Main Street 522 (Pty) Ltd and Edgars Consolidated Stores Ltd (24/LM/Mar07) [2007] ZACT 30; [2007] 1 CPLR 196 (CT); [2007] 1 CPLR 196 (CT) (3 May 2007)

60 Reportability
Competition Law

Brief Summary

Competition — Merger Approval — Main Street 522 (Pty) Ltd acquiring Edgars Consolidated Stores Ltd — Tribunal approval of merger following assessment of vertical integration concerns — No dominant players identified in respective markets of luggage distribution and retail — Change in ownership unlikely to negatively impact competition or pricing policies — Objections from third parties dismissed due to lack of proper application and relevance to merger — Tribunal approves transaction without conditions.

COMPETITION TRIBUNAL OF SOUTH AFRICA
       
               Case No: 24/LM/Mar07
In the matter between:
Main Street 522 (Pty) Ltd                                                             Acquiring Firm
and
Edgars Consolidated Stores Ltd                                                Target Firm
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal
Member) and   Medi Mokuena(Tribunal Member)
Heard on : 25 April 2007
Order issued on : 25 April 2007
Reasons issued on : 03 May 2007
Reasons for Decision
APPROVAL
1]On 25 April 2006, the Tribunal approved the merger between Main Street 522  
(Pty)   Ltd   (“Bidco”)   and   Edgars   Consolidated   Stores   Ltd   (“Edcon”).   The  
reasons for approval follow.
THE TRANSACTION
2]Pursuant to the implementation of the proposed transaction, Bidco, a special  
purpose   vehicle   used   by   Bain   Capital,   will   acquire   from   Edcon   the   entire  
issued   share   capital   by   way   of   two   schemes   of   arrangement.   The   first   of  
which will be entered into by Edcon and its ordinary shareholders and the  
second   scheme   will   be   between   Edcon   and   its   preference   shareholders  
regarding the sale of these shares to Bidco. On completion of the proposed  
transaction, it is intended that the retail business of Edcon will be sold into a

newly incorporated operational company Retailco. The proposed transaction  
contemplates the delisting of Edcon from the JSE.
3]Bain   Capital   believes   the   acquisition   of   Edcon   represents   an   attractive  
investment opportunity for it to expand its portfolio of companies.
THE PARTIES AND THEIR ACTIVITIES
4]The primary acquiring firm is Bidco, a special purpose vehicle that conducts  
no   other   business.   Upon   implementation   Bidco   will   be   a   wholly­owned  
subsidiary   of   Lexshell   718   (Pty)   Ltd   (“Holdco”).   Holdco,   in   turn,   will   be  
controlled by an entity referred to as Spaza Luxco, which will hold in excess  
of   50%   of   the   issued   share   capital   of   Holdco. 1  The   remaining   shares   of  
Holdco   will   be   owned   by   the   Management   Trust,   a   vesting   Trust   through  
which  the current  management  of  Edcon will  hold shares in Holdco  and a  
BEE Trust. Spaza Luxco will, in turn, be owned by various funds which are  
ultimately controlled by Bain Capital. 
5]The target firm, Edcon, is a public company which is incorporated in South  
Africa.   It   is   a   multi­brand   retailer   which   trades   through   a   range   of   retail  
formats namely Edgars, C.N.A., Boardmans, Red Square, Prato, Temtations  
and Edgars Active retail chains.
THE RELEVANT MARKET
6]Edcon, through its various retail divisions are involved in the retailing of men,  
women and children’s clothing and footwear, luggage, stationary, homeware,  
textiles and furniture.
7]As   indicated   above   Bidco,   Holdco   and   Spaza   Luxco   are   special   purpose  
vehicles which have previously not traded. Bain Capital is a world wide fund  
1 Spaza Luxco has not yet been incorporated but will be a company incorporated and  
registered in Luxembourg.

management group that manages private equity, venture capital and hedge  
and high yield funds. In South Africa it has interests in various companies,  
one being, Samsonite, a manufacturer and supplier of luggage.
8]Thus, although there is no horizontal overlap in the activities of the merging  
parties the transaction does raise vertical integration issues with regard to the  
distribution and retail of luggage.  
Impact on Competition
9]Vertical   mergers   mostly   raise   concerns   if   one   of   the   merging   parties   is   a  
dominant player at one or more of the related vertical levels. 2 
10]According to the merging parties Samsonite, which has an estimated market  
share  of   8­10% in   the  upstream market,   does  not  manufacture luggage  in  
South Africa but imports and distributes its luggage through an independent  
entity called  Dynasty  Luggage   (Pty)  Ltd.   It   competes  with  players  such  as  
Interbrand   (Pty)   Ltd,   International   Bag   &   Travel   goods   (Pty)   Ltd,   Leisure  
Luggage Manufacturers (Pty) Ltd, Capri Bag Manufacturers and various other  
players. Samsonite does not currently supply luggage to Edcon. 
11]Edcon   submits   that   it   has   a   market   share   of   between   13­14%   in   the  
downstream   luggage   retail   market.   It   competes   with   most   of   the   large  
retailers such as Pick ‘n Pay, Massmart, Makro, Game, Frasers, Hepkers and  
various other independent retailers.   
12]From the above it is clear that there are many players in both levels of the  
supply   chain   and   that   neither   Samsonite   nor   Edcon   are   dominant   players  
within their respective markets. The transaction is therefore unlikely to raise  
any vertical concerns.
13]The   change   of   ownership   will   lead   to   a   change   in   the   financing   of   the  
business. Edcon will as a result of the financing structure carry far more debt  
2 A dominant firm is defined in section 7 of the Competition Act.

than it did as a widely held listed entity. We enquired at the hearing whether  
the new debt structures might make Edcon less price competitive than it had  
been  pre­merger. The merging  parties assured the Tribunal  at  the  hearing  
that Edcon’s profit margins were sufficient to meet the additional debt brought  
on   by   the   acquisition   and   that   it   would   not   impact   negatively   on   Edcon’s  
pricing policies, it being a low margin/high volume business. 
CONCLUSION
14]There are no significant public interest issues and we accordingly approve  
the transaction without conditions.
OBJECTIONS
15]The Tribunal has received two sets of communications from parties opposed  
to   the   merger.   None   of   these   parties   appeared   at   the   hearing   to   address  
these   issues   or   to   apply   formally   to   intervene   in   our   proceedings   prior   to  
commencement.
16]One   letter   from   an   attorney   relates   to   whether   a   former   Edcon   employee,  
retrenched in 2003, is entitled to stock options for the period after the date of  
the retrenchment. 3 This dispute as to whether the options are payable or not,  
is   n ot   merger   specific,   and   does   not   implicate   any   provision   of   the  
Competition Act. 
17]The   second   relates   to   a   Mr   Press,   who   on   the   morning   of   the   hearing,  
purported   to   apply,   by   way   of   faxed   and   e­mailed   correspondence,   for   a  
postponement in order to be allowed to intervene in the merger proceedings. 4
18]The Tribunal decided not to postpone proceedings, and proceeded to hear  
the merger.
3  See correspondence from P.R. Maharaj & Co to the Competition Commission and the  
bundle attached thereto dated 20 April 2007.
4  See correspondence from Mr G. Press dated 23 April to 25 April 2007.

19]Mr Press’ putative application for a postponement to allow him an opportunity  
to intervene is unsuccessful for several reasons. In the first place we would  
be justified in coming to the conclusion that we have no proper application  
before us. Mr Press has not filed an application that meets the requirements  
of rule 46 (the rule that regulates intervention applications) nor rule 42 (the  
rule   that   regulates   applications   generally)   of   the   Tribunal   rules   and   it   is  
difficult   to   discern   what   is   before   us   –   an   application   to   postpone,   an  
intervention application or both. This is not mere formality. If someone wishes  
to   bring   an   application   fairness   and   the   proper   administration   of   justice  
require some degree of adherence so that those affected by the application  
can understand what it is and have an opportunity to respond. In this case,  
what   purports   to   be   the   application,   has   not   ex   facie   the   document,   been  
served on the other parties. Further it arrived mid­morning of the day of the  
hearing and we were only made aware of it prior to our hearing as we had  
fortuitously   taken   an   adjournment   and   our   attention   was   drawn   to   by   the  
registrar.5
20]At the hearing no person was present to move Mr Press’s application and the  
record will indicate that we enquired if anyone was present as an objector.  
There was no response to this request.
21]A further criticism is that Mr Press did not set out a basis for why he had any  
legal interest in the proceedings. While the Tribunal has a broad discretion to  
recognise intervenors this is not unlimited. As the Competition Appeal Court  
has   noted   in   Anglo   South   Africa   Capital   (Pty)   Ltd   and   Others   v   IDC   and  
others:6
“The granting of leave to participate is discretionary. However, such  
discretion   cannot   be   unfettered.   The   discretion   must   be   exercised

discretion   cannot   be   unfettered.   The   discretion   must   be   exercised  
judiciously or according to rules of reason and justice.”  
5  Our records indicate that it was received at 10h51on the day of the hearing. Our hearings  
commence at 10h00.The relief sought ex facie the document reads as follows, “Leave to  
intervene, To apply for postponement until April 30 2007. To make submissions in the Public  
Good sub­clause i.v. (please refer to accompanying e­mail).”
6 See CAC Case No: 26/CAC/Dec02, page 25 of decision.

22]It would be manifestly unfair to merging parties if we postponed proceedings  
every time a prospective intervenor, who had neither made representations to  
the   Commission   during   its   investigation   process   nor   appeared   on   the   due  
date before the Tribunal to argue its case for a postponement, was allowed to  
obtain  a  postponement   through   a  fax  or  e­mail   to  the   registry.   To  tolerate  
such a practice would make merger proceedings hostage to opportunists and  
mischief makers.
23]Despite   the   lack   of   a   proper   application   for   postponement   before   us   we  
nevertheless   considered   whether   Mr   Press,   since   he   is   not   legally  
represented, had made out a case for being heard as an intervenor. Had we  
thought he had done so, we would then have had to consider whether there  
was a proper basis for postponing the hearing in order to hear him. Note that  
we make this consideration not because we are obliged to do so – since we  
find   we   have   no   valid   application   for   a   postponement   or   an   intervention  
before us – but because,   mero motu , we have decided to consider whether  
on the merits of the merger he can make submissions that may be useful to  
our consideration in terms of section 12A.
24]A perusal of the submissions we have received to date from Mr Press (14  
emails in total which arrived over several days), indicates that the grounds of  
objection have been inconsistent, are in the most part difficult to discern, and  
where discernible, indicate a concern not relevant to our jurisdiction. There is  
thus no prospect that if Mr Press would be permitted to intervene, he would  
make   submissions   that   might   alter   our   conclusion   to   approve   the   merger.  
That   being   the   case,   there   was   no   need   for   us   to   consider   whether   to  
postpone the hearing to consider further submissions from Mr Press.
____________________                           03 May 2007

N Manoim                          Date
Concurring: Y Carrim and M Mokuena.
Tribunal Researcher:  Rietsie Badenhorst
For the merging parties: Anton Roets (Webbers Wentzel Bowens)
Pieter Steyn (Werksmans)
For the Commission: Ipeleng Selaledi and Makgale Mohlala