COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 53/LM/Jul04
In the large merger between:
Masstores (Pty) Limited
and
Hentiq 2869 (Pty) Ltd and Rivonia Produce & Hardware (Pty) Limited
Reasons for Decision
Approval
1. On 18 August 2004 the Competition Tribunal issued a Merger Clearance
Certificate approving unconditionally the merger between Masstores (Pty) Ltd
(“Masstores”) and Hentiq 2869 (Pty) Ltd (“Hentiq”) and Rivonia Produce & Hardware
(Pty) Ltd (“Rivonia”). The reasons for this decision follow.
The merging parties
2. The primary acquiring firm is Masstores, a subsidiary of Massmart Holdings (Pty)
Ltd (“Massmart”), a high volume, low margin retailer of food, liquor and general
merchandise. Masstores incorporates the Massdiscounters and the Masswarehouse
divisions of Massmart. 1
3. The primary target firms are Hentiq and Rivonia. Hentiq is jointly controlled
as to 30% by the Norman Kretzmer Family Trust, 30% by the Newman Family
Trust and by Corvest 4 (Pty) Ltd (as to 40%). 2 Rivonia is jointly controlled as to
25% by the Norman Kretzmer Family Trust, 35% by the Newman Family Trust
and by RMB Corvest Ltd 3 (as to 40%).
1 Major subsidiaries in the Massmart group directly or indirectly controlled by
Massmart holdings are: Masstores (Pty) Ltd; Shield Buying and Distribution (Pty)
Ltd; CBW Holdings (Pty) Ltd; Jumbo Cash & Carry (Pty) Ltd; Massmart
Management and Finance Company (Pty) Ltd; Massmart Services (Pty) Ltd;
Massmart Trade (Pty) Ltd; Furnex Stores (Pty) Ltd; and Imagegate Ltd (a company
registered in the UK).
2 Corvest 4 is a private equity investor company within the FirstRand Group specialising in equity
investing on a joint venture basis. It provides leveraged finance for management buyouts, or leveraged
recapitalisation, management buyins or leveraged buyins.
3 Corvest Ltd is a private equity investor company within the FirstRand Group specialising in small to
medium sized leverage buyouts.
The Merger Transaction
4. This is a proposed transaction in terms of which Masstores intends acquiring, as a
going concern, the business of each of Hentiq and Rivonia respectively. The target
firms are both in the business of selling building supplies and home improvement
related products. 4 The transaction will result in Massmart acquiring control over the
target businesses, via Masstores.
Rationale for the transaction
5. Masstores seeks to expand its business operations in the sale and marketing of
building supplies, hardware & related products (currently conducted within the
Massmart Group by the Builders Warehouse stores comprising part of its
Masswarehouse Division).
6. The current controllers of Hentiq and Rivonia view the proposed transaction as an
attractive opportunity for them to realise their investments. RMB Corvest and Corvest
4 as private equity investors will be able to get a return on their investments. 5
The relevant market
Product market
7. As alluded to above, Masstores is a subsidiary of Massmart, a high volume retailer
of food, liquor and general merchandise. General merchandise encompasses a large
variety of products including office supplies, DIY equipment, hitech products,
household appliances & categories of clothing.
8. Masstores consists of the Massdiscounters and the Masswarehouse divisions of
Massmart. Massdiscounters comprises a chain of retail discount stores trading under
the “Game” and “Dion” retail brands. These retail stores offer a wide range of
general merchandise and nonperishable groceries to the valueseeking end
consumer.
9. The Masswarehouse division comprises the following businesses:
Makro – a chain of large wholesale outlets that markets a range of food,
liquor and general merchandise to commercially affiliated retailers and upper
income endconsumers;
income endconsumers;
Builders Warehouse – a chain of warehouse outlets selling building
supplies, hardware and related products. It operates in various localised
regions within the Gauteng and North West provinces; and
Tile Warehouse – a chain of warehouse outlets selling ceramic and other
tiles and related products through various stores located in various
geographic regions within Gauteng and North West provinces.
4 The target firms currently conduct their business under the Mica franchise. The parties have indicated
that this franchise agreement between the target firms and Mica shall lapse upon conclusion of this
transaction. (See Commission’s Recommendations, page 3).
5 See the Record (page 3637).
2
10. Hentiq conducts its business in Germiston under the “Mica Home Warehouse”
trading name It sells general building and home improvementrelated materials to
building contractors and homeowners.
11. Rivonia trades as “Rivonia Mica Hardware & Paint” in Rivonia, Gauteng. It too
sells general building materials and home improvement related products to building
contractors and homeowners.
12. It is clear from the above that an overlap exists in the merging parties’ products
because both the target firms and Builders Warehouse, a division of the
Masswarehouse division of the acquiring firm, conduct business as retailers of
building supplies, hardware and related products. 6 These include products such as
motor accessories; electrical and lighting; DIY (handtools and ladders); household
(sanitary and plumbing); paint; powertools; yard products (generally referred to bulk
building supplies such as timber, cement, door frames and floor accessories); garden
and patio; and swimming pool accessories.
13. In its investigation, the Commission found that Builders Warehouse and the
target firms are designed to provide a onestop home improvement shops offering
the specialised products listed above. These products are sold to the following
customers: The DIY homeowner (i.e., undertaking small home improvement projects
and constructing home extensions); independent small building contractors; and
large building contractors (i.e., seeking materials from a convenient location). 7
14. In light of the above, the Commission concluded that that the relevant product
market for purposes of this transaction is the market for the retail of building supplies,
hardware and related products, this being the range of products where an overlap
exists between the merging parties.
Geographic market
exists between the merging parties.
Geographic market
15. Masstores operate through national chains which follow a national pricing policy.
Builders Warehouse and Tile Warehouse together constituting the majority of
Masstores’ business operations in the relevant market operate in Gauteng and the
North West provinces. The target firms’ business operations are limited to Gauteng
only. Hentiq operates in Germiston whilst Rivonia Mica operates in Rivonia.
16. The Commission concluded that the geographic overlap is therefore Gauteng and
that the relevant market would appear to be regional in extent, i.e., the province of
Gauteng. The Commission further contended that because the Masstores chain of
stores follow a national pricing policy it is possible that the market may be wider, i.e.,
national.
17. As a result, the Commission analysed the parties’ market share figures in the
6 The parties stated that building supplies, hardware and related products refers to
the following basket of products: motor accessories; electrical and lighting; DIY
(handtools and ladders); household (sanitary and plumbing); paint; powertools; yard
products (generally referred to bulk building supplies such as timber, cement, door
frames and floor accessories); garden and patio; and swimming pool accessories.
7 See page 38 of the record.
3
relevant product market both nationally and within the Gauteng region only. The
Commission found that Masstores’ market shares do not exceed 10% in the regional
and national level respectively. The combined market shares for Hentiq and Rivonia
were found not exceeding 2% in the regional and national level respectively. The
Commission ultimately found that the merged entity would enjoy a combined market
share not in excess of 11% either regionally or nationally.
Impact on competition
18. It appears that the merged entity’s market shares are very small, regardless of
whether the market is defined broadly as national or narrowly as regional. There are
numerous other players retailing in the same range of products as the merging
parties in addition to the big and popular players such as Cashbuild, Creditbuild and
many Mica franchise chain of stores.
19. Thus the transaction is unlikely to result in the substantial lessening or prevention
of competition in any relevant product market regardless of whether a national or
regional market is adopted.
Public interest issues
20.The merging parties advise that no job losses are anticipated as a result of the
merger.8
21. We agree with the Commission’s submission that this transaction is unlikely to
result in the substantial lessening or prevention of competition. We accordingly
approve this merger unconditionally.
___________ 24 August 2004
David Lewis Date
Concurring: Norman Manoim and Urmilla Bhoola
For the merging parties: Lee Mendelsohn & Mark Garden (Edward
Nathan & Friedland Corporate Law Advisers)
For the Commission: Thulani Kunene ( Mergers & Acquisitions )
8 See page 10 of the record.
4