Masstores (Pty) Limited and Cell-Shack Communications (Pty) Limited (02/LM/Jan05) [2005] ZACT 14 (18 March 2005)

COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
                                                                                               Case No.: 02/LM/Jan05
In the large merger between:
Masstores (Pty) Limited  
and
The business conducted by Cell­Shack 
Communications (Pty) Limited
                                                       Reasons for Decision
Approval
 1. The Competition Tribunal issued a Merger Clearance Certificate on 17    th     March     
2005   approving   without   conditions   the   merger   between   Masstores   (Pty)   Ltd  
(“Masstores”)  and  the  business  of  Cell­Shack  Communications  (Pty)  Ltd  (“Cell­
Shack”). The reasons for approving the merger are set out below.
The merger transaction
2. The proposed transaction entails the acquisition, as a going concern, by Masstores of  
the business of Cell­Shack comprised of the wholesale of pre­paid and contract airtime  
products   and   cellular   telephones   and   accessories,   together   with   related  
telecommunications   support   services   (the   “business”). 1  The   transaction   will   result   in  
Masstores owning the business of Cell­Shack.
Merging parties
3. The   primary acquiring firm   is Masstores, a wholly owned subsidiary of Massmart  
Holdings   Ltd   (“Massmart”),   a   company   listed   on   the   JSE   Securities   Exchange. 2  The  
Commission   collectively   referred   to   Massmart   and   its   subsidiaries   as   the   “Massmart  
Group”. 
4.   The   primary   target   firm   is   the   business   conducted   by   Cell­Shack.   Cell­Shack   is  
1  The business includes the “Business Assets”, but specifically excludes the “Business Liabilities”. (See the  
Sale of Business Agreement – pages 64­65 of the record).
2  Other wholly owned subsidiaries of Massmart’ are the following: Jumbo Cash & Carry (Pty) Ltd; Shield  
Buying & Distribution (Pty) Ltd; Massmart Management & Finance Co. (Pty) Ltd; CBW Holdings (Pty)

Ltd; Imagegate Ltd; Furnex Stores (Pty) Ltd; Massmart Trade (Pty) Ltd; and Massmart Services (Pty) Ltd.

controlled by the Teljoy Group (Pty) Ltd (“Teljoy”), which in turn controls a number of  
firms.3  The Commission pointed out that neither the subsidiaries of Massmart nor the  
business of Cell­Shack control any firm.
Rationale for the transaction
5. The Massmart Group seeks to expand its business operations in the sale of pre­paid  
and   contract   airtime   products,   together   with   the   ancillary   cellular   telephones   and  
accessories. The parties expressed that the Cell­Shack will be housed in the Masstrade  
Division since the current operations of the latter (as regards cellular communications)  
are limited to the wholesale of pre­paid airtime products, mobile telephone handsets &  
accessories. According to the parties, Cell­Shack has an established brand which would  
allow the Masstrade Division to expand its current member base. Lastly, the Cell­Shack  
call centre would also serve to add value to the broader Massmart Group.
6.   Cell­Shack’s   rationale   is,   firstly,   that   the  original   entrepreneur  driving   the  business  
wishes to pursue other opportunities within the Teljoy Group of companies.   Secondly, 
the Teljoy Group of companies is concerned with its over­exposure to the cellular market  
through   both   wholesale   &   retail   channels   and   wishes   to   consolidate   its   gains   and  
concentrate on its retail route to market. 4
What is it that the merging parties do?
The Primary Acquiring Firm
7.  Massmart  is a high volume, low margin retailer of food, liquor, general merchandise,  
tobacco products and, to a limited extent, cellular products. 
8.   Masstores   consists   of   the   Massdicounters   and   the   Masswarehouse   divisions   of  
Massmart – being the divisions within which the Massmart Group conducts its business.
9.   Massdicounters   comprises   a   chain   of   retail   discount   stores   trading   under   the  
“Game”   and   “Dion”   retail brands, which offers a wide range of general merchandise,

“Game”   and   “Dion”   retail brands, which offers a wide range of general merchandise,  
non­perishable groceries and  cellular products   to the value­seeking end­consumer.
10.  Masswarehouse  comprises the following 3 business entities:
 Makro   –   a   chain   of   large   wholesale   outlets   selling   a   range   of   food,   liquor,  
tobacco products & general merchandise to commercially affiliated resellers and  
upper­income end­consumers;
 Builders Warehouse –  a chain of warehouse outlets that sells building materials  
supplies, hardware & related products; and
 Tile Warehouse –  a chain of warehouse outlets selling ceramic & other tiles and  
3  They are Film Fun Holdings (Pty) Ltd; Africell Cellular Services (Pty) Ltd; Teljoy Business Systems  
(Pty) Ltd; Teljoy Botswana (Pty) Ltd; and New Ultimate Sounds (Pty) Ltd. (See pages 4­5 of the record) 
4  See pages 46­47 of the record. See further a document entitled  “Proposal: Acquisition of Cell­Shack”  –  
page 263 of the record.  
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related products. The latter 2 warehouses operate through various stores located  
in   various   localised   geographic   regions   within   the   Gauteng   &   the   North   West  
provinces.
11. According to the parties, the divisions within the Massmart Group that are involved in  
the   sale   of   pre­paid   and   contract   airtime   products,   mobile   telephone   handsets   &  
accessories are as follows 5:
 The   Masswarehouse   Division   is   involved   in   the   wholesale   of   pre­paid   airtime  
products,   the  retail   of   pre­paid   airtime  products  and   contract   airtime  products.  
This   division   also   sells   mobile   telephone   handsets   and   accessories   on   both  
wholesale and retail bases;
 Each   of   the   Masscash   Division   and   the   Masstrade   Division   engages   in   the  
wholesale   of   pre­paid   airtime   products,   mobile   telephone   handsets   and  
accessories; and
 The Massdiscounters Division partakes in the retail of pre­paid airtime products  
and   contract   airtime   products,   and   also   sells   mobile   telephone   handsets   and  
accessories on a retail basis.  
The Primary Target Firm
12.   The   business   of   Cell­Shack   is   mainly   the   wholesale   of   pre­paid   and   contract  
airtime products and cellular telephones as well as the accessories. 
The relevant product market 6
13.   It   is   unquestionable   that   an   overlap   exists   between   the   activities   of   the   merging  
parties insofar as it relates to the wholesale and retail of pre­paid and contract airtime,  
cellular telephones and accessories.
14.   According   to   the   parties,   the   products   sold/provided   by   the   Massmart   group   of  
companies, which overlap with those sold/provided by Cell­Shack, are limited to – 
 Pre­paid airtime, which embraces starter packs (comprising a sim card, network  
connection & airtime minutes); and airtime recharge vouchers;

connection & airtime minutes); and airtime recharge vouchers;
 Contract   airtime   products,   which   comprise   various   categories   of   airtime  
contracts;
 Various brands & models of cellular telephones; 
 Accessories,   which   include   car   kits,   cell   pouches,   antennas,   batteries,   car  
chargers, desk top chargers, replacement chargers and walk & talk bits; and
 Value added services such as contract upgrades.
The relevant geographic market 
5  Refer to page 44 of the record.
6  The parties defined the relevant market as the “market for the sale of pre­paid airtime products & contract  
airtime products. See ENF’s letter to the Commission dated 13 January 2005 (Pages 279­280 of the record).
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15. The merged entity’s operations are rendered on a national basis, throughout South 
Africa.   The   Commission   pointed   out   that   both   parties   are   active   either   through   their  
stores   (i.e.,   the   acquiring   firm)   or   have   distribution   network   (i.e.,   the   target   firm)  
nationally. We have also been told that the 2 firms adopt a national pricing policy. In light  
of this, the Commission and the parties defined the geographic market as a national one.
We do not have a concern with the parties’ and the Commission’s view in this regard. 
Competition Evaluation 
16. The merger filing reflected that the merging parties would have a combined post­
merger market shares of 11% in the sale of pre­paid and contract airtime as well as  
cellular   phones   and   accessories.   The   table   of   market   share   figures   provided   by   the  
parties   revealed   that   Massmart   enjoys   9%;   Cellular   Price   Buster   (5%);   the   Pre­Paid  
Company   (5%);   Crown   Cellular   (5%);   Future   Cell   5%;   Cell­Shack   2% ;   and   Others 
69%.7  These figures assume that there is a single relevant market comprised of both  
retail   and   wholesale   sales.   Whether   or   not   they   should   be   considered   as   separate  
markets  is   not   a  question   we   have   to  determine.   At   the   hearing,   Mr   Richard   Millson  
testified  that   assuming  there  is  a separate  wholesale   market   for  the  above  products,  
then the parties would have a combined post­merger market share of 8%. 8  If this is a  
true   reflection   of   the   post­merger   market   shares,   they   are   relatively   small.   The  
Commission   contended   that   the   estimated   market   share   is   below   the   Commission’s  
benchmark   of   15%,   and   therefore   unlikely   to   raise   competition   concerns.   The  
Commission intimated that the 3 major network providers (i.e., MTN, Vodacom and Cell­

Commission intimated that the 3 major network providers (i.e., MTN, Vodacom and Cell­
C)  also   sell   these  products  to  resellers   and   individuals   in   competition  with  Massmart  
Group   and   Cell­Shack.   It   is   the   Commission’s   view   that   these   big   three   pose   a  
competitive constrain to the merging parties. 
17.   We   are   satisfied   that   the   merger   does   not   raise   any   significant   potential   vertical  
concerns that would lessen or prevent competition in the relevant market substantially. 9 
Conclusion 
18. The merger raises no public interest concerns militating against the approval of the  
transaction. Accordingly, the merger is approved unconditionally.
_______________                                                                            18 March 2005
7  In the above letter, the merging parties intimated that it is not easy to obtain accurate information on the  
market share of the competitors due to the lack of accurate market data. They estimated that only 20 firms  
partake in the relevant market. (See further page 49 of the record).  
8  See Millson’s testimony, page 1 of the transcript of 18 th March 2005.
9  For a further discussion on this, please refer to pages 280­281 of the record, and page 4 of the  
Commission’s recommendations. 
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Norman Manoim                                                                                             Date   
 Concurring:  Yasmin Carrim and Lawrence Reyburn
For the merging parties     :  Lee Mendelsohn & Mark Garden  (Edward Nathan
                                              Corporate Law Advisors)  
For the Commission          :  Magale Mohlala ( Mergers & Acquisitions )            
 
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