then supplied to product
manufacturers for labeling. The parties participate in the downstream
market, that is, they are “converters”.
11.The Commission’s investigations revealed that the product labeling
market consists of various technologies such as wet glue labeling,
mould labeling, dry gum labeling, direct printing, wrap around
labeling, stretch/shrink sleeving and selfadhesive labeling. The
parties argue that the relevant market in this regard is the broad
market for the manufacture and sale of product labeling material.
12.The Commission, on the other hand, argues that the product labeling
market consists of various submarkets depending on the technology
used. The Commission’s investigations, which included an analysis of
the views of customers, competitors and other industry players,
revealed that the interchangeability between the various labeling
technologies is limited. There are a number of reasons for this. Firstly,
the application of labels is not completely substitutable some types
of labeling material cannot be used in certain products, for example,
wet glue labeling will not work on moist surfaces and is therefore not
suitable for cold or frozen food products. Secondly, there are
significant price differences between labeling materials. In addition,
each type of labeling technology has a distinct production process.
Most of the selfadhesive label producers indicated that because of the
significant costs involved in converting from one technology to the
other and the fact that selfadhesive labels are in such high demand,
they would not consider doing so.
13.The Commission argues therefore that each type of product labeling
material constitutes a submarket. It concludes that the relevant
material constitutes a submarket. It concludes that the relevant
product market for the purposes of this transaction is the submarket
for the manufacture and sale of selfadhesive product labels.
Impact on Competition
The electrical insulation tape market
14.According to the parties this is a very competitive market with big
players such as CashBuild, Pick n Pay, Massmart and other electrical
wholesalers. The estimated market share provided by the parties
indicate that Voltex is the largest supplier of insulation tape in South
Africa with a market share of 6,24%. Bidvest is second with a market
share of 2,44%. The other participants in this market each have a
market share of just over 1% or less.
15.An issue not addressed in the Commission’s recommendation is the
existence of a restraint of trade agreement preventing Powertech and
another company, Altron, from competing with Voltex in the
electrical wholesaling market for a period of three years. We were
advised by the parties that this is historical clause it arose out of sale
by Voltex of certain manufacturing businesses to Powertech.
Powertech demanded that Voltex undertakes not to compete with
these manufacturing businesses and the reciprocal of that was that
Powertech would not compete with Voltex in the electrical wholesale
market. It appears that there is no wish on the part of Powertech to
enter this market anyhow and the clause is simply there as a reciprocal
for Voltex’s undertaking not to compete with Powertech in the
manufacturing business.
16.The market shares of the parties are very low and will be less than
10% post merger. Concentration levels are also very low. We find that
the merger is unlikely to lead to a lessening or prevention of
competition in the market for the supply and distribution of electrical
insulation tape.
The product labeling market
17.There were no statistics available to calculate market shares of the
parties in the market for the manufacture and sale of selfadhesive
labels as the industry is not regulated. The Printing Industries
labels as the industry is not regulated. The Printing Industries
Federation verbally informed the parties that the estimated overall
turnover in selfadhesive labels in 1997 was approximately R500
million. By postulating that this figure currently stands at about R600
million and based on their recent annual turnover figures, the parties
estimate that their market shares approximately 18,67% for Bidvest
and 1,6% for Voltex. The merged entity will therefore have an
estimated market share of 20,27%. They hasten to point out that the
figure of R600 million is very conservative, in which case it is likely
that their estimated market shares are overstated.
18.With no reliable market share figures, the Commission sought the
views of the competitors of the parties regarding the likely effect of
the merger on competition in the selfadhesive labels market. The
Commission also interviewed the Printing Industries Federation of
South Africa and the customers of the merging parties. The
competitors of the parties interviewed by the Commission informed it
that there were more than 160 other participants in this market; the
biggest of the lot being Flexoprint, Rebsons, New Era, Multiprint and
Paul Frey. The Printing Industries Federation of South Africa saw no
possibility of the merger leading to concentration in the market. The
customers of the parties also expressed the view that there are enough
alternative suppliers in the market for them to choose from. In this
regard, the Commission found that generally each customer currently
has more than two suppliers.
19.The Commission went on to establish that there was a significant level
of import competition in the market, currently standing at about 30%
of all finished products. It also found that there were low barriers to
entry in the market, with evidence of very recent entry. International
producers are also targeting the local market and have been entering
through local distributors. Finally, product manufacturers, the parties’
main customers, determine demand in the market. Some of these
customers are very big companies and, given the large number of
customers are very big companies and, given the large number of
suppliers of selfadhesive labeling material producers, the product
manufacturers possess a significant amount of countervailing power.
Vertical Issues
20.The takeover of a dominant wholesaler, like Voltex, by Bidvest, a
major logistics company, may raise concerns that the acquisition may
help the wholesaler leverage its dominance in the downstream market.
This is an aspect of this transaction unfortunately not canvassed by the
Commission or the parties in their papers. At the hearing it was
argued by the parties that Voltex has over the years had adequate
financial means to grow and sustain its business independently, and
the change in the shareholding as a result of the merger will not
change this. The Commission agreed with the merging parties’
submissions in this regard. Even though we do not have much
information on this point, it appears that Voltex’s position is already
very strong in this market and if there are any vertical effects arising
from the merger, they will not be substantial.
21.The Commission concludes that it is not likely that this merger will
lead to substantial competition problems. This is a view evidently
shared by most of the market participants interviewed by the
Commission. We agree. Given the size of the estimated market shares
of the merging parties and the structure of the market as revealed by
the Commission’s investigations, the merger is unlikely to result in a
substantial lessening or prevention of competition in this market.
Public Interest Considerations
22.No substantial public interest issues arise from the merger. We have
been informed that because this transaction takes the form of a sale of
shares, it will have no adverse impact on employment none of the
operating companies of the merging parties will retrench employees
as a result of the merger.
_____________ 11 April 2002
N.M. Manoim Date
Concurring: D.H. Lewis; P. Maponya