COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 120/LM/Nov08
In the matter between:
Industrial Development Corporation of
South Africa Limited Acquiring Firm
And
WM Eachus and Company (Pty) Ltd Target Firms
Panel : D Lewis (Presiding Member), N Manoim (Tribunal Member),
and Y Carrim (Tribunal Member)
Heard on : 10 December 2008
Order Issued : 10 December 2008
Reasons Issued: 12 January 2009
Reasons for Decision
Approval
[1] On 10 December 2008, the Tribunal unconditionally approved the merger
between the Industrial Development Corporation of South Africa Limited and
WM Eachus and Company (Pty) Ltd. The reasons for approving the transaction
follow.
The parties
[2] The primary acquiring firm is the Industrial Development Corporation of South
Africa Limited (“IDC”).1 IDC is wholly owned by the Government of South Africa
and controls several firms2 like Foskor (Pty) Ltd (“Foskor”), Kindoc Investments
Limited (“Kindoc”), Impofin (Pty) Ltd (“Impofin”) and Prila 2000 (Pty) Ltd
(“Prila”). IDC also controls Capstone 528 (Pty) Ltd (Capstone”), by virtue of a
10% shareholding and a number of minority protections in the shareholders’
agreement.
1 The IDC was established in terms of the Industrial Development Corporation Act 22 of 1940.2 See form CC4(2) filed by the IDC for a complete list of the firms controlled by IDC.
[3] The primary target firm is WM Eachus and Company (Pty) Ltd (“WM Eachus”).
WM Eachus is controlled equally by Raymond Gerald Eachus (“RG Eachus”),
John William Eachus (“JW Eachus”), and Lindsay Montague Eachus (“LM
Eachus”). The primary target firm controls the Sheraton Group 3 of companies
consisting of Sheraton Textiles (Pty) Ltd (“Sheraton”), Spartan Rand
Warehouses (Pty) Ltd (“Spartan”) Debonair Group (Pty) Ltd (“Debonair”), the
Four Posters CC (“Four Posters”) and Kolnicks CC (“Kolnicks”).
Description of the transaction
[4] Prior to the implementation of the proposed transaction, there will be an internal
restructuring in the target group in terms of which WM Eachus will become the
holding company of the Sheraton Group of companies. Three stages will be
followed. Firstly, Kolnicks and Four Posters will be converted from being Close
Corporations to Private Companies. Secondly, all the ordinary shares in
Sheraton, Spartan, Debonair, Kolnicks and Four Posters will be transferred to
WM Eachus, making WM Eachus a holding company of each of the companies.
Thirdly, IDC will acquire control over WM Eachus together with its subsidiaries
through the acquisition of 80% of the issued shares of WM Eachus. 20% will be
transferred to “Newco”, a company to be formed in order to hold the
management’s stake in WM Eachus.4
Rationale for the transaction
[5] From IDC’s perspective, the proposed transaction will save existing jobs in a
threatened (textile) industry. IDC hopes to support the target group so that it
can continue to compete in the local market for manufacturing and retail of
household textiles.
[6] The parties submitted that the proposed transaction will enable the target group
to remain a viable and profitable business to avoid being wound up.
3 The Sheraton Group of companies is a family owned business established in 1922 and its
3 The Sheraton Group of companies is a family owned business established in 1922 and its
structure consists of six separate entities (four private companies and two close corporations).4 See record page 38.
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The parties’ activities
Primary acquiring firm
[7] IDC is tasked with identifying and supporting business opportunities not
addressed by the market and providing risk capital in partnership with the
private sector. It provides financial support, skills development and industry
knowledge to add value to entrepreneurs and businesses.
[8] IDC has interests in various companies in different sectors of the economy,
including, but not limited to chemicals, tourism, agriculture, financial services,
and textiles and clothing. IDC, through Capstone, manufactures household
textiles including duvets, sheets, curtains, pillows, duvet inners and pillow
protectors.
The target firm
[9] The target firm and its subsidiaries are involved in the manufacturing and retail
of household textiles including duvets, sheets, curtains, pillows, duvet inners
and pillow protectors.
The relevant market
[10] The Commission and the parties submitted that there is a horizontal overlap in
the activities of the merging parties in the market for the manufacturing of
household textiles and that the transaction results in vertical integration as
Kolnicks is active in the retail of household textiles while Capstone is active in
the manufacturing of textiles.
[11] The Commission and the parties submitted that the product market can be
divided into two relevant markets. First, there is the upstream market for the
manufacturing of household textiles which includes duvets, sheets, curtains,
pillows, duvet inners and pillow protectors. This market, they submitted, is
national as the parties distribute their products nationally. Secondly, the firms
are active in the downstream market for the retail of household textiles. The
Commission and the merging parties refrained from making a definitive finding
on geographic market for the retail of household textiles as the parties’ market
shares are small whether the market share is national or regional.
Competition analysis
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Horizontal analysis
Table 1: National market shares in the market for manufacturing of household
textiles.
COMPETITOR MARKET SHARE
(%)
WM Eachus 15
Maytex Industries 15-20
Classic Quilters CC 15-20
Desiree Quilted Products Less than 15
Character Linens Less than 10
Romatex Home Textiles Less than 15
Cotton Traders CC Less than 10
Capstone 3
Pre merger HHI 1684
Post merger HHI 1774
Change in HHI 90
Source: merging parties
[12] The above table shows that the post merger market share will be 18% with an
increase of 3%. The transaction is not likely to lead to a substantial prevention
or lessening of competition as the change in HHI is below 100 and the merged
entity continues to face competition from market players like Matex, Classique,
Character Linens, Romatex Home Textiles and Cotton Traders.
Vertical analysis
[13] This transaction is unlikely to raise input foreclosure concerns as Capstone is
not a major supplier of household textiles in South Africa and is estimated to be
having 3% of that market. In addition, there are other credible suppliers of
household textiles such as Maytex, Classique, Character Linens, Romatex
Home Textiles and Cotton Traders which are alternatives to Capstone.
[14] The transaction is unlikely to result in customer foreclosure as currently,
Kolnicks sources approximately 75% of its household textiles requirements in-
house and as a result, it is unlikely that an upstream rival will be foreclosed
from a potential customer. In addition, Kolnicks is a small retail chain with less
than 1% of the retail market both regionally and nationally and this suggests
that there are a lot of retailers to whom upstream manufacturers can sell their
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products to and these include Edgars, Sheet Street, Ackermans and Game
Stores.
Public Interest
[15] There are no public interest issues.
Conclusion
[16] The merger is approved unconditionally.
________________ 12 January 2009
N Manoim DATE
Tribunal Member
D Lewis and Y Carrim concurring
Tribunal Researcher : R Kariga
For the merging parties: Deneys Reitz Attorneys
For the Commission : E Ramohlola (Mergers and Acquisitions)
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