COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 25/LM/Apr04
In the large merger between:
Tsebo Outsourcing Group (Pty) Ltd
And
Drake & Scull FM (SA) (Pty) Ltd
Reasons for Decision
Approval
1. On 19 May 2004 the Competition Tribunal issued a Merger Clearance Certificate
approving the transaction between Tsebo Outsourcing Group (Pty) Ltd and Drake &
Scull FM (SA) (Pty) Ltd. The reasons for this decision follow.
The Parties
2. The primary acquiring firm is Tsebo Outsourcing Group (Pty) Ltd (“Tsebo”). Tsebo is
controlled by Trillion Nominees (Pty) Ltd, which is a wholly owned subsidiary of
Ethos Private Equity Fund IV (“Ethos”). Tsebo’s other shareholders are Nozala
Investments (Pty) Ltd and Siphumelele Investments Limited.
3. Tsebo controls the following companies; Fedics (Pty) Ltd, BJ’s Franchising (Pty)
Ltd, Kraal Kraft (Pty) Ltd, Mr Rooster’s Golden Crispy Chicken (Pty) Ltd, Drake &
Scull FM (SA) (Pty) Ltd, Air Caterers Johannesburg (Pty) Ltd, Aerofare (Pty) Ltd
and Fedlink (Pty) Ltd.
4. Ethos controls the following companies: Defy Limited, Dunlop Tyres International
(Pty) Ltd, The Magic Company Investments (Pty) Ltd, Idwala Investment Holdings (Pty)
Ltd, Pleasure Foods (Pty) Ltd and Cobra Watertech Group (Pty) Ltd and Tsebo.
5. The primary target firm is Drake & Scull FM (SA) (Pty) Ltd (“DSFM”). DSFM is jointly
controlled by Emcor Drake & Scull Group Plc (“Emcor) (50%) and Tsebo(50%).
6. DSFM controls Drake & Scull Management Services (Pty) Ltd, Drake & Scull
Technical Services (Pty) Ltd and Umongi Facilities Services (Pty) Ltd.
The Transaction
7. Tsebo is increasing its shareholding in DSFM by acquiring Emcor’s interest in
DSFM. Post merger, Tsebo will therefore hold 100% of the issued share capital in
DSFM.. The transaction is subject to inter alia a technical assistance agreement
being concluded between Tsebo and Emcor. The technical assistance agreement
will enable DSFM to continue to benefit from Emcor’s expertise through, inter alia,
access to systems development and access to some of Emcor’s key staff.
Rationale for the Transaction
8. According to the parties, through Tsebo’s 50% shareholding, DSFM had an effective
BEE equity ownership of 22%, which was insufficient to secure contracts from
government, parastatal entities and other major clients. By increasing Tsebo’s
shareholding, DSFM’s empowerment credentials are improved in order for it to
confidently tender for government contracts.
The Parties’ Activities
9. Through its various subsidiaries, Tsebo is involved in the following markets:
Food services (Fedics (Pty) Ltd), Facilities management services (DSFM), Fast Food
(BJ’s and Mr Rooster’s) and a diverse range of outsourcing catering and related
services in South Africa. Although Fedics is involved in some auxiliary services such
as the provision of cleaning and hygiene services, these services are not provide
directly by DSFM, who manage other contract providers rather than providing the
services themselves.
10.Ethos invests in companies in exchange for equity in the company, entitling it to a
participatory management role.
11. DSFM is a facilities management services company which provides noncore
management activities to its clients such as:
Strategic planning of everything relating to a working environment, such as space
planning, process planning and systems planning;
Managing and maintaining building and assets; and
Managing and maintaining building and assets; and
Business support such as cleaning, mail, messenger services, gardening,
landscaping, security and catering.
12. From the above, apart from Tsebo’s existing stake in DSFM, it appears that there
is no overlap in the activities of the merging entities.
Impact on competition
Public Interest
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13. The transaction increases the ownership stakes of historically disadvantaged
persons.
Conclusion
14. We conclude that the merger will not lead to a substantial lessening of competition
and there are no significant public interest concerns. Accordingly, we agree with the
Commission’s recommendation that the transaction be unconditionally approved.
_______________ 21 May 2004
Norman Manoim Date
Concurring: David Lewis and Thandi Orleyn
For the merging parties: T Mhlanga and J Meijer (Cliffe Dekker Inc)
For the Commission: Maarten Van Hoven and Elvis Ramafamba (Mergers and
Acquisitions)
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