COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 16/LM/Apr03
In the large merger between:
Bytes Technology Group Ltd
and
Xerox South Africa (Pty) Ltd
Reasons for Decision
________________________________________________________________
APPROVAL
On 14 May 2003 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Bytes Technology Group Ltd (“Bytes
Technology”) and Xerox South Africa (Pty) Ltd (“Xerox”) in terms of section
16(2)(a). The reasons for the approval of the merger appear below.
The Transaction
1. This transaction is essentially an acquisition of sole control of Xerox South
Africa, by its one parent, Bytes Technology. Xerox Limited (a UK firm) will
cease to be a shareholder in Xerox South Africa, disposing of 50% plus
one share.
2. Accordingly, postmerger, Xerox South Africa will be a wholly owned
subsidiary of Bytes Technology.
3. The merging parties will simultaneously conclude a distributorship
agreement.
The Parties
4. The primary acquiring firm is Bytes Technology, a subsidiary of Allied
Electronics Corporation Limited (“Altron”). Bytes Technology is an
investment holding company, which has numerous wholly and partly owned
subsidiaries.
5. The target firm is Xerox South Africa, a jointly held subsidiary of Xerox
Limited and Bytes Technology. Xerox Limited is in turn controlled by Xerox
Corporation (a US firm).
Rationale for the Transaction
6. The opportunity to derive the full profit benefits motivated Bytes
Technology to acquire sole control of Xerox. On the other hand, recent US
legislation requires that all US companies that hold a majority share in any
other company around the world should attest to the accuracy of the
corporate governance and financial accounts of that subsidiary. This
motivated Xerox Corporation to dispose of its shareholding in Xerox SA,
since Bytes Technology enjoys management control of the target firm.
The Relevant Market
7. All the companies within the acquiring group are active in the
telecommunications information technology, multimedia and power
electronics sectors.
8. Xerox offers document management outsourcing services and exclusively
distributes Xerox printing, copying, and paper products and related
services in Southern Africa.
9. None of the companies within the Altron Group, including the subsidiaries
controlled by the primary acquirer, Bytes Technology, provide products or
services that are offered by Xerox. We agree with the Commissions’
conclusion that there is no horizontal product overlap between the
acquiring group and Xerox.
Impact on competition
10. Bytes Technology currently enjoys management control of Xerox, the
transaction will therefore not fundamentally alter the structure of the
market in any way. The transaction is merely a consolidation of Bytes
market in any way. The transaction is merely a consolidation of Bytes
Technology’s interest in Xerox. Taking this and the lack of product overlap
into account, it is clear that the transaction does not raise competition
concerns.
11. However, the Commission highlighted the limited vertical integration that
arises from the transaction. Xerox provides photocopying, printing and
paper products and services to many companies within the Altron Group.
The parties submit that this constitutes less than 1% of Xerox’s total
business. Furthermore, Xerox competes with significant players such as
Hewlett Packard, Nashua and Gestetner in these markets. Thus there is
no commercial incentive for the merged entity to engage in customer
foreclosure.1
12. We accept that the limited vertical integration is unlikely to substantially
lessen competition.
Conclusion
10. The transaction does not result in any significant competitive change from
the status quo. We conclude that the merger will not lead to a substantial
lessening of competition. There are no employment or other public
interest concerns, which would alter this finding. The merger is therefore
unconditionally approved.
_____________ 09 June 2003
N. Manoim Date
Concurring: U.Bhoola, P. Maponya.
For the merging parties: Werksmans
For the Commission: M. Worsley, J. Liebenberg, Competition
Commission
1 For a detailed exposition of the competition issues that may arise through vertical integration see the
Tribunal’s decisions in: Mondi Limited and Kohler Cores and Tubes, a division of Kohler Packaging
Limited, case no. 06/LM/Jan02 and Coleus Packaging (Pty) Ltd and Rheem Crown Plant, a
division of Highveld Steel and Vanadium Corporation Limited , case no. 75/LM/Oct02