COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 79/LM/Dec03
In the large merger between:
Barloworld Motor (Pty) Ltd
and
Avis Southern Africa Limited
Reasons for Decision
_________________________________________________________________
APPROVAL
On 3 March 2004 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Barloworld Motor (Pty) Ltd and Avis Southern
Africa Limited 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 Barloworld Motor (Pty) Ltd (“BM”), controlled
by Barloworld Limited (“Barloworld”).
2. The primary target firm is Avis Southern Africa Limited (“Avis”), a public
company listed on the JSE and Namibian and Botswana stock exchanges.
Barloworld presently accounts for 34% of the shares in Avis. Avis controls a
number of car rental firms in South Africa, the majority of which do not
concern us, save for the companies listed below. Avis is a holding
company, under license from Avis plc and ultimately Avis Inc. in the U.S. It
has operations in short and long term vehicle rental services.
The Transaction
3. Barloworld is merely acquiring the remaining 65.3% of shares in Avis that it
does not already own. This will take place by means of a scheme of
arrangement. Post merger Avis will be a wholly owned subsidiary of BM.
Merger Rationale
4. The merger promises Avis access to Barloworld’s worldwide resources.
BM wants to become a fully integrated motor company able to offer
services in a wide range of related markets, like its competitors McCarthy
and Imperial do. This transaction will enable it to enter the motor vehicle
rental market. Currently, it is only a retailer in the market for new and used
cars.
Activities of Parties
Barloworld
5. Barloworld is described as an international industrial brand management
company. Barloworld’s only activity in SA that need engage us is its motor
division. BM is a retailer of new and used motor vehicles. It has some 50
odd dealerships throughout SA from where it sells passenger, light, medium
and heavy vehicle brands. It views itself as having a market share of 8.9%
of total motor sales on the distribution level in RSA.
Avis
Avis Rent A Car
6. Avis Rent A Car provides shortterm vehicle rentals and services to the
tourism and corporate market. It purchases its vehicles from manufacturers
or suppliers. It regards itself as accounting for 38% of the shortterm vehicle
rental market in SA. It has 110 outlets in RSA. It incorporates Avis Van
Rental (operated under a sublicense from 15 locations throughout SA)
which rents out trucks.
Avis Fleet Services
7. Provides longterm vehicle rental and value added services for vehicle
operators. Such value added services include vehicle sourcing,
BMretailer AVIS
Avis Rent A
Car
Avis Fleet
Services
ZEDA Car MallNew cars Used cars
administration, fuel management, warranty, accident management, and
various other services. There are various leasing options available to
customers, which incorporate different types of service. Its customers are
midsize companies, typically having a fleet of 10 cars but it also deals with
larger and small companies and parastatals.
Most of this division’s services are outsourced. This division is operated as
a joint venture with Wesbank. Also provides vehicle financing to its
customers. It regards itself as having about 20% of this market.
Zeda
8. Vehicles from Avis Rent A Car sold here. Once maintenance leases or
vehicle life expires, or the vehicles are no longer suitable for use in the
shortterm rental market, they are sold through Zeda which has 10
branches across SA. It sells about 50% to the general public and the rest it
sells in bulk to used vehicle dealers.
Car Mall
9. Vehicles from Avis Fleet Services are sold here. It disposes of about two
thirds of its vehicles through 8 operations to the general public, and the rest
to other second hand car dealerships on a wholesale basis.
Relevant and Geographic Markets
10. Barloworld is only active in car sales at retail level (dealership market) while
Avis is only active in the shortterm rental market and fleet services market.
However, Avis sells, as a byproduct of its rental and fleet services
business, used cars that are no longer required for renting, while BM sells
tradedin used cars and cars sourced from ancillary businesses and
manufacturers.
11. The overlap therefore is in respect of this (somewhat secondary) market for
the sale of used vehicle, which the Commission defines as the relevant
market. The parties highlight that though there is an overlap in this
secondary used car market, the merging parties do not compete directly, in
secondary used car market, the merging parties do not compete directly, in
that different players focus on different segments within the market, that is,
Zeda, Car Mall and BM all sell second hand vehicles of differing ages and
mileages.
12. The Commission define the geographic market as being local, in
accordance with previous mergers in the motor vehicle industry. However,
since local market shares are unavailable they provide market shares as
furnished by the parties per province.
Impact on competition
Horizontal Aspects
13. The parties state that the postmerger market share in any local
market will not exceed 15%. They assert however that it is probably much
less than this, in fact in certain provinces they estimated that it may not
exceed 7%. Other players are active in this market, such as Unitrans,
CMH, Super Group and a myriad of small independent firms selling used
cars. We are therefore satisfied that this market is competitive.
n. In any event, BM’s core business is in selling new vehicles, its sale
of used cars is therefore ancillary to this main business and they
point out that the purpose of the merger is not to grow their market
share in the secondary used vehicle market but to allow BM to offer
a broader range of services as its competitors do.
15. We note that the rental business of Avis is under a license agreement with
Avis Europe Plc, the UK parent company in London in London. Avis Inc
and Avis Plc have recently acquired the rights to the Budget car rental
brand. Avis Plc therefore also owns the Budget car rental brand in EU,
Africa, Middle East and Asia. Budget is operated by McCarthy. Though
these arrangements are not relevant to this merger, we highlighted this area
as meriting close competition scrutiny in a previous merger 1. We
accordingly asked the Avis representative about this at the hearing. He
commented that the two companies are separately run, although they
operate under a common license.
Vertical Relationships
16. There are a few vertical relationships in that Avis buys some of its vehicles
from BM and provides rental services to them. BM too provides some
maintenance and repair services to Avis. However these links existed pre
maintenance and repair services to Avis. However these links existed pre
merger and neither firm has the incentive to benefit from a foreclosure
strategy.
Conclusion
We conclude that the merger will not lead to a substantial lessening of
1 See Bidvest Group Limited and McCarthy Limited 04/LM/Jan04
competition. The Tribunal therefore approves the transaction unconditionally.
There are no public interest concerns which would alter this conclusion.
_____________ 8 February 2004
N. Manoim Date
Concurring: D. Lewis , T. Orleyn
For the merging parties: Bowman Gilfillan Attorneys
For the Commission: M. Mohlala and K. Ramathula, Competition
Commission