COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 23/LM/Mar05
In The Large Merger Between:
Community Investment Ventures Holdings (Pty) Ltd
Community Investment Ventures (Pty) Ltd Acquiring Firms
And
Community Investment Holdings (Pty) Ltd
CIE Group (Pty) Ltd Target Firms
Reasons for Decision
Approval
1. On 16 May 2005, the Competition Tribunal issued a Merger Clearance Certificate approving
the transaction between Community Investment Ventures Holdings (Pty) Ltd /Community
Investment Ventures (Pty) Ltd and Community Investment Holdings (Pty) Ltd / CIE Group
(Pty) Ltd. The reasons for this decision follow.
The Transaction
The Parties
2. The parties to the transaction are Community Investment Ventures Holdings (Pty) Ltd (“CIV
Holdings), Community Investment Ventures (Pty) Ltd (“CIV”), Community Investment
Holdings (Pty) Ltd (“CIH”), CIE Group (Pty) Ltd (“CIE”). 1
Structure of the transaction
3. CIVHoldings and its subsidiary CIV are two special purpose vehicles established for the
purpose of the transaction. The transaction constitutes two indivisible parts. Firstly, CIV will
acquire the following investments from CIE and CIH:
3.1. Tofo Public Cellular Payphones (Pty) Ltd (“Tofo”);
3.2. Cosource (Pty) Ltd;
3.3. CIE Telecoms and its subsidiaries viz.
3.3.1.MCT Telecommunications (Pty) Ltd and its subsidiaries Dartcom (Pty) Ltd and
Mobile Data Telecommunication (Pty) Ltd;
3.3.2.CZ Electronics (Pty) Ltd and its subsidiary CZ Electronics Manufacturing
1 For more detail on the shareholding of the parties, see Page 69 of the Commission’s Report.
CIE
Management
(“CZE Manufacturing”).
4. The second part of the transaction involves CIVHoldings being acquired and jointly
controlled by CIE, CIH, RockIT Advisors (Pty) Ltd and Goldex 254 (Pty) Ltd. 2
5. ABSA Bank Ltd holds a number of preference shares in CIV, CIVHoldings’ wholly owned
subsidiary. In terms of the CIVHoldings Shareholders Agreement, ABSA and the
shareholders of CIVHoldings are afforded certain minority protections, the result of which is
that ABSA, CIE, CIH, RockIT Advisors and Goldex will, post merger, exercise joint control
over CIV and the investments transferred to it by CIE and CIH. In addition, CIV will sign a
management agreement with RockIT Advisors in terms of which RockIT Advisors will
manage the business of CIV. The post merger the structure of the merged entity will be as
follows:
2 See page 790 of the record.
CIERockit
Advisors Goldex
100% Crossroads
CIH
100%
Pref.
Shares
Inkonkoni
Investment
Mantokozo
Investment
Merino
Investment
30%
Ordinary
Shares
70%
Ordinary
Shares
Malesela Power &
Energy
CIVHoldings
CIV
ABSA
MTSMTec
MPP&EMT&D
ConlogNuLec
Malesela
Telecommunications
MCT Telecoms CZ Electronics
MDT
CIE TelecomsCosourceTofo
Dartcom CZE Manufacturing
Jasco Sukuma
TelescienceWebb
Industries
2
Rationale for the transaction
6. According to the parties, CIE and CIH have entered into the transaction in order to comply
with BEE requirements. The parties anticipate the transaction to provide a platform for
becoming more meaningful participants in the ICT sector. 3
The Parties’ Activities
7. CIVHoldings, CIV and Goldex are newly established companies and therefore did not
conduct any activities premerger. CIE is an investment holding company and is structured
across two main strategic portfolios, being telecommunications and information technology
(IT) applications. The telecommunications portfolio is operated through CIE Telecoms and
its subsidiaries, CZ Electronics, MCT Telecoms and Dartcom, while the IT applications are
conducted through Cosource, Tofo and NetraLink (Pty) Ltd. 4 As will shown below, only
Dartcom is relevant for our analysis. Dartcom is a specialist assembler and distributor of
fibre optic communications components, radio frequency subsystems and accessories.
8. CIH is an investment holding company and comprises of three main portfolios viz.
8.1. Community Logistics & Transport,
8.2. Malesela Power & Energy and
8.3. Malesela Telecommunications.
9. The Community Logistics and Transport portfolio comprises Crossroads Distribution (Pty)
Ltd, a logistics company. A number of firms constitute the Malesela Power & Energy and the
Malesela Telecommunications portfolios of CIH, however only Malesela Taihan Electrical
Cable (“MTec”) and Jasco Electronics Holding Ltd (“Jasco”) are relevant for our purposes. 5
10. MTec manufactures power and telecommunications cables as well as nonferrous power
cables, overhead conductors, bare copper wire, strip products and optical cables. Jasco
operates via three divisions viz. telecommunications, security and manufacturing. It consists
operates via three divisions viz. telecommunications, security and manufacturing. It consists
of two main businesses namely Telesciences and Webb Industries. However, Webb
Industries is the only firm relevant for the purpose of the analysis. Webb Industries is
involved in the design, manufacturing and supply of telecoms products, twoway radio
markets, GSM markets, other wireless access product markets and the establishment of
communication hisites throughout South Africa.
3 Page 789 of the record.
4 NetraLink is a subsidiary of CIE Telecoms and will remain with CIE post merger.
5 See the page 811 of the Commission's Report for more detail on the subsidiaries of CIH.
3
11. The Commission found that the activities of CIH’s two subsidiaries viz. MTec and Jasco,
overlapped with the activities of CIE’s subsidiary, Dartcom.
Impact on competition
Horizontal analysis
12. The Commission found overlaps in the following markets:
12.1. Market for Wireless Connectivity
12.2. Market for Fibre Optic Cables
12.3. Market for the manufacturing of Masts
13. The Commission’s Report provided the following market shares for the above markets:
Market shares in the national market for wireless connectivity
Players Market share
Dartcom 20%
Andrew Corporation 20%
Siemens 11%
Ericsson 11%
Webb Industries 5%
RFS 5%
Comscope 5%
NK Cables 5%
Cisco 5%
Alvarion 5%
Alcatel 5%
Leonie 2%
Rosenburger 1%
Total 100%
Source: the merging parties
Market shares in the international market for fibre optic cables
Players Market share
MTec 55%
Aberdare 19%
ATC 17%
Perelli 2%
Samsung 2%
Tank Industries 2%
Dynamic Cables 2%
Dartcom 1%
Total 100%
Source: the merging parties
Market shares in the international market for infrastructure hardware
4
Players Market share
Siemens 51%
Ericsson 10%
Alcatel 10%
Plessey 9%
Andrew Satcom 6%
Webb Industries 3.5%
Kathrein 2.6%
Radio Frequency Systems 2.6%
Sectional Poles 2.6%
Dorbyl 2.6%
Dartcom 0.2%
Total 100%
Source: the merging parties
14. The post merger market shares in the above markets will be 25%, 56% and 3.7%
respectively.
15. The Commission was of the view that even though in the first two markets above, the post
merger market shares of the merging firms would be high, no significant competition
concerns would likely arise due to the following factors:
15.1. Barriers to entry are low with room for new entrants to expand their markets.
Products are easily transportable, compatible and interoperable across brands
15.2. The geographic markets are international and even though exclusive agreements
between suppliers and valueadded distributors (VAD) occur, VAD’s may enter into
as many exclusive agreements as they like. Furthermore, VAD’s commonly second
source6 and suppliers are allowed to terminate exclusive arrangements on relatively
short notice.
15.3. Since customers are branddriven and VAD’s source as many brands as possible,
customers liberally negotiate preferred terms and conditions, settlements and
discounts. Accordingly, the Commission is of the view that customers exercise
countervailing power.
16. In the market for the supply of masts, the Commission found that the increment in Webb
Industries market share will be less than 1% and is therefore insignificant.
17. Without making a definitive finding on the relevant markets, we agree with the Commission
that the horizontal overlaps do not raise any competition concerns.
Vertical analysis
18. The Commission also identified two sets of vertical relationships, which prevailed, viz.
18.1. In the market for the supply of wireless connectivity, Dartcom and Webb Industries
source from each other;
source from each other;
18.2. In the market for fibre optic cables, MTec is a manufacturer of fibre optic cables and
6 According to the Commission, this is a common practice arrangement by which VAD’s arrange for an
alternative source should the original supplier not perform or deliver on time.
5
Dartcom is a reseller (Value added distributor).
19. The Commission, however, was of the view that the vertical relationships raised no
concerns. The Commission found that Dartcom and Webb Industries source less than 1% of
their total supplies of wireless cables and connectors from each other. The low percentage
therefore negates sound rationale for foreclosure. In the market for fibre optic cables,
Dartcom has approximately 1% of the local market and therefore is not significant enough to
result in foreclosure. The Commission concluded that the vertical relationships would
unlikely prevent or lessen competition in a significant way. We agree with the Commission’s
analysis.
Public Interest
20. According to the parties, the transaction will have no adverse effect on employment due to
the fact that the businesses will continue to operate post merger as they did before. The
parties submit that the merger increases the ability of small businesses or firms controlled
by or owned by historically disadvantaged persons to become competitive. 7
Conclusion
21. Having regard to the above, 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.
23June 2005
D Lewis Date
Concurring: N Manoim and Y Carrim
For the merging parties: J Katz (Webber Wentzel Bowens)
For the Commission: O Strydom (Mergers and Acquisitions)
7 Section 12A (3)(c).
6