COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 69/LM/Dec03
In the large merger between:
Castellina Investments (Pty) Ltd
and
Pepkor Ltd
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Reasons
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Introduction
On 21 January 2004 the Competition Tribunal approved the merger between Castellina
Investments (Pty) Ltd and Pepkor Ltd.
The transaction
Castellina Investments (Pty) Ltd (“Castellina”) will, in terms of a scheme of arrangement
between Castellina, Pepkor and its shareholders, acquire the entire issued share capital of
Pepkor. The listing of Pepkor ordinary shares on the JSE will be terminated and
shareholders in Pepkor will be paid out or receive shares in Castellina. The transaction
will cause Castellina to acquire all the ordinary shares as well as all the issued Pepkor
preferent shares from all the shareholders at R12.00 per share. 1
According to the merging parties the following major ordinary and preferent shareholders
in Pepkor have indicated that they will be opting to reinvest into Castellina:
• Fincom
• OMLACSA
• Titan Nominees (Pty) Ltd 2
1Shareholders can either elect to receive cash or to reinvest their Pepkor ordinary shares in Castellina
ordinary shares.
2 Controlled by Dr. C.W. Wiese
The underwriters have, furthermore, committed themselves to allocate between 7,5% and
10% of the total issued ordinary share capital of Castellina to a black economic
empowerment firm in the event that they obtain more than 40% shareholding in
Castellina.3
The parties
Castellina Investments (Pty) Ltd is a newly formed company, established specifically for
this transaction.
The parties could not, at the hearing, confirm who the controlling shareholder in
Castellina would be but anticipated that the largest shareholder would be Dr Wiese
himself, who is currently also the largest shareholder in the target firm, Pepkor. It is
expected that Dr Wiese would hold 39.2%. The underwriters, Old Mutual Plc and Brait
SA4, would take up at least 15% equity each, totalling 30%. It is also envisaged that 10%
of Castellina’s equity would be issued to the management group. This totals 79.2%.
Reinvesting shareholders would then be able to take up the remaining 20.8%. If none of
the shareholders reinvest it is anticipated that the shareholding would be as follows:
• Dr Wiese 32.9%
• Brait 25.4%
• Management 10%
• Old Mutual Private Equity 25.4%
According to the shareholders agreement a quorum of 85% is required for any directors’
meeting while the quorum required for a shareholders’ meeting would be 75%. The
shareholders agreement, therefore, ensures that no one person effectively controls the
business.
The target firm is Pepkor Ltd (“Pepkor”), a public company listed on the JSE. The Wiese
Group controls Titan Nominees (Pty) Ltd and Fincom (Pty) Ltd which are currently de
facto able to vote 44.3% of the votes exercisable at a shareholders meeting of Pepkor.
Other shareholders are OMLACSA, Public Investment Commissioner, Management and
Public shareholders.
The rationale for the merger
3 The South African Private Equity Fund III LP (“SAPEF”); the South African Private Equity Trust III
(“SAPET”) and Old Mutual Life Assurance Company (SA) (Pty) Ltd (“OMLACSA”) collectively are the
underwriters of the scheme.
4 Brait SA manages two private equity funds, SAPET and SAPEF, that act as joint underwriters of the
proposed scheme.
2
According to Pepkor it has produced real growth in operational earnings and cash flow
but this has not been matched by corresponding improvement in Pepkor’s headline
earnings per share. Pepkor’s Ordinary Share price performance on the JSE has been
characterised by a relatively low rating and low levels of liquidity, whilst Pepkor
Ordinary Shares trade at a discount to those of its peers listed on the JSE. The scheme
will allow Pepkor to:
1. restructure its capital base so that it is more efficient and enhances shareholder
value;
2. allow Pepkor to eliminate the current control structure; and
3. afford Pepkor Ordinary shareholders an opportunity to receive the Cash
Consideration or to remain invested in Pepkor.
Impact on competition
The only potential market in which overlap occurs is in the retail footwear market. Both
Pepkor and Brait own shares in companies that sell shoes.
Brait through its private equity fund SAGEF, one of the shareholders, is invested in Shoe
City in which it holds 58.3% of the total issued share capital. Shoe City has a market
share of approximately 1% in the total footwear market.
Pepkor operates four brands of retail outlets in South Africa namely Pep, Ackermans,
Dunns and Millers. These stores primarily sell clothing and footwear merchandise.
Pepkor’s combined total market share in the footwear sector is approximately 15.7%.
Pepkor and Shoe City compete with wellknown retail groups such as Edgars, Foschini,
Woolworths and various other independents.
Based on the information supplied to the Tribunal on the anticipated shareholding in
Castellina and in light of the above analysis we find that the transaction would not
prevent or lessen competition in the footwear market.
Public interest
According to the merging parties the transaction will have no effect on employment, as
the Pepkor business will continue as prior to the transaction.
3
____________ 11 February 2004
N. Manoim Date
Concurring: D. Lewis, P Maponya
4