COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 72/LM/Jul07
In the matter between:
ListCo
Blue Label Investments (Pty) Ltd Acquiring Firm
And
The Prepaid Company (Pty) Ltd
House of Business Solutions
Cellfind (Pty) Ltd
African Prepaid Services (Pty) Ltd
Polsa Holdings (Pty) Ltd
Oxigen South America Limited
Virtual Voucher (Pty) Ltd
Budding Traders
Premet Cellular (Pty) Ltd
The Hub Pretalk (Pty) Ltd Target Firms
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member) and Y Carrim (Tribunal Member)
Heard on : 26 September 2007
Order Issued : 26 September 2007
Reasons Issued: 30 October 2007
Reasons for Decision
Approval
1] On 26 September 2007, the Tribunal unconditionally approved the merger
between ListCo and Blue Label investments (Pty) Ltd andthe Prepaid Company
(Pty) Ltd and various target firms. The reasons for approving the transaction
follow.
The parties
2] The primary acquiring firm is ListCo (“ListCo”), a newly established company.
ListCo has been established by the same shareholders that own Blue Label
Investments (Pty) Ltd (“BLI”). At the hearing, the parties submitted that ListCo
will be structurally identical to BLI with identical shareholders and
shareholdings.1 Shares in BLI are held by Intwesi, an empowerment
consortium, (with a 37% shareholding), Brett Levy (with a 20% shareholding),
Mark Levy (with a 20% shareholding), Investec (with a 3% shareholding),
Marapa Trust (with a 2,5% shareholding), the rest of the shares being owned
by management minorities. 2 No single shareholder controls BLI and no single
shareholder controls ListCo. BLI has more than twenty subsidiaries. 3
3] The primary target firms are The Prepaid Company (Pty) Ltd (“TPC”), House of
Business Solutions (“HOBS”), Prepaid Services (Pty) Ltd (“Africa Prepaid”);
Polsa Holdings Limited (“Polsa”); Oxigen South America Limited (“Oxigen”);
Virtual Voucher (Pty) Ltd; Budding Trade (“Budding Trade”); Premet Cellular
(Pty) Ltd (“Premet”); and The Hub Pretalk (Pty) Ltd (“The Hub”).
Rationale and description of the Transaction
4] The transaction involves the restructuring and listing of BLI. BLI intends to
develop and expand its current core business strategies by acquiring
companies that provide products and services within the broader telecoms
industry and to list on the JSE Securities Exchange. 4 It intends to buy out
shareholders in its existing subsidiaries, and/or in companies in which it has
minority interests.
5] The transaction is effected through a series of interconditional and interrelated
1 See transcript page 2.
2 The BLI Group consists of Brett Levy, Mark Levy, Investec, the Marapa Trust, Sean Kaplan,
and Selwyn Diamond.
and Selwyn Diamond.
3 BLI Group’s subsidiaries include Blue Label Investment (“BLI”), Ventury Group (Pty) Ltd
(“Ventury”), Friedshelf 748 (Pty) Ltd (“Friedshelf”), Matrix Investments (Pty) Ltd (“Matrix”),
Friedshelf 771 (Pty) Ltd (“Friedshelf 771”), Kwikpay SA (Pty) Ltd (“Kwikpay”), The Prepaid
Company (Pty) Ltd (Pty) Ltd (“TPC”), Blue Label One (Pty) Ltd (“BLO”), Prepaid TV and
Utilities (Pty) Ltd (“Prepaid TV”); and Gold Label Investments (Pty) Ltd (“GLI”).
4 The firms submitted that the target firms offer a variety of innovative products that
complement each other and if combined in one group, will offer a rich bouquet of products and
services to consumers.
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steps which result in ListCo, a newly incorporated company, acquiring control of
the primary target firms. ListCo will then be listed on the JSE Securities
Exchange. The transaction steps can be summarised as follows:
[5.1] ListCo, a newly incorporated company with identical shareholders and
shareholdings to BLI, will acquire the entire issued share capital of BLI from its
current shareholders in exchange for shareholding in itself. Pursuant to the
implementation of this step, BLI will be a wholly owned subsidiary of ListCo.
[5.2] BLI will unbundle all its shares held in all the companies that it holds more than
50% to ListCo by way of distribution in specie. These subsidiaries include TPC
(69.4%), GLI (75%), Prepaid TV (51%), BLO ((75%), and Friedshelf (100%).
[5.3] ListCo will then acquire shares in House of Business Solutions (“HOBS”).
HOBS houses two non controlled entities of BLI namely Gold Label (20%), and
Datacel (67%). 5
[5.4] ListCo will acquire the remaining shares in TPC from the current shareholders
of TPC, 6 in exchange for shares in itself. As a result, TPC will become a wholly
owned subsidiary of ListCo. TPC will then acquire all the shares in the
controlled and noncontrolled entities such that it holds 50% plus one share in
each of the following entities – Cellfind, Africa Prepaid, Polsa, Oxigen, Virtual
Voucher, Budding Trade, Matragon, Premet and the Hub. Pursuant to this step
TPC will hold more than 50% of the issued share capital in all its investments
and will thereafter unbundle all the shares in its subsidiaries to ListCo.
The parties’ activities
Primary acquiring firm
6] ListCo is a newly established company, and does not provide any products or
services.BLI, however, is involved in the distribution and trading business
focusing on the supply of prepaid secure electronic tokens of value to
focusing on the supply of prepaid secure electronic tokens of value to
5 In a letter dated 25 September 2007, the parties submitted to the Tribunal that because of
commercial considerations and to avoid a tax leakage, the acquiring firm has decided to
acquire shares in HOBS rather than acquiring the underlying assets in Gold Label and
Datacell, as previously contemplated. Thus, HOBS replaced Gold Label and Datacell as a
target firm.
6 The current shareholders of TPC are BLI (with a 69.6% shareholding) and Shotput
Investments (Pty) Ltd with a 30.4% shareholding). See record page 2223.
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wholesalers, financial service providers, corporate and independent retailers
and petroleum. They also provide technology direction and leadership for BLI
and they currently hold technology for the enablement of prepaid television
management and distribution. Prepaid TV is also planning to enter the market
for the sale of prepaid electricity.
Primary target firms
7] For our purposes, the only relevant transaction for competition evaluation is
that between TPC and Virtual Voucher. In terms of the transaction steps, TPC
will acquire sole control in Virtual Voucher and TPC will later unbundle its
shareholding to ListCo. Currently TPC owns 15% of Virtual Voucher and does
not control it. 7 The activities of TPC and Virtual Voucher overlap in the
distribution of airtime in South Africa. There is also vertical integration between
these two companies in that Virtual Voucher purchases airtime from TPC.
8] The activities of TPC and Virtual Voucher are discussed below. No competition
concerns arise in respect of the other target firms.
TPC
9] Through its various subsidiaries, TPC is involved in the distribution and trading
business focusing on the supply of prepaid secure electronic tokens of value to
wholesalers, financial services providers, corporate and independent retailers
and petroleum outlets.TPC operates through the following three divisions:
[9.1] TPC Virtual distributes electronic prepaid products utilizing various technology
mechanisms to ensure accurate, efficient and auditable end to end consumer
delivery transactions. These include bulk database warehousing and delivery
solutions, pin generation solutions, merchant bulk printing solutions, value
redemption platforms and electronic competition solutions for various prepaid
product applications.
[9.2] TPC Starter Pack Division distributes cellular starter packs to major retailers,
[9.2] TPC Starter Pack Division distributes cellular starter packs to major retailers,
7 No single shareholder controls Virtual Voucher. The current shareholders of Virtual Voucher
are TPC (with a 15% shareholding), Malo Investments and Finance CC (with a 16%
shareholding), Peter Alexander Zuur (with a 10% shareholding), Klaus Wendel Johannsen
(with a 15% shareholding), Anthony Robert Pitout (with a 15% shareholding), Joseph Andrew
Roxburgh (with a 14% shareholding), and Alan John Erasmus (with a 15% shareholding).
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wholesalers and individuals.
[9.3] TPC Retail Division provides cellular telephony solutions and value added
services to major retailers and smaller merchants.
Virtual Voucher
10] Virtual Voucher is focused on supplying electronic vouchers mainly to Engen
sites. Its technologies are integrated directly into the Engen till systems. Virtual
Voucher also provides terminals where required.
Competition analysis
Horizontal analysis
11] The activities of the merging parties overlap in the market for the distribution of
airtime including prepaid, post paid, subscription, starter packs, fixed line and
mobile. The parties compete nationally and their customers are spread
throughout South Africa. Hence, the relevant horizontal market is the market
for the distribution of airtime in South Africa.
12] The tables below show the estimated market shares of the market players as
determined by the volume and the value of the airtime that is sold.
Table 1 Market share figures for the national market for the distribution of
airtime based on volume of airtime sold
Company Market share based on volume of
airtime sold (%)
Vodacom 40.11
MTN 16.71
TPC Group 12.53
Smartcall 10.45
Telkom 9.87
Cell C 5.22
Autopage Cellular 1.25
Nashua Mobile 1.21
Virgin Mobile 1.17
Virtual Voucher <1
Total 100
Source: Merging parties
Table 2 Market share figures for the national market for the distribution of
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airtime based on value of airtime sold
Source: Merging parties
13] As can be seen from the tables above, the merging parties’ combined market
share is estimated to be approximately 13% based on value of airtime sold and
approximately 7% based on volume of airtime sold. These market shares are
low and do not raise competition concerns. In addition, the merged entity will
face competition from prominent market players such as Vodacom, MTN,
Telkom, Cell C, Smart Call, Virgin Mobile and Autopage Cellular.
Vertical Analysis
Virtual Voucher and TPC
14] The Commission identified three relevant vertical product markets implicated by
this transaction. The first of these is the market for the supply of airtime in
which TPC operates. Virtual Voucher purchases its airtime from TPC. The
second of these is the market for software solutions in which ITEX operates.
ITEX, a subsidiary of BLI, provides software solutions and it is anticipated that
post merger Africa Prepaid will use ITEX technology. Finally, the Commission
identified the market for software solutions where Matragon operate. Polsa
currently uses Matragon software in exchange for a licence fee.
15] The market for software solutions where ITEX operates and the market for
software solutions in which Matragon operates do not raise competition
concerns as Africa Prepaid and Polsa do not have business activities in South
Africa.
Company Market share based on value of
airtime sold (%)
Vodacom 27.17
Telkom 20.14
MTN 19.98
Autopage Cellular 8.05
Nashua Mobile 7.79
TPC Group 6.21
Cell C 4.8
Smartcall 4.8
Virgin Mobile <1
Virtual Voucher <1
Total 100
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16] The only vertical market that may raise competition concerns is the market for
the supply of airtime in which Virtual Voucher purchases airtime from TPC. Pre
merger TPC held 15% of the shareholding of Virtual Voucher, and BLI held
69% of the shareholding of TPC. Currently, Virtual Voucher purchases
approximately 99% of its airtime requirements from TPC. Virtual Voucher’s
purchases from TPC constitute approximately 0.6% of TPC’s total supply of
airtime. The premerger vertical relationship between TPC and Virtual Voucher
will continue postmerger. 8 Customer foreclosure concerns do not arise
because Virtual Voucher is not a major customer of TPC. Its airtime purchases
from TPC account for less than 1% of TPC’s total sales. TPC’s major
customers include large stores with strong purchasing power such as Pick and
Pay, Shoprite, Metcash, Spar and Pep Stores. Furthermore, TPC faces
competition from all the major suppliers or airtime such as Vodacom, Telkom,
MTN, Cell C, Smart Call, Nashua Mobile and Virgin Mobile
17] Accordingly the transaction is unlikely to substantially lessen or prevent
competition.
Public Interest
18] There are no public interest issues.
Conclusion
19] The merger is approved unconditionally.
________________ 30 October 2007
Y Carrim DATE
Tribunal Member
D Lewis and N Manoim concur in the judgment of Y Carrim
Tribunal Researcher: R Kariga
8 See record page 319.
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For the merging parties: Edward Nathan Sonnenbergs Attorneys
For the Commission : M Mohlala and M Matsimela (Mergers and Acquisitions)
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