COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 53/LM/Aug02
In the large merger between:
Edgars Consolidated Stores Limited
and
Retail Apparel Group (Pty) Ltd
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Reasons
_______________________________________________________________________
Approval
The Competition Tribunal issued a Merger Clearance Certificate on 23 September 2002
approving the merger without conditions. The reasons are set out below.
The merger
Transaction
Edgars Consolidated Stores Limited (“Edcon”) has entered into an Offer of Purchase
Agreement with the joint provisional liquidators of Retail Apparel Group (Pty) Ltd
(“RAG”) for the purchase of 1:
a) Twenty retail RAG retail stores of which five RAG stores are situated in South
Africa2, constituting:
• The stock in trade in these stores;
• The fixed assets in these stores; and
1 Certain aspects of the transaction has changed in that Edcon will only be buying 5 stores instead of the
initial 6, the offer to buy the Rustenburg RAD store is cancelled, and Edcon will also not buy the surplus
stock left in RAG see par2 (b) , page 4 of the Commission’s recommendation.
2 Johannesburg, Nelspruit, Bellville, Giyani and Potchefstroom.
• The intellectual property rights of RAG, including trademarks, trade
names, logos, designs and signage to be used for conducting business out
of premises.
b) The right, title, interest and benefit in and to RAG’s database of members of the
RAG’s loyalty programme, the “Smart fashion Club”.
The parties to the transaction
The primary acquiring firm is Edcon, a public company listed in the JSE. Edcon is not
controlled by any firm. The following shareholders hold more than 5% of its equity:
1) Public Investment Commissioner (SA) 20.08%
2) South African Breweries Ltd 19.03%
3) United Retail Limited (SA) 9.67%
4) Liberty Life Association of Africa (SA) 5.67%
5) Edgars Stores Limited Staff Share Trust 5.25%
The primary target firm is RAG, with McCarthy Retail Ltd, holding 49.99% and Smart
Hold BPK holding 26.57% of its share capital. RAG was placed under provisional
liquidation on 28 May 2002 following an application for its liquidation by its holding
company, Retail Apparel Group Ltd.
Rational for the transaction
According to Edcon the transaction will increase the size of the debtor’s ledger, which
has been growing very slowly for the past two years. It also brings on board an existing
profitable brand with a major presence in the nonRand monetary region such as
Botswana.
The RAG stores will post the merger be re branded as Jet stores. 3
Evaluating the merger
Relevant market
Edcon trades predominantly in the retailing of clothing, foorwear and accessories
throughout South Africa and in neighboring countries. Edcon’s major retail formats are
Edgars, Jet, Sales House, Red Square, Cuthberts, Smiley’s Wearhouse and ABC, which
target the lowermiddle to uppermiddle income groups.
Edcon is also vertically integrated into the upstream market. Its manufacturing division
3 Jet is an existing brand within the Edcon group aimed at the market.
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supplies mainly men and ladies’ outerwear to local suppliers, consisting of about 15% of
production, as well as to foreign markets. Most of the production, however, is sold within
the Edcon group.
Rag does not manufacture any clothing and its product offering is similar to that of
Edcon, consisting of clothing, footwear and accessories. It was also previously a
customer of Edcon’s manufacturing division. Both RAG and Edcon offer similar credit
facilities.
We agree with the parties and the Commission that the relevant market consists of the
retailing of the following product categories, which are sold to the low to high middle
income consumer:
1) Ladieswear and intimate wear
2) Menswear
3) Boyswear
4) Girlswear
5) Schoolwear
6) Infantswear
7) Footwear
8) Textiles (including towels, linen, etc);
9) Other (including accessories, such as belts and handbags, jewellery and cellular
phones)
Since prices are set on a national basis we agree with the Commission that the geographic
market is national.
Effect on competition
There are a number of retail companies and independent stores that compete with Edcon
in each of the relevant product markets, such as Woolworths, Pep Stores, the Foschini
Group, Truworths and Topics.
The post merger market shares of the main competitors in the various clothing retail
markets are:
Product
market
Edcon Foschini Speciality
Stores
Wooltru Pepkor Independent
s
Ladieswear 19.9% 20.1% 12.6% 19.8% 12% 15.5%
Menswear 18.7% 8.7% 10.5% 20.7% 10.8% 30.6%
Boyswear 25.2% 7.2% 2.3% 17.6% 24.6% 23.2%
Girlswear 28.1% 9.9% 3.1% 18.6% 21.3% 18.8%
Schoolwear 7.8% 7.4% 9.8% 75%
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Infantswea
r
25% 5.7% 0.8% 24% 32.3% 12.2%
Footwear 34.3% 13.7% 1.5% 24.8% 6.1% 19.5%
Textiles 17.2% 30.6% 27.9% 8.5% 15.9%
Other 13.1% 2.8% 5.3% 41.3% 17.6% 19.9%
From the above it is evident that Edcon is not dominant in any of the product categories,
even after RAG’s market share, which ranges from 0.2% to 9%, is added to that of
Edcon. Since RAG’s premerger market share will not accrue to Edcon exclusively, it is
not possible to calculate the increase in the HHI after the merger. However, we agree
with the Commission that the increase in the HHI should be small due to the small market
share that RAG enjoyed.
Moreover, an effective competitor is not removed from the market as a result of the
merger since RAG is currently placed under liquidation. The provisional liquidators of
RAG have made extensive efforts to elicit alternative offers and only one other firm
expressed a degree of interest in acquiring some of RAG’s assets.
We are, therefore, of the view that competition will not be substantially lessened or
prevented as a result of the merger.
Public interest
The parties have submitted that the retrenchments that have taken place as a result of
RAG being placed under provincial liquidation are not related to the merger transaction.
Edcon will offer approximately 52 employees of RAG employment. The transaction does
not raise any other substantial public interest grounds.
10 October 2002
N. Manoim Date
Concurring: D. Lewis, P. Maponya
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