COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 105/LM/Sept07
In the matter between:
African Bank Investments Limited Acquiring Firm
And
Ellerine Holdings Limited Target Firm
Panel : D Lewis (Presiding Member), Y Carrim (Tribunal Member) and
M Mokuena
Heard on : 19 December 2007
Order Issued : 19 December 2007
Reasons Issued: 8 February 2008
Reasons for Decision
Approval
1] On 19 December 2007, the Tribunal unconditionally approved the merger
between African Bank Investments Limited and Ellerine Holdings Limited. The
reasons for approving the transaction follow.
The parties
2] The primary acquiring firm is African Bank Investments Limited (“ABIL”), a
public company listed on the JSE Securities Exchange. ABIL does not have a
single controlling shareholder. The shareholders of ABIL who hold in the region
of 5% of its shareholding are the Public Investment Corporation (with a 5.7%
shareholding), Fidelity Growth and Income Unit Trust (with a 4% shareholding),
Leon Kirkinis (with a 3.2% shareholding), JP Morgan Investment Funds (with a
3.2% shareholding) and Investec Value Fund (with a 3.1% shareholding).
3] ABIL controls 6 firms including African Bank. 1
4] ABIL has a number of dormant firms which are being liquidated. 2
5] The primary target firm is Ellerine Holdings Limited (“Ellerines”), a public
company listed on the JSE Securities Exchange. Ellerines is not controlled by
any single shareholder. The Public Investment Corporation, Ellerines Properties
(Pty) Ltd, Liberty Life and Investec beneficially own in the region of 5% of the
issued share capital of Ellerines.
6] Ellerines owns 100% shares in Relyantt Retail Limited. In retail Ellerines trades
as Ellerine Personal Finance (Pty) Ltd; Ellerine TM (Pty) Ltd; Ellerine
Management Services (Pty) Ltd; Ellerine Trading (Pty) Ltd trading as Beares,
Savells/Fairdeal, DialaBed, Geen & Richards Furniture; Relyant Retail
(Swaziland) (Pty) Ltd and Geen & Richards (Swaziland)(Pty) Ltd.
7] In insurance, Ellerines trades as Ellerine Services (Pty) Ltd, Customer
Protection Insurance Company Limited. Relyant Retail Lesotho (Pty) Ltd is non
trading.
Description of the transaction
8] ABIL will acquire the entire issued share capital of Ellerines through a scheme
of arrangement in terms of section 311 of the Companies Act, 1973, as
amended. At the conclusion of the transaction, ABIL will own 100% of the entire
issued share capital of Ellerines.
Rationale for the transaction
9] The primary acquiring firm perceives this transaction as an opportunity to
continue to grow its business to sufficient scale so that it can further lower the
cost of credit to its clients and accelerate the innovation of new credit products
and risk underwriting models to take full advantage of the changing landscape
of the credit markets. ABIL believes that the credit furniture retail market offers
1 The other firms controlled by ABIL are Thetha Investments (Pty) Ltd, The Standard General
1 The other firms controlled by ABIL are Thetha Investments (Pty) Ltd, The Standard General
Insurance Company, Credit Save (Pty) Ltd, Teba Credit (Pty) Ltd, and Miners Credit
Guarantee (Pty) Ltd.
2 See Annex B1 of the parties’ filing.
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attractive growth opportunities, and Ellerines offers a strategic fit to pursue its
strategies.
10] The primary target firm believes that the transaction with ABIL offers it the
perfect opportunity to fulfil its strategic objectives of aligning with a financial
institution, stem the loss of retail credit customers and provide the ideal
platform to address the growing burden of regulatory compliance and to rapidly
expand the Ellerines group’s reach and range of financial services products.
The parties’ activities
Primary acquiring firm
11] ABIL is involved in the provision of unsecured credit to the South African
market. ABIL targets mainly customers in the LSM38 category, a category
designed for those formally employed and banked.
12] ABIL offers the following:
[12.1] Credit cards which are primarily issued to existing customers with a
proven credit history;
[12.2] Term loans, offered in differentiated product offerings such as payroll based,
debit order based and cash loans;
[12.3] Credit life insurance offered to borrowers who are required to insure their debt
for the term of their loan against contingencies such as death, disability and
retrenchment.
Primary target firm
13] Ellerines is a furniture retailer and supplier of household goods and appliances.
Its activities are carried out through:
[13.1] Traditional credit retail division which comprises of Ellerines, Town Talk and
FurrnCity brands trading out of 553 stores;
[13.2] Universal credit retail division which comprises of Beares, Geen & Richards,
Lubners and Savells/Fairdeal, trading out of 403 stores;
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[13.3] Value retail division which comprises of Furniture City, Dialabed and Mattress
Factory trading out of 68 stores; and
[13.4] Decorating division which targets the upper end of the market and comprises of
11 Wetherlys’ stores and 11 Osier retail outlets as well as Roodefurn
Manufacturing.
14] Apart from retail activities, Ellerines offers the following products to middle and
lower market segments:
[14.1] Furniture credit which consists of instalment credit provision and microloans
which are ancillary to and inextricably linked to the sale of furniture and
household goods and appliances;
[14.2] Personal loans which are small, shortterm, unsecured personal loans through
its “Rainbow loans” division;
[14.3] Home loans which are offered in partnership with a bond originator company to
customers and which are coupled with a discounted furniture credit facility;
[14.4] Insurance is offered for funeral cover and credit life cover to third parties and
customers of its Rainbow loans division. It offers shortterm credit and all risk
insurance, legal assistance and extended warranty policies to its retail
customer base and to other third parties’ retail customers through the Relyant
Insurance Company and Customer Protection Insurance Company; and
15] Ellerines’ Early Bird outlets provide repair services for a wide range of home
appliances.
Relevant product market
Unsecured credit market
16] The parties have submitted that the relevant market is the market for the
provision of unsecured credit. They submitted that in the past the market could
have been segmented further. 3 However the advent of the National Credit Act
3 Consumer credit has traditionally been segmented with reference to term of the loan, the
loan amount, the use of the loan, and the type of the product being loaned. With reference to
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has removed the statutory barriers that used to separate the consumer credit
market into a number of distinct markets. 4 The merging parties stated that to
the extent that credit is granted there is an overlap in the activities of the
merging firms in respect of the provision of unsecured credit. 5 Moreover while
the furniture bought by Ellerines’ customers could be attached or recovered in
the event of nonpayment of the loan, used furniture was not considered
sufficient security for the provision of credit by Ellerines. 6
17] The Commission argued that a broader market of unsecured credit is more
appropriate in this case. However, it acknowledges the possibility of a defining
a narrower market for credit provision for the purchase of furniture. If that
narrow approach is adopted then there would be no product overlap between
the parties
18] In the course of its investigation, the Commission also procured the views of
the National Credit Regulator (“NCR”). The NCR was of the view that both ABIL
and Ellerines were players in the microlending market. The NCR estimated
that the market shares of the merging parties in the microlending market will
be 34% based on the loan book value, and 17% based on branches. However,
as submitted by the NCR, the microlending market focuses on the low income
credit market which is a subcomponent of the broader unsecured credit
market.7 The NCR also indicated that it had provided the market share
estimates on limited information available to it. 8 Hence, having regard to all of
the above, we find that for purposes of this transaction, the relevant market is
the term, the loan would be typically less than 3 months, less than 12 months or 36 months.
With reference to the amount it would be classified as less than R10 000.00 or greater than
With reference to the amount it would be classified as less than R10 000.00 or greater than
R10 000.00. Loan use would typically include educational loans, home loans, retail credit and
vehicle and asset finance. The types of credit ranged from secured and unsecured, cash
versus card based facilities/ bank accounts and credit cards versus personal loan. Credit
providers focused on specific target markets such as the formal, banked sector versus the
informal consumer credit sector, and high income earners versus low income groups.
4 See record page 72.
5 At the hearing the parties submitted that the unsecured credit market envisages a
post National Credit Act era which cannot be fully accurately quantified and known at
present.
6 See p10 of the Commission’s Recommendations.
7See p737 of the record.
8 See page 740 of the record. The NCR also submitted that its market shares estimates were
obtained from those providers who had registered. There were a large number of unregistered
providers. Its analysis of the merging parties’ activities was also limited because the
information available to it was limited to those matters required by the NCA.
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the market for the provision of unsecured credit.
Credit life insurance
19] ABIL offers credit life insurance to borrowers who are required to insure their
debt for the term of their loan against contingencies such as death, disability
and retrenchment. Ellerines offers funeral cover and credit life cover to third
parties and customers of its rainbow loans division. It offers shortterm credit
and all risk insurance, legal assistance and extended warranty policies to its
retail customer base and to other third parties’ retail customers through the
Relyant t Insurance Company and Customer Insurance Company. However,
the overlapping activities of the merging parties are limited to the provision of
credit life insurance as ancillary to the provision of unsecured credit and not in
the broader market for life insurance as such. 9 Hence we do not consider this
as a relevant market for purposes of competition evaluation.
Relevant geographic market
20] The relevant geographical market is national. Both Ellerines and ABIL have a
national footprint and operate from a number of outlets spread throughout the
country.
Competition analysis
21] The major participants in the market for unsecured loans may include the major
banks, furniture and clothing retailers and a host of other players that are not
necessarily registered with the NCR due to the fact that they are exempted
from the provisions of the NCA. 10
Table 1: Market shares of the competitors in the provision of unsecured loans
during 2006/2007
Entity Market Share
9 See record page 79.
10 See letter from the NCR on page 740 of the record.
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Standard 20
ABSA 19
FNB 15
Nedbank 11
Other Banks 4
ABIL 6
Ellerines 4
Merged entity combined 10
Edcon 6
JD Group 6
Woolworths 4
Lewis 2
Foschini 2
Total 100
Source: Merging Parties
22] The combined post merger market share of the merging parties will be 10%.
The market share in comparison to other players in the market is relatively low.
The merged entity will continue to face competition from at least four larger
players and several other players. In our view the transaction is unlikely to
substantially prevent or lessen competition.
Foreclosure concerns
23] Given that the acquiring firm saw this acquisition as an opportunity to grow its
credit business theTribunal requested the parties and the Commission to
address it on the vertical effects, if any, of this merger and in particular to
address us on whether this transaction was likely to result in the foreclosure of
ABIL’s competitors from the Ellerines customer base or foreclosure of Ellerines’
competitors from ABIL’s credit provision services. Both the Commission and
the merging parties addressed the Tribunal in this regard..
Foreclosure of ABIL’s competitors
24] The merging parties submitted that it is not possible to isolate Ellerines’
customer base from the credit granting activities of competitors in the
unsecured credit environment. This is so because the NCA has blurred
distinctions between the traditional types of credit and has made it more difficult
to lockin customers with a single credit provider. Ellerines’ customer base
would therefore be accessible to other credit providers. In addition, in order to
effectively foreclose against other credit providers, Ellerines would have to
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refuse to accept cash sales from its customers who had obtained credit from
credit providers other than ABIL, an eventuality which is highly unlikely. 11
Foreclosure of Ellerines’ competitors
25] The merging parties submitted that Ellerines’ competitors would not be
foreclosed from ABIL’s credit provision services because the very nature of
unsecured credit implies that a credit provider such as ABIL could not control
where its customers spend their money. Thus attempting to foreclose Ellerines’
competitors from the credit provision facilities of ABIL was not practically
feasible. In addition, ’s market research has shown that only a small
percentage of the loans granted to its customers are spent on buying furniture
or appliances. The research shows that approximately 30% of ABIL’s
customers spend their money on education, 30% on home improvements, and
the remainder ABIL on ad hoc emergency expenses such as funerals, with very
little credit being used for furniture or appliance purchases. It would thus not be
a viable option to foreclose Ellerines’ competitors.
26] In light of the above we are persuaded that this transaction does not give rise to
any competition foreclosure concerns.
Public interest
27] There are no public interest issues.
Conclusion
28] The merger does not give rise to any substantial horizontal or vertical
competition concerns and is approved unconditionally.
________________ 8 February 2008
Y Carrim DATE
Tribunal Member
11 See submissions from the merging parties dated 13 December 2007 where it is stated that
Ellerines would never turn away cash sales.
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D Lewis and M Mokuena concur in the judgment of Y Carrim
Tribunal Researcher : R Kariga
For the merging parties: Cliffe Dekker Attorneys
For the Commission: L Khumalo (Mergers and Acquisitions)
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