COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 65/LM/Aug06
In the matter between:
SANDOWN MOTOR HOLDINGS (PTY) LTD Acquiring Firm
and
PAARL MOTORS (PTY) LTD Target Firm
_______________________________________________________________
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member), and Y Carrim (Tribunal Member)
Heard on : 11 October 2006
Delivered on : 11 October 2006
REASONS FOR DECISION
Approval
[1] The Competition Tribunal issued a Merger Clearance Certificate on 11
October 2006 approving without conditions the proposed merger
between Sandown Motor Holdings Ltd (“SMH”) and Paarl Motors (Pty)
Ltd (“Paarl Motors”). The reasons for the approval appear below.
The parties and the merger transaction
[2] SMH1 is a subsidiary of DaimlerChrysler South Africa (Pty) Ltd
1 SMH owns five (5) dormant companies, viz., Sandown Motors Bryanston; Sandown Truck
Centre (Pty) Ltd; Sandown Motors Village Close (Pty) Ltd; Orbit Motors Boland (Pty) Ltd; and
Ellenby Motors Hatfield (Pty) Ltd.
(“DCSA”),2 which in turn is controlled by DaimlerChrysler AG (“DCAG”),
a German company. 3 DCSA has a 75% interest in and exercises control
over SMH.
[3] SMH will acquire the entire business of Paarl Motors, 4 a DCSA
franchised new and used motor vehicle dealership, as a going concern. 5
Pursuant to entering into the sale of shares agreement, SMH will own and
control Paarl Motors. 6
Rationale for the transaction
[4] The Selfords Trust enters into this deal in order to realise its investment
in the business of Paarl Motors.
[5] SMH claims that the proposed deal would allow SMH to improve its
efficiency and customer service levels in its Western Cape operations.
SMH also claims that it will be able to allocate its capital investment and
other resources more efficiently between its various dealerships located
in Cape Town and the surrounding areas and thereby enhance its ability
to compete with dealers of vehicles brands such as BMW, Audi, Renault
2 DCSA also owns other subsidiaries, viz., DaimlerChrysler Services South Africa (Pty) Ltd;
DaimlerChrysler Capital Services SA (Debis) (Pty) Ltd; DaimlerChrysler South Africa
Manufacturing (Pty) Ltd; Atlantis Foundaries (Pty) Ltd; Koppe View Property (Pty) Ltd; and DC
Aviation (Pty) Ltd.
3 DCAG owns a number of subsidiaries worldwide, which are for our purposes unnecessary to
detail here. However, in South Africa DCAG controls two (2) companies, viz., AEG (Pty) Ltd;
and Siyakha Project, an association incorporated under section 21 of the South African
Companies Act, 1973.
4 Paarl Motors is wholly owned and controlled by the Selfords Trust. Paarl Motors does not
have any subsidiaries. In addition, the Selfords Trust controls other six (6) subsidiaries as
follows, Selfords (Pty) Ltd (i.e., motor body repair, and Shell); Selford Properties (Pty) Ltd (i.e.,
property owning business); Donford (Pty) Ltd (i.e., BMW, Motorrad, and Shell); Donford
Properties (Pty) Ltd; Donvol (Pty) Ltd (i.e., Landrover, and Volvo); and Stellenbosch Square
Service Station (Pty) Ltd (i.e., a Shell fuel service station). See Selfords Group organogram ,
page 644 of the record).
5 The merging parties advise that in a separate transaction, which also forms part of SMH’s
corporate strategy in South Africa, the BEE investors will acquire a 40% shareholding in SMH
and would result in DCSA reducing its current shareholding in SMH to 51,1% whilst the
remaining 9,9% interest will be held by RMC. The merging parties asserted that the said BEE
deal is not notifiable and as such has not been filed with the Commission. We note here that our
approval herein relates to the acquisition of the entire business of Paarl Motors by SMH, and
has therefore nothing to do with the aforesaid BEE deal.
6 For a detailed description of the transaction, see the Sale of Business Agreement entered into
between Paarl Motors and SMH, pages 181241 of the merger record.
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and Ford. 7
The relevant market
[6] SMH is a DCSA franchised dealership subsidiary, which operates the
DCSA brand centres in Gauteng and the Western Cape. SMH describes
itself on its website as the ‘largest dealer network in the powerful
MercedesBenz, Smart Cars, Chrysler, Jeep and Mitsubishi’ (the so
called ‘passenger vehicles’). It also sells commercial vehicles in brand
names such as MercedesBenz, Freightliner, Mitsubishi Fuso and
Western Star. 8 SMH only sells DCSA products, both new and used
motor vehicles – and is also involved in aftersales service 9 and sale of
spare parts 10 in respect of the vehicles it sells as well as sourcing of
vehicle accessories. 11
[7] DCSA currently operates in South Africa as a manufacturer and supplier
of passenger cars and commercial vehicles. DCSA markets eight (8)
branded passenger cars 12 as well as commercial vehicles. 13
[8] Paarl Motors is a DCSA franchised dealership, which operates in Paarl in
the Western Cape. It sells new and used vehicles – it is also involved in after
7 See page 246 of the merger record, in particular paragraph 2.1. The merging parties did not
file any board documents as the transaction was not discussed at the board levels of either the
primary acquiring or the target firm. However when we queried the nonexistence of minutes
during the hearing, we were advised that the transaction had been discussed at the board of the
acquiring firm’s controlling shareholder. While we are satisfied that the merging parties in this
case were not trying to mislead the Commission by not filing the shareholders minutes, we
would urge the Commission in future where parties advise that a large merger has not been
discussed at a board meeting, to enquire as to whether the transaction has been discussed at
some other level of a group, and if so, to require production of those minutes.
some other level of a group, and if so, to require production of those minutes.
8 For more detail, visit Sandown’s website: www.sandown.co.za.
9 SMH’s aftersales service is conducted by the SMH workshop, which performs routine
servicing as part of the maintenance plan with which new vehicles are sold, repairs, and
maintains vehicles, performs warranty repairs, outsources specialised repair work and does pre
delivery inspection of new DCSA vehicles.
10 SMH’s spare parts are sourced from DCSA. According to the merging parties, DCSA
employs the socalled “DNI’ strategy for the distribution of spare parts in terms of which all
DCSA franchised dealers have equal access to spare parts, drawing from the factory on
equivalent terms, when the need arises. SMH’s parts sales include retail sales and parts issued
to the workshop as a replacement part where a vehicle is being repaired or serviced.
11 According to the merging parties, SMH buys vehicle accessories from suppliers other than
DCSA, which accessories are limited to things such as towbars, bullbars and the like.
12 These are MercedesBenz, Mitsubishi, Chrysler, Jeep, Pajero, Mitsubishi, Colt and Smart
cars.
13 These are MercedesBenz commercial vehicles (including buses), Freightliner trucks,
Western Star (which are custom built on and off highway vehicles), and Fuso (including Canter
trucks).
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sales service and sale of spare parts in respect of its franchised brands; vehicle
accessories; and provides forecourt/service station.
[9] It is clear from the aforegoing that the merging parties’ activities overlap
horizontally.14 This is the case because both parties are involved in the
retail sale of new and used passenger and commercial vehicles, spare
parts and services of these vehicles and the sourcing of vehicle
accessories. It should be noted that we have previously approached
market definition in the retail motor vehicle markets by finding that
different segments constitute distinct relevant product markets. The
passenger vehicle submarkets may include cars which are entry level,
small, lower middle, upper middle, large, lower luxury, upper luxury,
lower speciality, upper speciality, small utility, lower middle utility, upper
middle utility, small minivans, and minivans. The market for commercial
vehicles can be categorised into light, medium, heavy commercial
vehicles, and buses and coaches over ten tons. 15
[10] From a geographic market point of view, DCSA manufactures and
supplies its products for sale throughout South Africa. SMH operates its
entire range of services in Gauteng and the Western Cape whilst Paarl
Motors conduct its business in Paarl, Western Cape. The merging parties
believe that the geographic markets for the manufacture/supply of
vehicles as well as for the sale of passenger and commercial vehicles is
national. The Commission viewed the geographic market as the Western
Cape area/region. 16 We deem it unnecessary for us to explore the
geographic market issue for purposes of this transaction given our finding
below.
Competition analysis
[11] We are satisfied that the proposed transaction appears unlikely to result
[11] We are satisfied that the proposed transaction appears unlikely to result
in a substantial prevention or lessening of competition for reasons
outlined below.
14 Notwithstanding the horizontal overlap thereof, the Commission submitted that the proposed
transaction further entail a vertical dimension in it because DCSA is a supplier of new and used
passenger and commercial vehicles to both SMH and Paarl Motors. However, the Commission
contends that the trading between SMH and Paarl Motors is insignificant as it constituted very
few percentages of Paarl Motors’ turnover in the previous financial year. We agree with the
Commission’s view and ultimately take it no further than this.
15 See our previous decisions, inter alia , DaimlerChrysler South Africa (Pty) Ltd and Sandown
Motor Holdings (Pty) Ltd [20012002] CPLR 151 (CT); Unitrans Motors (Pty) Ltd and the Motor
Division of Senwes Ltd [20012002] CPLR 350 (CT); etc.
16 See page 4, para. 4.1.2, of the Commission Recommendation.
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[12] The Commission’s market share investigation yielded the following
results in respect of each segment/subcategory of the affected markets. 17 The
merging parties’ have a combined postmerger market share for the passenger
vehicles market in the Western Cape region of approximately 8% (small cars);
32% (luxury cars); 32% (specialty cars); 15% (sport utility vehicles); and 14%
(minivans). With regard to commercial vehicles, the merging parties have a
combined postmerger market shares of approximately 6% (light commercial
vehicles); 13% (medium commercial vehicles); 13% (heavy commercial
vehicles); 35% (extraheavy commercial vehicles) and 23% (buses).
[13] As can be seen from the above market shares, the merging parties
appear to be market share leaders in the three (3) categories, viz., luxury cars,
specialty cars and extra heavy commercial vehicles. The merging parties
contend that the luxury market is highly competitive and manufacturers
continually innovate and release new models in order to attract luxury vehicle
buyers, and that new players such as Subaru have entered this market segment
recently.18 The merging parties argued similarly with respect to specialty cars
but added that there are a significant number of large competitors in this market
notably Toyota whom the merging parties regard as a formidable competitor.
The merging parties advised us that there are other large competitors in the
17 Both the Commission and the merging parties based the market share estimates on the
NAAMSA annual report of 2005.
18 The merging parties submit that Audi, for example, has released its new RS4 model and this
would impact on the market shares of other competitors in this market in 2006. They further
pointed out that in recent years, DCSA products lost significant market share to BMW and to a
pointed out that in recent years, DCSA products lost significant market share to BMW and to a
lesser extent to Audi. See page 273 of the merger record.
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extra heavy commercial market segment in the form of Tyco, Nissan and Volvo.
[14] The Commission contends that although in its view there is a high
likelihood of a reduction in intrabrand competition, this is unlikely to result in
reduced interbrand competition in the affected markets given the prevalence of
a wide range of brands and players in the market for the sale of new and used
passenger and commercial vehicles. 19
Public Interest
[15] The merging parties submitted that proposed transaction would not have
an impact on any public interest aspects. Indeed the merging parties
foresee potential benefit to the hundred and eight (108) current
employees of Paarl Motors since they will all be employed by SMH, a
larger vehicle dealer. 20
Conclusion
[16] We are satisfied that the proposed transaction is unlikely to result in a
substantial lessening or prevention of competition in the relevant
markets. There are no public interest grounds that justify prohibiting or
imposing any conditions on the merger. We accordingly approve the
proposed transaction unconditionally.
19 See page 14 of the Commission Recommendation. According to the Commission, the other
dealerships compete with the merging parties in each and every category and subcategory of
new and used passenger and commercial vehicles, and as such dealership outlets compete for
customers in terms of better services offerings and attractive maintenance contracts and related
services. These dealerships include those supplying vehicles of other manufacturers such as
Audi, Volvo, BMW, Chevrolet, MAN, and Scania. The Commission submit that it has considered
DCSA’s strategy as DCSA has been substantially involved in a number of acquisitions. The
Commission investigation revealed that DCSA’s strategy is in line with its own DNS approach
Commission investigation revealed that DCSA’s strategy is in line with its own DNS approach
and has entered into acquisitions related to its own products. According to the Commission, this
approach does not amount to any form of foreclosure or anticompetitive behaviour. See pages
1516 of the Commission Recommendation.
20 See in this regard, pages 30 and 297 of the merger record.
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______________
D Lewis
N Manoim and Y Carrim concurring.
Tribunal Researcher: T Masithulela
For the merging parties : L Morphet and H Irvine ( Deneys Reitz
Inc.)
For the Commission : L Lamola (Mergers and Acquisitions)
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