COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 106/LM/Dec06
In the matter between:
Tsebo Outsourcing Group (Pty) Ltd Acquiring Firm
And
Equality Food Services (Pty) Ltd Target Firm
Panel : Y Carrim (Presiding Member), N Manoim (Tribunal
Member) and M Mokuena (Tribunal Member)
Heard on : 07 February 2007
Order issued on : 07February 2006
Reasons issued on : 11 May 2007
Reasons for Decision
APPROVAL
1]On 7 February 2007 the Tribunal approved the merger between Tsebo
Outsourcing Group (Pty) Ltd (“Tsebo”) and Equality Food Services (Pty) Ltd
(“Equality”). The reasons for approval follow below.
THE TRANSACTION
2]Tsebo is acquiring 100% of the issued share capital in Equality. Post merger,
Equality will be a wholly owned subsidiary of Tsebo.
3]Tsebo is controlled by Ethos Private Equity Fund IV through a 53.8%
shareholding. Ethos Private Equity Fund IV is ultimately controlled by Ethos
Investment Holding Ltd. Tsebo has three operating divisions, being Food
Services which operates under the brand name Fedics and Facilities
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Management Services which conducts its business through Drake & Scull
FMSA and Invalu which focuses on procurement of Food & Beverage
commodities.
4]The shareholders of Equality are:
Gregg LaconAllin 68%
Khumo Bathong Strategic Investments (Pty) Ltd 16%
Bheki Gumede 8.5%
Frank Davidson 8.5%
5]Equality is mainly focussed on providing catering services to the mining
sector and Fedic’s regards this transaction as an opportunity to enhance
its current service offering. The transaction offers Equality an opportunity
to enhance its BEE status.
THE RELEVANT MARKET
6]Both parties are active in the food services sector where they provide
catering services.
7]Fedics, the food and auxiliary services division of Tsebo provides catering
services to a broad spectrum of customers ranging from corporations to
educational and healthcare institutions, including industrial, construction and
mining nationally.
8]Although Equality provides catering and related services to the mining
industry, collieries, tertiary institutions, schools, hospitals and recreation clubs
nationally, the bulk of its services, for historic reasons, are provided to the
mining industry.
9]For purposes of this transaction the relevant market is regarded as the
national market for the provision of catering services.
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Impact on Competition
10]Catering contracts are generally awarded via a tender process with the
duration of contracts ranging from 2 to 5 years. According to the merging
parties the number of bidders tendering for a contract range from
approximately 15 to as much as 100 companies, depending on the type of
contract being offered. Fedics and Equality have not bid against each other
for any contract in the past year. Post the transaction the merging parties
market share will be approximately 12%.
11]Strong countervailing power exist since clients who offer these contracts are
large companies who have the ability to offer these services inhouse, but
choose not to in order to focus on their core business. According to the
merging parties almost half of all catering services are still provided inhouse.
The competitive constraint is thus derived from the ability of clients to
substitute outsourced catering services for inhouse services.
12]Barriers to entry are low as there are no legal, technical or economic barriers
to hinder a new competitor from entering. In the past five years 5 new firms
have entered this market. 1
13]Based on the above, we agree with the Commission that the transaction is
unlikely to substantially prevent or lessen competition in the relevant market.
CONCLUSION
14]There are no significant public interest issues and we accordingly approve
the transaction without conditions.
____________________ 11 May 2007
Y Carrim Date
1 According to the Commission Mr. Hoerau of Sodexho claimed that the proposed transaction
would raise entry barriers for the smaller players. However, upon further investigation the
Commission found this not to be the case.
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N Manoim and M Mokuena concurring.
Tribunal Researcher: R Badenhorst
For the merging parties: K de Kock (Webber Wentzel Bowens)
For the Commission: E Ramohlola (Mergers & Acquisitions)
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