COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 26/LM/Mar06
In the large merger between:
Fujitsu Siemens Computers (Holding) BV
and
Siemens Services Newco (Pty) Ltd
Reasons for Decision
_________________________________________________________________
APPROVAL
1. On 16 May 2006 the Competition Tribunal issued a merger clearance
certificate approving the merger between Fujitsu Siemens Computers
(Holding) B.V and Siemens IT Services Newco (Proprietary) Limited. The
reasons appear below.
THE PARTIES
2. The acquiring firm is Fujitsu Siemens Computers (Holding) B.V. (“FSC”)
which has it registered offices in the Netherlands. 1 FSC is jointly controlled
by Siemens Aktiengesellschaft (Germany) (“Siemens”), and Fujitsu Limited
(“Fujitsu”) in equal proportions. 2
3. FSC wholly owns Fujitsu Siemens Computer (Proprietary) Limited (“Fujitsu
Siemens SA”) which has its registered offices in Midrand, South Africa.
4. Siemens and Fujitsu control various firms in South Africa. 3The Siemens
1 Its principal place of business is Het Kwatdrant 1,3606 AZ Maarsen, Netherlands.
2 Siemens and Fujitsu jointly control FSC each owning 50% of the issued share capital in FSC. Siemens is a
Germany company and Fujitsu is a Japanese company.
3 The comprehensive list of all the firms controlled by Siemens and Fujitsu in South Africa is attached as
subsidiaries operate directly under the control of Siemens in Germany.
Fujitsu subsidiaries operate directly under the control of Fujitsu in Japan.
One of Siemens’ subsidiaries is Siemens Business Services (“SBS
Germany”) and it owns 70% of the issued shares in of Siemens Business
Services (Proprietary) Limited (“SBS RSA”). SBS RSA houses the business
of Product Related Services to be transferred to Siemens IT Services
Newco (Pty) Ltd (“Newco”).
5. The target firm is Siemens IT Services Newco (Pty) Ltd (“Newco”). Newco
is currently a shelf company, which is a wholly owned subsidiary of
Siemens Business Services (Proprietary) Limited (“SBS RSA”).
THE MERGER TRANSACTION
6. The shareholding of the parties to the transaction pre and post merger is as
follows:4
PRE MERGER
100%
76.7% 50% 50% 70%
100% 100%
70%
annexure A and B to the CC4(1) filed by FSC. See pages 1519 of the record.
4 At the hearing the merging parties were asked to give the Tribunal an organogram relating to the
shareholding in the various companies taking part or related to companies taking part in the merger
transaction. The parties submitted to the Tribunal 2 diagrams which are used in these reasons.
FUJITSU SIEMENS
FUJITSU
SERVICES
(PTY) LTD
FSC GERMANY
SIEMENS IT
SERVICES
NEWCO (PTY)
LTD
SIEMENS
TELECOMMUNICATIO
NS (PTY) LTD
FUJITSU
SIEMENS SA
SBS RSA
(PRS
BUSINESS
HOUSED
HERE)
2
POST MERGER
100%
76.7% 50% 50% 70%
100%
100%
7. The proposed transaction forms part of a transaction in terms of which FSC
will acquire the Product Related Services business (“PRS business”) of
Siemens Business Services GmbH & Co. OHG (Germany) (“SBS
FUJITSU SIEMENS
FUJITSU
SERVICES
(PTY) LTD
FSC GERMANY SBS RSA
SIEMENS
TELECOMMUNICATIO
NS (PTY) LTD
FUJITSU
SIEMENS SA
SIEMENS IT
SERVICES NEWCO
(PTY) LTD
(PRS BUSINESS
TRANSFERRED
FROM SBS RSA)
3
Germany”) which is housed in a number of Siemens subsidiaries in various
parts of the world, including South Africa.
8. The South African leg of the transaction involves the acquisition of 100% of
the issued shares in Newco by FSC.
9. Prior to FSC acquiring the issued shares in Newco, SBS RSA will transfer
its PRS business (“the transferred business”) to Newco. FSC will, either
directly or through affiliated undertakings, subsequently acquire the issued
shares in Newco. 5
RATIONALE FOR THE TRANSACTION
9.1 The parties have submitted that the proposed transaction forms part of
a transaction which is motivated by Siemens’s decision to focus its
business activities on its core business being the production and sale
of capital goods and accordingly divest the PRS business of SBS
Germany worldwide.
9.2 FSC intends to enlarge its service offering to its customers in the field
of IT services worldwide.
THE MERGING PARTIES’ ACTIVITIES
PRS Business “the transferred firm”
9.3 The business being transferred by SBS RSA to Newco entails the
exclusive provision of IT Hardware maintenance. This IT hardware
maintenance entails preventive and remedial services that physically
repair IT hardware either onsite or at a centralised repair depot. It
includes telephone technical troubleshooting and assistance for set up
and all fee based hardware warranty upgrades.
5 On page 188 of the record FSC had undertaken to purchase 70% of the issued shares in Newco and 30% to
be bought by a BEE partner. At the time of the signature of the Agreement for the sale and purchase of the
business known and recorded as the PRS business, this Carve out structure was still under discussion
4
9.4 To a very limited extent, the transferred firm also provides certain
other IT services which are normally provided by other business
units within Siemens, on an ad hoc basis to its IT hardware
customers that request such services. These might include
software maintenance and support, consulting, development and
integration, IT management services, business management
services.6
FSC (“Acquiring firm”)
9.5 The acquiring firm, FSC, does not conduct any business of its own in
South Africa. However, it wholly owns Fujitsu Siemens SA. The latter
primarily sells IT hardware and software products.
9.6 To a limited extent, Fujitsu Siemens SA also offers IT hardware
maintenance services, but only in the context of the maintenance
contracts that it concludes with customers that purchase IT hardware
products from Fujitsu Siemens SA.
9.7 Fujitsu Siemens SA does not provide the actual IT hardware
maintenance services itself, but uses external service providers on a
regular basis to provide the actual service.
Siemens
9.8 Siemens jointly controls FSC with Fujitsu. Siemens conducts
business in South Africa predominantly via a number of
subsidiaries.7 These subsidiaries provide a wide range of
products in the business areas of information and
communication, automation and control, power, transportation,
medical, lighting, building technologies, finance and real estates.
9.9 One of Siemens’ subsidiaries, Siemens Technologies (Pty) Ltd
provides IT hardware maintenance services in South Africa.
Fujitsu
6 See footnote on page 55 of the record.
7 See page 15 of the record for a comprehensive list of these subsidiaries.
5
9.10 Fujitsu does not conduct any business in South Africa but has a
number of subsidiaries. 8 These subsidiaries mainly design and
build and provide IT solutions and services. They also provide:
19.1. an endtoend IT service to business and government including retail
solutions. Retail solutions include solutions aimed at exploiting multi
channel retailing, managing instore systems, integrating supply chains
and optimising retail infrastructure;
19.2. infrastructure management (including data centre services, enduser
services, enterprise management, internet managed services, managed
services, integrated document and content management, open VME
enterprise systems and sun solutions);
19.3. IT consulting (including enterprise content management, knowledge
management strategy, Microsoft consulting and information security);
19.4. system integration (including application managed services, application
portfolio management, business integration services and legacy
migration);
19.5. solutions for financial services (consulting and IT infrastructure services
to enable financial services organisations to reduce cost, make
productivity improvements, and improve business processes). Only one
of Fujitsu’s subsidiaries in South Africa, Fujitsu Services (Pty) Ltd also
provides IT hardware maintenance services in South Africa.
Newco (“the Primary target firm”)
9.11Newco is a shelf company that has not traded or conducted any
business in South Africa. It has been specially created for the purposes
of this transaction.
THE RELEVANT PRODUCT MARKETS
9.12The merging parties have submitted that the market in which they
compete can be defined broadly and narrowly. The broad market
relates to the provision of IT services. Whereas the narrow market
relates to the provision of IT services. Whereas the narrow market
relates to the actual provision of IT hardware maintenance. The parties
further submitted that IT services (“the broad market”) are divided into
the following:
8 See page 18 for a comprehensive list of Fujitsu's subsidiaries in South Africa.
6
9.13IT hardware maintenance;
9.14software maintenance and support;
9.15consulting;
9.16Development and Integration;
9.17IT management services; and
9.18Business management services.
9.19The transferred firm provides IT hardware maintenance services almost
exclusively. The firms that form part of the acquiring firm in South Africa
are involved in the provision of the services listed above, except the
provision of Business management services. Thus, they also provide IT
hardware maintenance services though it is to a limited extent.
9.20There is therefore an overlap between the services supplied by the
transferred firm and those supplied by the firms that make up the
acquiring firm in relation the provision of IT hardware maintenance
services.
9.21The Commission has analysed the product market by categorising
them into horizontal and vertical markets. The horizontal product
overlap is between the services provided by the PRS SBS RSA
(“alternatively Newco”) and those supplied by the firms that make up
the acquiring firm in relation to the provision of IT hardware
maintenance services. The vertical relationship exists between PRS
Business (“the transferred firm”) and Fujitsu Siemens South Africa in
that the transferred firm purchases IT hardware from Fujitsu Siemens
SA.
10. The Commission defines the markets implicated as national since the
market participants in this market operate on a nationwide basis and the
condition of competition applying to the products concerned are the same
for all traders in the national geographic market.
11. We can find no reason not to accept the Commission’s definition of the
relevant product and geographic market, and in this respect we observe
that there is no material disagreement between its views on the subject and
that of the merging parties.
7
EFFECT ON COMPETITION
Horizontal Issues
12. The parties have provided the following table showing the market
participants and the estimated shares they hold in the narrow market (Table
1) and in the broad market (Table 2) for IT hardware maintenance services
in South Africa for the year ended 2004. 9
12.1Table 1 below shows that post merger, the merging parties will have a
combined market share of 6% in the narrow market for IT hardware
maintenance services. This market share is substantially low and is
unlikely to raise serious competition concerns Moreover, companies
like Hewlett Packard, Ericson, Alcatel and Business Connexion will
continue to compete and have a larger market share than the merging
parties post merger.
Table 1: Market Shares in the market for IT hardware maintenance
services in the narrow geographic market
Market Participant Estimated market share(%)
IBM 3.5
Fujitsu Siemens SA 1.6
HewlettPackard 7.3
Tsystems 0.1
SBS PRS (“the transferred firm”) 3.9
BT 0.2
Xerox 2.6
Dell Inc 1.8
Unlsys 0.8
Ericson 10.1
Sun Microsystems 0.9
Cisco Systems 1.2
NCR 1.4
Alcatel 10.1
Lucent Technologies 0.6
Siemens Communications and 0.5
9 The data in Table 1 and 2 are figures for 2004 and are based on the Gartner report, August 2005. Gartner
(www.gartner.com) is a leading provider of research and analysis about the global information
technology industry. See page 72 of the record for a copy of the Gartner Report with regards to the IT
industry in South Africa.
8
Enterprise
Nortel 0.3
Dimension Data 2.7
Business Connexion 8.3
Arrivia.kom 0.5
Gijima Ast 4.6
Gateway 0.2
CNT 0.3
Huawei 0.5
ZTE Corporation 0.5
Others 33.9
Total 100
12.2Table 2 below shows that post merger, the merging parties will have a
combined market share of 5%. This percentage is low and does not
raise serious competition concerns. Moreover, there are companies
that have bigger market shares and will continue to compete with the
merging parties postmerger and these include, Business Connexion,
Ericson, Dimension Data, Arivia.kom and Gijima Ast.
Table 2: market Shares in the market for IT hardware maintenance services
in the broad geographic market
Market Participant Estimated Market Share (%)
Business Connexion 15.7
Fujitsu Siemens SA 1.6
HewlettPackard 2.1
TSystems 3.2
SBS PRS (“the transferred firm”) 0.6
BT 0.6
Xerox 0.6
Dell Inc 0.3
Unlsys 0.4
Ericson 5.0
Sun Microsystems 0.2
Cisco Systems 0.3
NCR 0.4
Alcatel 4.8
Lucent Technologies 0.3
9
Siemens Communications and
Enterprise
2.9
Computer Science Corporation 2.7
Dimension Data 7.7
EDS 2.3
Arriva.kom 7.8
Gijima Ast 5.8
Accenture 1.6
Oracle Corp 0.8
Cap Gemini 0.6
Marconi Corporation 0.5
Atos Origin 0.4
Sage 0.4
Deloitte 0.3
Software AG 0.2
BEA Systems 0.2
First Data 0.2
Others 24.1
Total 100
12.3From the two tables above it is clear that the merger raises no serious
horizontal concerns because the parties’ post merger market shares
are low and many other competitors will remain active post merger.
Vertical Issues
13. The vertical integration issues arise from the fact that the transferred firm
provides IT hardware maintenance services to Fujitsu Siemens SA and
certain of Fujitsu Siemens SA’s competitors in South Africa, and the fact
that Fujitsu Siemens SA sells IT hardware spare parts to the transferred
firm and certain of its competitors.
14. The parties have submitted that the vertical integration will not raise
serious competition concerns for the following reasons:
32.1. Fujitsu Siemens SA has a relatively small share of IT hardware
equipment sales in South Africa (less than 5%). 10 Any refusal by Newco
to supply spare parts to other IT hardware maintenance service
providers after implementation of the transaction will not raise
10 Fujitsu Siemens SA had sales of IT hardware equipment of approximately R314 141 800.00 for the
financial year 2004/2005. According to figures published by the Industrial Development Corporation
(“IDC”), total IT hardware equipment sales (across all product categories) in south Africa for this period
amounted to R7 139 587 000.00, which gives Fujitsu Siemens SA a market share of approximately 4.4%.
10
competition concerns. According to the Commission and the parties
Newco will have every incentive to continue supplying third party IT
hardware maintenance service providers with spare parts to ensure that
purchasers of Fujitsu SA’s IT hardware equipment are able to access IT
hardware maintenance services for such equipment in a competitive
market.
32.2. Given that the transferred firm has a small market share of around 3.9%
in the market of IT hardware maintenance services, Newco will not have
the ability or incentive to engage in input foreclosure in relation to the
provision of IT hardware maintenance services to competitors of Fujitsu
Siemens SA.
32.3. Fujitsu Siemens estimates, it has significantly less than 1% share of the
upstream market in which it is a purchaser of IT hardware maintenance
services in South Africa. Any strategy by Fujitsu Siemens SA to source
IT hardware maintenance services from only Newco post merger will not
raise customer foreclosure concerns in relation to Newco’s rivals in the
market for the provision of IT hardware maintenance services.
15. It seems the impact of the vertical integration is minimised by the low
market shares of the merging parties. We find that the merger raises no
vertical concerns.
PUBLIC INTEREST
15.1.1 The parties and the Commission have submitted that FSC and its
controlling firms, Siemens and Fujitsu do not directly conduct any
business in South Africa save for their subsidiaries in the republic.
15.1.2 Since there is no trade union at the Product Related Service
Business (“PRS business”), a copy of the merger notice was served
on the employee representative, Mr Coenraad Groenewald. The
Commission indicated that it conversed with Mr Groenewald on two
occasions. Mr Groenewald is said to have indicated that the
occasions. Mr Groenewald is said to have indicated that the
employees at PRS business have no intention to oppose the merger
transaction but were only concerned about conditions of service,
severance packages and such like labour related concerns. The
Commission requested Mr Groenewald to articulate the employees’
concerns in writing. To date the letter from Mr Groenewald has not
yet been received by the Commission.
11
15.1.3According to the parties the transaction has no effect
on employment. 11
CONCLUSION
16. We conclude that the merger will not lead to a substantial lessening or
prevention of competition. In addition the merger raises no public interest
concerns that would not justify the approval of the merger.
25 May 2006
Norman Manoim Date
Concurring: Merle Holden and Urmila Bhoola
For the merging parties: Desmond Rudman and Calvin Maile, Werksmans
Attorneys
For the Commission: Tshepo Letsiala, Mergers and Acquisitions
11 See page 65 of the record where the parties have submitted that there will be no retrenchments as a result
of the proposed transaction and the employment conditions of the employees of the parties will not be
adversely affected as a result of the proposed transaction. The transferred firm has 60 employees all of which
are either skilled or highly skilled.
12