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IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 2/LM/JAN 08
In the large merger between:
Imperial Holdings Limited Acquiring Firm
And
Engineparts (Pty) Ltd Target Firm
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Panel : D Lewis (Presiding Me mber) Y Carrim (Tribunal Member),
and N Manoim (Tribunal Member)
Heard on : 12 March 2008
Decided on : 12 March 2008
Reasons Issued : 19 March 2008
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REASONS
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Approval
[1] On 12 March 2008 the Tribunal un conditionally approved the proposed
transaction between the above mentioned parties. The reasons for the decision follow.
The Parties
[2] The primary acquiring firm is Im perial Holdings Limited (“Imperial”).
1 The primary
target firm is Engineparts (P ty) Ltd (“Engineparts”), a company which is currently under
provisional liquidation. 2 Engineparts is controlled by Mr Bruce McIntyre, and has a
wholly owned subsidiary called Petrosanne (Pty) Limited (“Petrosanne”).
The Transaction and its Rationale
[3] In terms of the proposed transaction, Im perial has entered into a written offer with
the provisional liquidators of Engineparts, and has pr oposed a scheme of arrangement
with their creditors in terms of secti on 311 of the Companies Act 61 of 1973. 3 On the
approval of the arrangement by creditors of Engineparts and sanction by the High
1 Imperial is a listed company and the shareholders who beneficially hold more than 5% of its issued share capital
are; Public Investment Corporation 18.21%; Ukhamba 10.1%; Old Mutual 11.23%; Sanlam 8.4%; and Lereko
Mobility 7.25%.
2 See High Court Order and Certificate in Annexure “F”, pg. 406 of the merger record.
3 This section deals with compromise and arrangement between company, its members and creditors, in terms of
which the Court has a discretion whether to sanction or not.
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Court, Imperial will acquire the entire issued s hare capital of Engine parts. If this
arrangement is not sanctioned by the High Court, Imperial or its nominee 4, will acquire
the business of Engineparts as a going concern in terms of the offe r. The offer is
subject to the fulfillment of certain su spensive conditions, among which is the
conclusion of an offer by Imperial Group (Pty ) Limited to acquire the property on which
Engineparts conducts its business, from Pe trosanne (Pty) Limited, a wholly owned
subsidiary of Engineparts.
[4] Imperial considers the proposed transacti on as an opportunity for expansion and
growth of its business. For Engineparts th is transaction will ensure its continuity and
secure employment for its employees.
Activities of the Merging Parties
[5] Imperial’s various subsidiaries are active in various activities including;
transportation and mobility sales and services which covers a wide range of products
including; integrated logistic solutions, vehicle, forklift leasing, aviation operations, sales
and leasing, car rental and t ourism, motor vehicle importa tion, sales and after sales
services and related financial services busi nesses, in South Afri ca, Europe and United
Kingdom. For the purposes of this transaction, the relevant subsidiary of Imperial is
Alert Engine Parts (Pty) Limi ted (“Alert”), which is involved in procurement, marketing
and distribution of extensive range of aftermarket parts 5 including timing components,
filters, clutches, lubricants and engine parts , and Imperial Auto Parts, a division of
Imperial Group (Pty) Limited (“IAP”) which se lls aftermarket parts, accessories and
automotive replacement parts.
[6] EngineParts has activities in the pr ocurement, marketing and distribution of an
extensive range of engine parts, aut o electrical parts, diesel fuel injection parts, general
parts and turbocharges into the automotive aftermarket parts market in South Africa.
The Relevant Market
The Relevant Market
[7] A horizontal overlap exists in the activiti es of the merging parties in respect of the
sale of non branded motor vehicle spare parts and engine parts. There is also a vertical
relationship between the merging firms since Engineparts supplies Alert with engine
parts. The merging parties submitted that Lec trolite, a division of Imperial Group,
4 This is Imperial Group (Pty) Ltd, which is a wholly owned subsidiary of Imperial.
5 Aftermarket parts are motor vehicle parts and accessories that are not produced by Original Equipment
Manufacturers (“OEM’s”), but rather alternative or generic parts which are produced by other part manufacturers
other then OEM’s. These are used by the lower income market and end users repairing their own vehicles or retail
owners who supply such end users or panel beaters or repair shops that are not approved by OEM’s.
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supplies NGK spark plugs to EngineParts. 6 The merging parties, however also
submitted that post merger, Lectrolite will continue to supply its products to third parties,
including competitors of Imperial.
[8] In respect to these identified market s, both Imperial and Engineparts are active
in the major cities throughout South Africa . For this reason, the relevant geographic
market is considered to be national.
Horizontal Analysis
Market for distribution of non branded general spare parts
[9] According to the merging parties, the hor izontal integration wi ll not substantially
affect the market as Engineparts will cont inue to operate its bu siness and supply its
customers. In addition, the merging parties’ combined post merger market share for the
distribution of non branded general spare parts will be an insignificant 8%. Prior to this
merger Alert Engine Parts had 6% and Engineparts had 2% market share in the
distribution of non branded general spare parts market.
[10] However, the merged entity will cont inue to face competition from Midas 26%,
SuperGroup 17%, and Gaydons Motor Spare 10% which are big players in the market.
Market for distribution of non branded engine parts
[11] In respect to the distribution of n on branded engine parts, the merging parties will
have a 28% combined post merger market share. Prior to this merger, Alert Engine
Parts had 21%, and Engineparts had 7% market share in this market. The merged
entity will continue to face co mpetition from; SuperGroup 31%, which is the biggest
player in this market, and other smaller players such as Midas 9%, Gaydons Motor
Spares 5%, Sparepro and Grandmark 2%.
Vertical Analysis
[12] In terms of the engine parts supplied by Engineparts to Alert, the merging parties
submitted that Enginepart’s total sales were 0.3%, and Alert’s were 0.1%. These figures
are too insignificant to raise any competition issues.
[13] In respect to the vertical rela tionship between Lectrolit e and Engineparts, the
[13] In respect to the vertical rela tionship between Lectrolit e and Engineparts, the
merging parties submitted that this relati onship does not result in any vertical
integration as such, as Lectrolite will continue to supply its products to third parties, and
also because there are no exclusive agreements in place between them.
6 Electrolite and now NGK, have not supplied EngineParts since 1 March 2007. The amounts for this supply were
not paid as EngineParts was unable to pay its debts. See correspondence from merging parties to the Commission
on pgs. 437‐438 of the merger record.
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Third Party Objection
[14] Autoparts Distributors (Pty) Ltd (“AutoPar ts”), a competitor of the merging parties,
raised concerns about the proposed transacti on. The objection was made solely on the
basis that the conditions of the agreement pursuant to wh ich the proposed transaction
was made has lapsed. At the hearing the merging parties contended that the conditions
of the agreement were timeously extended to 31st March 2008.
[15] The objection raised by Autoparts is irrele vant to our consideration in terms of the
Competition Act when mergers are concerned. It raises neither a jurisdictional point as
to whether we have a merger before us – a contract that is legally binding between
buyer and seller is not a prer equisite of section 12 of the Act for a transaction to
constitute a merger, nor does it raise a su bstantive issue for the purpose of our enquiry
in terms of section 12A.
Conclusion
[16] Based on the competit ion analysis set out above, the proposed transaction is
unlikely to result in a substantial lessening or prevention of competition in the identified
markets and is accordingly approved uncondi tionally. There are no public interest
concerns.
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18 March 2008
N Manoim
D Lewis and Y Carrim concurring.
Tribunal Researcher : L. Xaba
For the merging parties : Tugendhaft Wapnick Banchetti and Partners
For the objecting party: Young.Davis Inc.
For the Commission : M Mohlala and T Mavhase
(Mergers and Acquisitions)