COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 31/LM/Apr08
In the matter between:
Barloworld Investments (Pty) Ltd Acquiring Firm
And
NMI DSM South Motors (Pty) Ltd Target Firm
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal Member),
and M Mokuena (Tribunal Member)
Heard on : 11 June 2008
Order Issued : 11 June 2008
Reasons Issued: 13 August 2008
Reasons for Decision
Approval
[1] On 11 June 2008, the Tribunal unconditionally approved the merger between
Barloworld (Pty) Ltd and NMI DSM Motors (Pty) Ltd. The reasons for approving
the transaction follow.
The parties
[2] The primary acquiring firm is Barloworld Investments (Pty) Ltd (“Barloworld
Investments”), a company incorporated in terms of the company laws of South
Africa. Barloworld Investments is a wholly owned subsidiary of Barloworld
Limited (“Barloworld”). Barloworld is a company listed on the JSE Securities
Exchange and is not controlled by any single firm. The major shareholders of
Barloworld are the Public Investment Corporation (with a 14.3%) shareholding,
SSB & Trust Co. (with a 2.3% shareholding), BNY Mellon Wealth Management
(with a 1% shareholding), and STANLIB (with a 1.5% shareholding).
.
[3] Barloworld has several subsidiaries worldwide and in South Africa has various
subsidiaries which include Barloworld Equipment (Pty) Ltd, Barloworld Logistics
(Pty) Ltd, and Barloworld Motors (Pty) Ltd.1
1 See appendix 2 of the record for complete list of Barloworld’s subsidiaries.
[4] Barloworld Investments has a 65% shareholding in Garden City Motors (Pty)
Ltd (“Garden City Motors”), and a 50% interest in NMI Durban South Motors
(Pty) Ltd, the primary target firm in the instant transaction.
[5] The primary target firm is NMI Durban South Motors (Pty) Ltd (“NMI DSM”), a
company duly incorporated in terms of the company laws of the Republic of
South Africa. NMI DSM is a joint venture company, controlled by NH
Partnership (which has a 50% shareholding), and Barloworld (which has a 50%
shareholding).
[6] NMI DSM controls Rapiprop 174 (Pty) Ltd. It owns various dealerships which
include Mercedes Durban; Mercedes Benz Umhlanga; Mitsubishi Motors
Umhlanga; Chrysler Jeep Umhlanga; NMI DSM Pinetown; Mercedes Benz
Commercial Vehicle Durban; Subaru Durban; and NMI DSM Commercial
Vehicle Pinetown.
Description of the transaction
[7] In terms of this transaction, Barloworld Investments intends to increase its
current shareholding in NMI DSM from 50% to slightly in excess of 51%. As
part of the transaction, Barloworld Investments and NH Partnership will
simultaneously transfer their respective shareholding of 65% and 35% in
Garden City Motors to NMI DSM.
[8] On completion of the transaction, Garden City Motors will be wholly owned by
NMI DSM and NMI DSM will be controlled by Barloworld Investments with NH
Partnership having an interest slightly below 49% interest.2
Rationale for the transaction
[9] The parties submitted that if Barloworld Investments increases its shareholding
in NMI DSM, it will be in a position to consolidate NMI DSM for accounting
purposes.3
The parties’ activities
Barloworld
2 See page 3 of the transcript.3 See record page 51.
2
[10] Barloworld is an international industrial brand management company which
represents many world brands including Caterpillar, Hyster, Avis, Budget,
Mercedes, Chrysler, BMW, General Motors, Ford, Toyota, Subaru, and Volvo.
Barloworld presents a link between the customer and the manufacturer, and
adds value through sales and after sales support and solution to customers.
Barloworld’s core divisions are Equipment, Automotive, Handling and Logistics.
Barloworld Investments
[11] Barloworld Investments is an internal investment company of Barloworld and as
such it does not have any business activities. Barloworld Investments has
controlling shares in NMI DSM and Garden City Motors.
Garden City Motors
[12] Garden City Motors is active in the market for the retail sale and distribution of
new and used motor vehicle and associated services through dealerships in the
KwaZulu Natal area. Garden City Motors operates three dealerships in the
KwaZulu Natal area namely Garden City Motors, Garden City Commercials and
Garden City Ladismith. These dealerships sell brands which primarily include
Chrysler, Dodge, Fuso, Freightliner, Jeep, Mercedes Benz and Mitsubishi.
These dealerships sell various types of vehicles which include passenger
vehicles, light, medium, and heavy commercial vehicles and buses.
[13] Garden City Motors also provides associated services relating to the
maintenance of motor vehicles as well as the retail vehicle parts.
Barloworld Motors
[14] Barloworld Motors is a motor retailer selling new and used passenger, light,
medium, and heavy commercial vehicles and buses. The brands it sells through
its dealerships include Audi, BMW, Chevrolet, Chrysler, Ford, Freightliner,
Isuzu, Jaguar(Botswana only), Jeep, Land Rover, Mazda, Mercedes Benz,
Mini, Mitsubishi, New Holland, Nissan Opel, Smart, Subaru, Toyota, Volvo and
Volkswagen.
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[15] Barloworld Motors also provides motor vehicle associated services, including
motor vehicle finance and insurance services under the optimum brands, parts
distribution centres, and maintenance service centres for vehicles.
NMI DSM
[16] NMI DSM is a retailer of new and used passenger motor vehicles. The brands
that its dealerships sell include Chrysler, Dodge, Fuso, Freightliner, Jeep,
Mercedes Benz and Smart.
[17] NMI DSM is also active in the retail sale of new and used light, medium, heavy
and extra heavy commercial vehicles. NMI DSM also provides associated
services including the sale of automotive parts and accessories and the repairs.
NMI DSM also arranges motor vehicle finance and insurance services for
purchasers of its motor vehicles.
Rapiprop 174 (Pty) Ltd
[18] Rapiprop 174 (Pty) Ltd, a subsidiary of NMI DSM, is active in the property
market.
Relevant market
[19] The merging parties proposed that the relevant market is that of retail of new
motor vehicles and associated services; and the market for the retail and
distribution of used motor vehicles and associated services. We find that a
better approach would be to look at the overlap in the activities of the merging
parties. The parties are both active in the retail of new and used passenger
and light commercial vehicles; and in the sale of new and used medium
commercial vehicles and heavy commercial vehicles.4
[20] While the parties submitted that the geographic market for passenger vehicles
is local or regional (KwaZulu Natal region), the Commission stated that the
market for the medium and heavy commercial vehicles is national.5
Competition analysis
4 Garden City Motors and NMY DSM are both active in these markets.5 See page 56 of record and page 8 of the Commission’s recommendations.
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[21] At the hearing, and in their competitiveness report, the parties stated that the
transaction does not result in the accretion of Barloworld’s market share or give
rise to any competition concerns since the transaction is technically a re-
arrangement of shares between Barloworld and the NH Partnership and does
not result in an increase in Barloworld’s economic interest. 6 The Commission
has nevertheless considered the impact of the transaction on competition, if
any, in the relevant markets.
Passenger vehicles and light commercial vehicles
[22] The proposed transaction is unlikely to lead to a substantial prevention or
lessening of competition in the market for new and used passenger vehicle and
light commercial vehicles, as barriers to entry are low and there is sufficient
competition since all dealerships can buy new or second hand vehicles and
resell them to any end customer. There are a number of firms active in this
market.
Medium and heavy commercial vehicles
[23] The proposed transaction is unlikely to prevent or lessening of competition in
the market for commercial motor vehicles and in the market for heavy
commercial vehicles. In previous cases, the Tribunal has stated that the market
for commercial vehicles is national as commercial vehicle buyers are not
constrained by the dynamics within a geographic location but are concerned
about getting the best commercial deal. 7 The post merger national market
shares of the merging firms remain low and do not raise competition concerns.
The merging parties will have a post merger market share of 8.8% in the
market for new and used commercial motor vehicle market and will continue to
face competition from dealerships such as Imperial Commercial, Alpine Motors
and Unitrans. The merging parties will have a post merger market share of
6.3% in the market for new and used heavy commercial vehicles and the
6.3% in the market for new and used heavy commercial vehicles and the
6 See page 4 of transcript and page 56 of the record.7 See page 8 of Sandown Motor Holdings and McCarthy and Others 33/LM/May02 where the
Tribunal accepted that “...the market for commercial vehicles is national because the customer
profile of commercial vehicle buyers are different from that of passenger vehicles in that the
typical commercial vehicle customer would be a firm buying several vehicles for its fleet and
which is not inconvenienced by sourcing from anywhere in the country. Given that commercial
vehicles are considerably expensive on average than passenger vehicles, customers are not
reluctant to spend extra time in travelling to source the best deal”.
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merged entity will continue to face competition from other competing
dealerships such as Unitrans, McCarthy and Super Group.
Vertical issues
[24] A vertical relationship exists in that Garden City Motors, a subsidiary of the
acquiring firm has supplied used motor vehicles to NMI DSM (representing
3.7% of Garden City Motors’ used vehicle sales and 0.8% of DSM’s used
vehicles purchase) and NMI DSM has supplied used vehicles to Barloworld
companies (representing 0.5% of total NMI DSM total supply of used vehicles
and 0.2% of Barloworld’s purchase of used vehicles. This transaction is unlikely
to raise any foreclosure concerns as the figures involved are miniscule. Thus
there is no incentive to foreclose.
Public Interest
[25] There are no public interest issues.
Conclusion
[26] The merger is approved unconditionally.
________________ 13 August 2008
Y Carrim DATE
Tribunal Member
N Manoim and M Mokuena concur in the judgment of Y Carrim
Tribunal Researcher : R Kariga
For the merging parties: Bowman Gilfillan Attorneys.
For the Commission : K Mahlakona and T Mahlangu (Mergers and
Acquisitions)
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