IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
Case no: 99/LM/Oct05
In The Large Merger Between:
Barloworld Coatings (Pty) Ltd Acquiring
Firm
And
Prostart Investments (Pty) Ltd t/a Marouns Target Firm
Reasons for Decision
Approval
1. On the 15 th December 2005 the Competition Tribunal issued a Merger Clearance Certificate
approving the transaction between Barloworld Coatings (Pty) Ltd and Prostart Investments
(Pty) Ltd t/a Marouns. The reasons for this decision follow.
The Transaction
2. The primary acquiring firm is Barloworld Coatings (Pty) Ltd (“Barloworld Coatings”), 1 a
wholly owned subsidiary of Barloworld Ltd (“Barloworld”). Barloworld is listed on the JSE
Securities Exchange South Africa. 2
3. The primary target firm is Prostart Investments (Pty) Ltd trading as Marouns (“Marouns”). 3
The shareholders of Marouns are J and V Trust, AMM Family Trust and CMW Family Trust
and who hold 100% between themselves.
4. Barloworld Coatings is acquiring 85% of the issued share capital of Marouns. Barloworld
Coatings will then dispose of between 10% and 15% of its shares in Marouns to a BEE
partner. According to the parties, it is envisioned that the BEE partner will directly or
indirectly take up a stake of up to 25% + 1 of the issued shared capital of Marouns in the
near future.
1 A list of Barloworld Coatings’ subsidiaries and associate companies can be found on page 2501 of the
record.
2 A list of shareholders who hold more than 1% of Barloworld’s shareholding can be found on page 3 of
the Commission’s Report. Barloworld controls a number of subsidiaries, a list of which can be found on
page 238 of the record.
3 A list of Prostart’s subsidiaries can be found on page 257 of the record.
Distributors: Technical and Sales service
5. For Barloworld Coatings, the transaction appears to be a defensive strategy since it is
acquiring its largest distributor in order to secure future distribution of its automotive paint
brands to the refinish segment of the market. 4
6. For Marouns, the acquisition will “ realize a succession plan and ensure stability for the
business” and will secure the jobs of its 300 employees countrywide.
The merging parties’ activities
7. Barloworld has nine main operating divisions: Equipment, Industrial Distribution, Motor,
Cement and Lime, Scientific, Coatings, Steel Tubes, Financial Services and Logistics.
8. Through its subsidiaries, Barloworld Coatings is active in the following segments of the
coatings industry: decorative paint, automotive paint, industrial coatings, furniture coatings,
colourants and complementary products such as paintbrushes and paint rollers. Barloworld
Coatings is licensed to manufacture automotive paint branded “Spies Hecker” and “Standox”
on behalf of Du Pont Performance Coatings, an international paint manufacturer.
9. Marouns is a distributor of refinish paint, ancillaries such as masking tape, plastic covers
and polishing compound, and paint application and equipment products such as spray guns,
extraction filters, bumpers and bonnets to panel shops. Marouns owns seven distribution
outlets: five in Gauteng, one in KZN and one in the Western Cape.
Competition analysis
10. Both parties are active in the automotive paint industry. Below is a diagram of the supply
chain in this industry.
11. The transaction is a vertical merger at two levels in this industry. The acquiring firm,
Barloworld Coatings, is both an importer and a manufacturer of refinish coatings and thus
operates in the upstream market. The target firm, Marouns, is a refinish paint distributor and
thus operates at the next level downstream. However the acquiring group is also active in
the last tier namely panel shops. Barloworld’s panel shops procure all their refinish
4 Page 10 of the economic report submitted by the merging parties.
Importers and manufacturers of refinish coatings
Panel shops and Panel beaters
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requirements from Marouns.
12. The Commission identified following markets:
12.1. Upstream National market for the manufacture and/or supply of refinish coatings
12.2. Downstream Regional market for the distribution of refinish coatings to panel shops
and other customers
12.3. Downstream market for the provision of panel beating services
The market for the manufacture and/or supply of refinish coatings
13. Even though an examination of the market shares provided by the parties shows that
Barloworld coatings has a 27% market share, this market does not raise any vertical
concerns as firstly, the Commission’s investigations revealed that there are a number of
credible alternate suppliers, and secondly, the parties have informed us that pre merger
Marouns procured nearly all of its refinish coatings requirements from Barloworld Coatings,
anyway.
The market for the distribution of refinish coatings to panel shops and other customers
14. According to the parties, Marouns owns 7 out of the 185 distribution outlets in South Africa.
Of the seven, five are situated in Gauteng. The parties submit that market share information
is not readily available but that Marouns accounts for not more than 30% of this market. Pre
merger, Barloworld’s panel shops sourced refinish coatings entirely from Marouns.
The market for the provision of panel beating services
15. According to the parties, there are approximately 3000 panel shops in South Africa, of which
Barloworld owns only eight. We agree with the Commission that Barloworld is a very small
player in this market and that the merger is unlikely to change the competitive landscape of
this market.
Third Party Concerns
16. Some distributors had complained to the Commission inter alia that post merger Barloworld
Coatings would use additional sales margins to gain market share thereby foreclosing some
Coatings would use additional sales margins to gain market share thereby foreclosing some
distributors. According to Commission, the majority of distributors who complained, supply
other brands that are in direct competition with those of Barloworld Coatings and don’t
procure refinish coatings from Barloworld Coatings at all. Barloworld Coatings has
nevertheless, undertaken to retain all of its current distributors and focus on appointing new
ones and treat such distributors and its on a nondiscriminatory basis. 5
17. The Tribunal invited the complainants to the hearing held on 15 December 2005. Only Mr IP
5 At paragraph 8 on Page 502 of the Commission’s Record. See letter from Barloworld Coatings to
Commission.
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Ferreira from Balco Auto Colour Pretoria (“Balco”) attended 6 although he requested Mr S
Singh MD of Ducol, to make submissions on his behalf. 7
18. It would appear that the main concern of Balco and Ducol was that the merger would
change “the business model in the refinish industry” 8 due to the fact that Barloworld
Coatings was entering the distribution level of the industry. Mr Singh also placed on record
their concern that Marouns would have a pricing advantage.
19. We are not convinced that these are valid competition concerns. Firstly both Balco and
Ducol exclusively sell brands, which compete with those manufactured by Barloworld
Coatings. Secondly, Mr Singh conceded that consumers might be “better off” as a result of
the merger. Thirdly, he further acknowledged that there were a number of suppliers, that
competition was fierce in this market and that numerous new players had entered recently.
Conclusion
20. In light of the above, we are of the view that the transaction will not have an adverse effect
on competition in any of the identified markets. There are no public interest issues which
would alter our view. We therefore approve the transaction without conditions.
___________ 23 March 2006
N Manoim Date
Concurring: Y Carrim and M Mokuena
For the merging parties: L Donaldson (Sonnenberg Hoffmann and Galombik Attorneys)
For the Commission : H Ratshisusu and K Theron (Mergers and Acquisitions)
6 Balco is a competitor of Marouns, with franchises operating nationally.
7 Mr Singh had assisted Mr Ferreira in the preparation of his submission.
8 Page 5 of the transcript.
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