COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 16/LM/Feb08
In the matter between
Main Street 251 (Pty) Ltd Primary acquiring firm
And
The House of Busby Ltd Primary target firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal Member) and Y
Carrim (Tribunal Member).
Heard on : 02 April 2008
Decided on : 04 April 2008
Reasons Issued : 14 May 2008
Reasons
Approval
[1] On 04 April 2008 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Main Street 251 (Pty) Ltd and The House of Busby Ltd
unconditionally. The reasons appear below.
Parties
[2] The primary acquiring firm is Main Street 251 (Pty) Ltd (“Bidco”). Bidco is a special
purpose vehicle, acquired by Ethos Private Equity Fund V (“Ethos Fund V”) specifically for
this purpose. Ethos Fund V controls Plumblink SA (Pty) Ltd (“Plumblink”), Moresport (Pty)
Ltd (“Moresport”) and Brandcorp (Pty) Ltd.
[3] The target firm is The House of Busby Ltd (“Busby”). Busby is a company listed on
the JSE Ltd and, is not controlled by any single shareholder. 1
Transaction
1 The shareholders holding in excess of 5% of the issued share capital are as follows: KL Brouze 18%, DS
Brouze 20.7% and MG Gordon 11.43%.
1
[4] Ethos Fund V, acting through Bidco intends to acquire all of the issued ordinary
shares in Busby. 2 The proposed transaction will be implemented by way of a scheme of
arrangement in terms of section 311 of the Companies Act No.61 of 1973. Post merger
Ethos Fund V will through Bidco hold 100% of the issued capital in Busby. 3
Rationale of transaction
[5] The parties submit that the transaction facilitates an additional investment opportunity
for Ethos Fund V and will enable it to expand its current portfolio of investments.
[6] For the target firm the underlying scheme will provide Busby shareholders with an
opportunity to realise significant value for their investment.
Parties Activities
[7] Bidco is a special purpose vehicle and does not have any business activities. Busby
distributes and retails handbags and luggage. 4
[8] Ethos Fund V is a private equity company, which through private equity funds, makes
investments on behalf of its investors. 5 Ethos Fund V currently has controlling interest in
three entities, namely Plumblink 6, Moresport 7 and Brandcorp. Brandcorp has three business
divisions that supply and distribute branded and niche products, namely Tools & Hardware,
Leisure & Accessories and House and Homes. The Leisure and Accessories division trades
as Interbrand. Interbrand imports, wholesale and retail luggage, travel bags, backpacks,
personal leather goods and handbags.
Market Definition
2 This offer excludes the shares held by Keith Brouze Trust, Moneyline 848 (Pty)
Ltd, Moneyline 857 (Pty) Ltd, Selwyn Moss Family Trust, the Mark Gordon Family
Trust, Mr Martinho Gomes Duarte, Mr Shawn Maurice Lashansky and Buxton and
Leather Goods (Pty) Ltd. It also excludes shares registered in the name of Busby;
the Busby shares held by the House of Busby Share Scheme and exclude any
shares held by Bidco.
3 According to the parties a New Opco will be established which will be a wholly owned subsidiary of
Bidco and will constitute an operating company. The South African assets of Busby will be transferred, via an
intragroup transfer, into New Opco, through which the trading activities of Busby will be continued.
4 Busby distributes the following brands: Busby, Nine West, Guess, Delsey, Travelite, Kipling, Tumi, Lojel
and Tourista brands.
5 Ethos also facilitates the acquisition, by its investors, of equity interest in management
buyouts.
6 Plumblink is involved in the retailing of plumbing material and sanitary ware through
various stores in South Africa under the Plumblink and Bathrooms by Design brand
names.
7 Moresport is a retailer of general sports and outdoor equipment, sports outdoor foot
ware, sports and outdoor apparel through three branded chain stores namely Sportmans
Warehouse, Outdoor Warehouse, and Sport Shoe World.
2
[9] The merging parties are active in the market for the wholesale and retail markets of
handbags and luggage.
Wholesale
[10] The Commission’s analysis of the market for the wholesale of handbags and luggage
revealed that from a demand side a handbag cannot be substituted for a luggage bag and
vice versa .8 The Commission also found that from the supply side there is nothing that
constrains a distributor of handbags to distribute luggage. Furthermore the Commission
contends that the wholesaler is not constrained in importing or supplying the market with the
product, be it handbags or luggage or in combination thereof as the customers dictates their
preferences.
[11] According to the Commission the merging parties sell their products to branded
stores, specialised retailers and department stores nationally hence they compete at
wholesale level. We agree with the Commission’s conclusion that the geographic market for
the wholesale of handbags and luggage is national as the shipment of the products may be
shipped directly to the customer by factories themselves or by parties who have distribution
networks that service the whole country.
Retail
[12] In the market for the retail of luggage and handbags the merging parties are active at
retail level. According to the Commission the merging parties supply their stores with
luggage and related products hence they compete at retail level. The Commission’s
investigation revealed that Interbrand owns Cellini and Busby owns Frasers, Tumi and
Hepkers.9 The Commission did not conclude on the geographic market, but it analysed the
local markets where the overlap occurs namely Cape Town, Somerset West and
Johannesburg.
Market Shares
Table1: Estimated national market shares for the for the wholesale of handbags and
luggage
Competitor Brands Estimate Market Share
Interbrand Cellini,CAB55(sold 10%
luggage
Competitor Brands Estimate Market Share
Interbrand Cellini,CAB55(sold 10%
8 The Commission found that in the market for the wholesale of handbags and luggage it
is common for wholesalers to distribute both luggage and handbags and other
accessories like belts and wallets.
9 According to the Commission Busby has twenty three retail stores and Interbrand has five stores.
3
unbranded),Polo,
Papillion(sold unbranded to
Woolworths)Fiorelli”own
brands” for chain stores
Busby Busby, Delsy, Ttravelite,
Lojel, Guess, Nine West,
“own brands” for chain
stores
8%
Merged Entity 18%
Carlton Carlton, “own brands” for
chain store
1%
Dynasty Samsonite,Paklite,
Hedgren,American Tourista,
“own brands” for chain store
6%
Max Cowell Gino da Vinci, Antler, “Own
brands” for chain store
2.5%
Monarch Monarch, libo, “own
brands for chain store
7%
Others Mainly Chinese Imports 65%
Total 100%
Source: The merging parties
Table 2: Competing stores in each catchment area in the market for the retail of
handbags and luggage
Catchment area Interbrand Busby Other competing
stores
Canal Walk (Cape
Town)
1 2 4
Somerset Mall
(Somerset West)
1 1 5
Sandton City
(Johannesburg)
1 3 12
Eastgate
(Johannesburg)
1 1 4
Source: merging parties
4
Competition Analysis
[13] With regard to the markets in which the merging parties operate the Commission
found that barriers to entry are not insurmountable. 10 The Commission also considered
whether the availability of imports will act as a constraint to merging parties should they
increase prices. In its analysis of the market the Commission found that the market is
fragmented and has numerous suppliers who import directly from the manufactures. During
the Commission’s investigations Dynasty Luggage, a competitor to the merging parties
submitted that they import their products from Belgium. Additionally new entrants, such as
Verve and Elro import their products from the United States of America and China
respectively. Therefore the Commission concluded that the availability of imports will act as
a constraint to the merging parties should they increase prices post merger. Furthermore the
Commission’s investigation revealed that customers such as discount stores are given
volume based discounts based and enjoy a degree of countervailing power.
[14] The Commission’s examination of the proposed transaction also showed that it would
create vertical relationships between the merging parties. According to the Commission and
the parties Interbrand sold 4.2% of its stock to Busby stores and Busby sold less than 1% of
its stock to Interbrand. The Commission’s concluded however that this did not give rise to
any competition concerns given that 80% of the merging parties’ stock is sold to other
retailing stores. In addition the Commission found that premerger both parties sell at
wholesale level to both their own retail store and other competing stores in the vicinity of
their stores on the same terms. Some concerns were expressed by customers of the
merging parties. The first customer submitted that the merging parties supply them with 70%
of their stock and they have stores competing against them in every centre where they are
of their stock and they have stores competing against them in every centre where they are
based. The customers further submitted that post merger the merging parties could also sell
at inflated prices and competition will cease to exist downstream. The Commission
investigated these concerns and found that at retail level there is enough competition from
competing retailers 11 besides the merging parties. At wholesale level the merging parties
submitted that they do not have the capacity to accommodate the total volumes of the
business in their retail stores as they sell 80% of their stock to other retail stores.
[15] Another concern was raised by another customer to the effect that that the merging
parties import certain brands which are supplied only to merging parties own stores. At the
hearing the parties submitted that they currently sell the Tumi and Kipling brands in terms of
the international licence agreement which require exclusive distribution through the Busby
stores and this will continue to be so postmerger in terms of the licence. As with regard to
all other products the parties assured us that postmerger they will sell these brands through
retail outlets and independent stores. In addition the Commission analysed this concern and
10 The Commission contacted a new entrant in the market who has been in the market
for two months. The new entrant indicated that there are many small wholesalers who
have entered the market by bringing their own brands.
11 See table 1 above.
5
concluded that self dealing will be unprofitable in such an instance due to capacity
constraints and the minimum requirements of holding licences for the distribution of the
products. We agree with the Commission’s conclusion that the proposed transaction is
unlikely to result in customer foreclosure as the customer base of over 65 luggage shops
who are supplied by wholesalers and who are able to import directly from the manufacturers.
Public interest
[16] There are no public interest issues.
Conclusion
[17] Based on the above the transaction will not result in a substantial lessening or
prevention of competition in the identified markets and is accordingly approved
unconditionally.
___________________ 14 May 2008
D Lewis Date
Tribunal Member
Y Carrim and N Manoim and concurring
Tribunal Researcher : J Ngobeni
For the merging parties : Webber Wentzel Bowens
For the Commission : Lindiwe Khumalo (Mergers and Acquisitions)
6