COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 35/LM/Apr07
In the matter between:
Steinhoff Africa Holdings (Pty) Ltd Acquiring Firm
And
BCM Holdings Limited (Pty) Ltd,
International Wire Converters (Pty) Ltd, and
Buffalo Freight Systems (Pty) Ltd Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal Member), L
Reyburn (Tribunal Member)
Heard on : 1 August 2007
Order issued on: 1 August 2007
Reasons Issued: 9 November 2007
Reasons for Decision
Approval
1] On 1 August 2007, the Tribunal approved with conditions the merger between
Steinhoff Africa Holdings Limited (Pty) Ltd andBCM Holdings Limited,
International Wire Converters, Buffalo Freight Systems (Pty) Ltd. The reasons
for approving the transaction follow.
The parties
2] The primary acquiring firm is Steinhoff Africa Holdings (Pty) Ltd (“Steinhoff”), a
company incorporated in terms of the company laws the Republic of South
Africa. Steinhoff is a wholly owned subsidiary of Steinhoff Investment Holdings
Limited which is in turn, a wholly owned subsidiary of Steinhoff International
Holdings Limited (“Steinhoff International”), being a public company listed on
the JSE Securities Exchange. The shareholders of Steinhoff International who
hold at least 5% are RMB Asset Management and funds administered by them
(with a 12.7% shareholding), BS Beteiligungs und Verwaltungs GmBH 1 (with a
9.3% shareholding), Fidelity International Limited (US, LU, UK, and CA) (with
an 8.75% shareholding), Investec Asset Management (with a 7.75%
shareholding), and Stanlib Limited (with a 5% shareholding).
3] The primary target firms are BCM Holdings (Pty) Ltd (“BCM”), International
Wire Converters (Pty) Ltd (“IWC”), and Buffalo Freight Systems (Pty) Ltd
(“Buffalo Freight”). The target firms are controlled by Geros GmbH, a company
incorporated in Austria, which is also controlled by Daun et Cie, a company
incorporated in Germany which is in turn controlled by Claas Daun.
Description of the transaction
4] In terms of the structure of this transaction, Steinhoff intends to acquire all the
shares in and claims on loan account against BCM, IWC, and Buffalo Freight.
Rationale for the transaction
5] In its submissions to the Tribunal, the primary acquiring group stated that the
transaction compliments and diversifies the raw material offering by them and
gives them international exposure as these raw materials are exported
overseas. However, the internal documents of the Steinhoff show that its
primary motivation for concluding this transaction is the entry into the South
African springs market by Legett & Platt, a world player. 2
The parties’ activities
African springs market by Legett & Platt, a world player. 2
The parties’ activities
6] The primary acquiring group is a manufacturer and distributor of furniture and
household goods, as well as a manufacturer and distributor of those raw
materials which are used primarily in the manufacture of household goods. It is
1 This company is controlled by Bruno Steinhoff.
2 See page 2 of extract of board minutes for the board meeting held on 4 December 2006.
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involved in forestry, sawmilling, production of processed timber products,
furniture manufacturing, bedding manufacturing, wooden kitchenware, and
manufacturing of foam and textile .3 Furthermore, the acquiring group is
involved in freight and passenger transport, warehousing, logistics services,
motor retail and car rental.
7] The primary target firms are involved in manufacturing and distribution of
bedding components that are used in the bedding industry. BCM manufactures
and distributes inner mattress springs, plastic legs, corner guards and z
springs. IWC manufactures and distributes bedding and sitting wire. Buffalo
Freight engages in freight forwarding and clearing services.
Relevant product market
8] The proposed transaction results in both horizontal overlap and vertical
integration.
Horizontal product market
9] The only horizontal overlap resulting from this transaction is with regards to the
freight forwarding market. The parties submitted that the freightforwarding
services they conduct involves arranging the international freighting of goods
bought by their clients whether by sea, air or road freight, the clearing of the
goods through customs and the payment of customs duty, VAT, and freight
costs on behalf of clients. It also includes arranging the delivery of the goods to
the clients’ premises.
Vertical product market
10] The proposed transaction results in vertical integration in that Steinhoff
purchases raw materials from BCM and from IWC to use in the manufacturing
of bedding and furniture.
Upstream markets
11] The Commission identified the relevant upstream markets in this transaction as
the upstream market for the production of bedding components, and the
3 See record pages 6869.
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upstream market for zsprings.
Market for production of Bedding components
12] The parties stated that there is a market for bedding components though they
provided market shares per component. After finalising its investigations, the
Commission concluded that, in this transaction, the market for bedding
components can be further classified under two submarkets since bedding
manufacturers can purchase various components from different producers. The
first one is the market for bedding and sitting wire, and inner mattress springs.
The second one is the market for plastic bed legs and corner guards. There are
no competition concerns in the latter market as there many suppliers and
barriers to entry are very low. The first market will be analysed below.
Market for manufacture of ZSprings
13] The target firms manufacture both the wire needed to produce zsprings and
the actual zsprings. Zsprings are used in the manufacture of lounge furniture.
Downstream markets
14] There are two downstream markets identified by the Commission in this
transaction.
Bed manufacturing
15] The first downstream market identified with respect to the bed manufacturing
segment is the market for inner mattress spring units which can be supplied on
a large scale to the national furniture retailers. There are three types of
mattresses namely quilted foam mattress, nonquilted form mattress and the
innerspring mattress. For our purposes, the relevant market relates to the
springs mattress. The firms competing in this market are predominantly
Steinhoff,4 Lylax, Restonic, Simmonds, Rand bedding, Contour beddingEMPS
bedding and Viva bedding.
Manufacture of lounge suites
4 Steinhoff owns a significant portion of this market through its brands like Seally,
Slumberland, Edblo and King Koil which is manufactured under contract.
4
16] The second downstream market identified is the market for the manufacture of
lounge suite furniture. These lounge suites are manufactured for the national
chains and makes use of zsprings.
Relevant geographic market
17] It was not contended by any of the parties in these proceedings that the
relevant geographic market for the implicated product markets is at least
national. We will therefore, analyse the impact of this transaction in the
Republic of South Africa.
Competition analysis
Horizontal Analysis
18] There are no competition concerns that arise in the market for freight
forwarding services since the merging parties’ combined market shares are
expected to be less than 1%. In addition, the South African Association of
Freight Forwarders (”SAAFF”) submitted that there are more than 600 large,
medium and small players who compete effectively in this market. 5 SAAFF
further stated that the freight forwarding market is highly competitive as there
are low barriers to entry.
19] After the merger was referred to the Tribunal, the parties were requested to
provide further information to the Tribunal. The Tribunal was concerned that
post merger Steinhoff would control a large portfolio of raw materials used in
manufacturing bedding and, post merger, this would give Steinhoff the power to
require manufacturers of beds to buy a bundled products or to bundle inputs in
predatory manner to exclude rivals. After receiving Steinhoff’s further
submissions, the Commission sent them to Steinhoff’s competitors and
customers for comment. None of them indicated any concerns, and one firm
which had previously advised the Commission that it had concerns about the
merger, now indicated that its concerns had been addressed by the additional
information.
5 Record page 598.
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20] Steinhoff’s further submissions show that there is no horizontal overlap in the
inputs that Steinhoff and the target firms supply to the bed manufacturing
industry. The target firms, as noted earlier, manufacture bed springs, an input
that Steinhoff does not manufacture. 6 Industry practice in the bedding industry
recognises three segments; entry level, mass market and middle level and the
upper market beds. Springs are not used as an input into entry level beds as
manufacturers prefer to use foam to keep costs down. Since at present the
entry level is the portion of the market where Steinhoff supplies 62.9% of value
of the inputs, the addition of the springs will not enhance its share of the inputs
that go into beds for this segment. At the other levels, where springs are used
Steinhoff’s share of the inputs decreases, varying between 22% 28%, pre
merger. Although at these levels springs comprise, depending on the level,
between 20% – 28 % of the input costs, this is not sufficiently large a command
of the inputs to warrant concern yet. Moreover, the target firms the target firms
are not dominant suppliers of springs to the bedding industry, commanding only
28% of the market for this input. Thus even in these other segments it is
unlikely to have a sufficient command to exercise portfolio power.
21] In addition post merger, Steinhoff will face competition from Legett & Platt, a
world player in the provision of springs. 7
Vertical Analysis
22] This transaction is related to the Platoon/PG Bison8 transaction which was
approved by the Tribunal on the same day as the current transaction. In the
Platoon/PG Bison matter, Steinhoff is selling its furniture manufacturing
business, including bedding, furniture logistics division which deals with
business, including bedding, furniture logistics division which deals with
roadway logistics and regional distribution centre and import subdivision which
imports lounge furniture, bedroom and dining room suites to supplement the
locally manufactured ranges to ABSA Group of companies. As a result, the
Tribunal did not consider the competition concerns arising from this transaction
but instead imposed a condition that the approval of this transaction is subject
to the implementation of the Platoon/PG Bison transaction. The implementation
6 See also record page 495.
7 See page 2 of extract of board minutes for the board meeting held on 4 December 2006.
8 Tribunal Case No.61/LM/Jun07
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of the Platoon/PG Bison transaction would remove the potential competition
concerns that might have arisen because of this transaction.
23] After the implementation of the Platoon/PG Bison transaction and the current
transaction, Steinhoff will remain with the manufacturing and distribution of raw
materials business, as described above. In addition, Steinhoff will be holding
BCM’s 69% market share for the supply of zsprings, 9 BCM’s 28% market for
the supply of inner mattress springs, 10 IWC’s 28% market share in the bedding
and seating wire market 11 and Buffalo Freight Systems’ less than 1% market
share in the freight forwarding services market.
24] On the other hand, Platoon will house the furniture manufacturing business,
including bedding manufacturing (previously Steinhoff’s). The parties assured
the Tribunal that Steinhoff will not directly or indirectly exercise any control over
Platoon.12
Public Interest
25] There are no public interest issues.
Conclusion
26] In light of the aforegoing, the merger is approved subject to the condition that
the PG/Bisontransaction is implemented.
________________ 9 November 2007
N Manoim DATE
Tribunal Member
D Lewis and L Reyburn concur in the judgment of N Manoim
9 See record page 90.
10 See record page 96.
11 See record page 81.
12 See Platoon/PG Bison record pages 520 and 522.
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Tribunal Researcher : R Kariga
For the merging parties: Steinhoff Group Services
For the Commission : G Mudzanani and HB Senekal (Mergers and
Acquisitions)
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