COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 126/LM/Dec08
In the matter between:
Steinhoff Doors and Building Materials (Pty) Ltd and
Steinbuild Properties (Pty) Ltd Acquiring Firms
And
Wierdapark Home Centre (Pty) Ltd
Centurion Home Centre (Pty) Ltd
Zambezi Home Centre (Pty) Ltd, and
Home Centre Hartbeespoort (Pty) Ltd Target Firms
Panel : D Lewis (Presiding Member) N Manoim, (Tribunal Member),
and Y Carrim (Tribunal Member)
Heard on : 11 February 2009
Order Issued : 11 February 2009
Reasons Issued: 11 June 2009
Reasons for Decision
Approval
[1] On 11 March 2009, the Tribunal unconditionally approved the merger between
Steinhoff Doors and Building Materials (Pty) Ltd and Steinbuild Properties (Pty)
Ltd (the acquiring firms) and Wierdapark Home Centre (Pty) Ltd, Centurion
Home Centre (Pty) Ltd, Zambezi Home Centre (Pty) Ltd, and Hartbeespoort
(Pty) Ltd (the target firms). The reasons for approving the transaction follow.
The parties
[2] The primary acquiring firms are Steinhoff Doors and Building Materials (Pty) Ltd
(“Steinhoff Doors”), and Steinbuild Properties (Pty) Ltd (“Steinbuild”). Steinhoff
Doors and Steinbuild are ultimately controlled by Steinhoff International
Holdings Limited (“SIH”), a public company listed on the JSE Securities
Exchange.
[3] The primary target firms are the four businesses and the four premises from
which the following businesses operate, namely, Wierdapark Home Centre
(Pty) Ltd (“Wierda Park Home Centre”), Centurion Home Centre (Pty) Ltd
(“Centurion Home Centre”), Zambezi Home Centre (“Zambezi Home Centre”),
and Home Centre Hartbeespoort (Pty) Ltd (“Hartbeespoort Home Centre”).
[4] The four Home Centre Stores operated by the target firms are all Timbercity
Franchised stores and are all wholly owned subsidiaries of Home Centre
Holdings (Pty) Ltd (“Home Centre Holdings”).
[5] Home Centre Holdings is owned by the Johann Maritz Trust which holds 73%
and Johann Ignatius Maritz who holds the remaining 27% shares.
[6] The Johann Maritz Trust wholly owns Home Centre (Pty) Ltd, Loan Oak
Property Investments (Pty) Ltd, SWJ Beleggings (Pty) Ltd and Future Indefinite
Investments 160 (Pty) Ltd. The Johann Maritz Trust also owns 90% of the
shares in Yin Yang Beleggings (Pty) Ltd and the other 10% shares are held by
Casper Dippenaar.
[7] The firms comprising the target group do not control any firms.
Description of the transaction
[8] The proposed transaction is in two steps which will take place simultaneously.
The first step involves an acquisition by Steinhoff Doors of the Home Centre
business being conducted by Home Centre Holdings (Pty) Ltd, as well as the
Home Centre businesses being conducted by its four wholly owned
subsidiaries as going concerns.
[9] The second step involves the acquisition by Steinbuild of the entire issued
shares in:
[9.1] Home Centre (Pty) Ltd, which owns the properties from which Home Centre
Holdings (Pty) Ltd and Wierdapark Home Centre Holdings (Pty) Ltd operate;
[9.2] SWJ Beleggings (Pty) Ltd, which owns the properties from which Centurion
Home Centre Holdings (Pty) Ltd operates;
[9.3] Loan Oak Property Investment (Pty) Ltd, which owns the property from which
Centurion Home Centre Holdings (Pty) Ltd operates; and
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[9.4] Future Indefinite Investments 160 (Pty) Ltd, which owns the properties from
which the Hartebeespoort Home Centre Holdings (Pty) Ltd operates.
[10] In addition, Steinbuild will also acquire immovable property from which Wierda
Park Home Centre (Pty) Ltd currently operates.
THE PARTIES’ ACTIVITIES
Primary acquiring firms
[11] SIH, through its numerous subsidiaries and associate companies, is a
diversified industrial company in South Africa. Its main areas of operation
include forestry, saw milling, production and sale of processed timber products
through PG Bison; the manufacturing of household goods, logistics, the
manufacture of foam and textiles and motor vehicle retail.
[12] The Steinhoff Group is also actively involved in the retailing of building supplies,
hardware and related products to tradesmen and to do-it-yourself (“DIY”)
homeowners through the Timbercity and Pennypinchers DIY retail stores.
Timbercity Franchises is a retail merchandising business specialising in
formica, solid surfacing, wood and wood based products. The Pennypinchers
Trust is a trust-based joint venture conducting distribution and sale of timber
and board products, ancillary hardware and related goods, as well as paint and
furniture components.
Primary target firm
[13] All of the four Home Centre stores are involved in the supply of a large range of
building supplies, hardware and related products to tradesmen and DIY
homeowners. These products include board and timber, building material,
plumbing and electrical equipment, power tools, hand and gardening tools as
well as a variety of paints, decor and doors. They also provide related services
to customers such as cutting and edging of boards, customised kitchen design,
mixing of paints and delivery of products. The four Home Centre stores
operated by the target firms are all Timbercity Franchised stores. These four
operated by the target firms are all Timbercity Franchised stores. These four
Home Centre stores are owned and operated by the franchisee. In effect
Steinhoff (the franchisor) of Timbercity is buying its franchisees, the four Home
Centre store trading as Timbercity.
Rationale for the transaction
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[14] The primary acquiring firms stated that the proposed transaction will provide
Steinhoff with an opportunity to begin supplying building supplies, hardware
and related products in Pretoria and its surrounding areas, and serves as a
platform to roll-out its Pennypinchers brand in these areas. In addition Steinhoff
hopes to build on the existing client base of the Home Centre Stores.
[15] The shareholders of the target group want to realise their investment in the
target firms.
The relevant markets
[16] The Commission and the parties submitted that there are two relevant
upstream markets in this transaction, namely the market for the production and
supply of raw and upgraded particle board; and the market for the production
and supply of raw and upgraded medium density fibre board (“MDF”). They
further submitted that this market is national as the acquiring firm distributes
processed timber products to retailers all over South Africa. There is no product
overlap in these markets as the primary target firms are not active in these
markets. As a result, the Tribunal shall not analyse the upstream markets any
further.1
[17] The Commission submitted that there is an overlap in the activities of the
parties with regards to the downstream market of retailing of building supplies,
hardware and related products. The acquiring firm participates in this market
through its relationship with other Timbercity and Pennypinchers outlets.
Competition analysis in horizontal markets
[18] The merging parties estimated their pre and post merger market shares in the
market of retailing of building supplies, hardware and related products as
follows:
Table 1: Merging parties’ estimated pre and post market shares in the
downstream market
1 The players in this market include PG Bison with a market share of 47% in particle board
market and 59% MDF market; Sonae with a market share of 39% in the particle board market
market and 59% MDF market; Sonae with a market share of 39% in the particle board market
and 8% in MDF market; Magna with a market share of 8% in the particle board market; and
Imports which account for 6% of the particle board market and 33% of the MDF market
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Home Centre Store Estimated market share
Hartbeespoort Home Centre 16%
Wierdapark Home Centre and
Centrurion Home Centre
9.5%
Zambezi Home Centre 3.7%
Source: Merging parties’ estimates
[19] The Commission could not fully ascertain the exact market shares of the
merging parties as there is no industry association which collects data, and
competitors did not have estimates alternative to those of the merging parties.
However Steinhoff does not own or control any Pennypinchers or Timbercity
businesses in the greater Pretoria region, where the target firms’ retail stores
are located. It conducts the businesses of Timbercity Alberton, Timbercity
Randburg, and Timbercity Roodepoort.2 On this narrow definition of the market
there would be no geographical overlap in the activities of the merging parties.
The merging firms submitted that even if the geographic market were to be
more broadly defined as the greater Gauteng area, the transaction would not
result in any substantial prevention or lessening of competition because the
estimated combined market share of the merging parties would be less than
1% and there are a significant number of credible competitors like Cashbuild,
Chamberlains, Build It, Mica, Builders Warehouse and Ferreiras in Gauteng. In
our view the proposed transaction will not lead to a substantial prevention or
lessening of competition in the horizontal market for the retailing of building
supplies, hardware and related products.
Vertical analysis
[20] The vertical integration arises because the Home Centre Timbercity Group
purchases board products, including raw and upgraded particle board and
MDF, and ancillary hardware from PG Bison annually. This vertical integration
does not raise competition concerns because Steinhoff supplies insignificant
quantities to the four Home Centre stores and will stand to lose a significant
portion of turnover derived from sales to other customers should it embark on a
portion of turnover derived from sales to other customers should it embark on a
foreclosure strategy. Each of the four Home Centre Stores competes with
credible players such as Builders Warehouse, Chamberlains, Mica, Woodcity,
City Wood Build It and Cash Build.
2 Record page 247.
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[21] In addition, Steinhoff’s competitors will still be able to sell their products to other
retailers even if they are to be foreclosed from the four Home Centre stores.
They can sell their products to numerous other retailers namely Builders
Warehouse, Chamberlains, Mica, Woodcity, City Wood Build It and Cash Build.
As a result, the vertical integration does not lead to a substantial prevention or
lessening of competition.
Public Interest
[22] There are no public interest issues.
Conclusion
[23] The merger is approved unconditionally.
________________ 11 June 2009
Y Carrim DATE
Tribunal Member
D Lewis and N Manoim concurring.
Tribunal Researcher : R Kariga
For the merging parties: Deneys Reitz Attorneys
For the Commission : T Masithulela, M Dorasamy and S Fung (Mergers and
Acquisitions)
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