COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 03/LM/Jan09
In the matter between:
Bidpaper Plus (Pty) Ltd Acquiring Firm
And
Pretoria Wholesale Stationers (Pty) Ltd Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member) and Y Carrim (Tribunal Member)
Heard on : 13 May 2009
Order issued on : 14 May 2009
Reasons issued on : 17 July 2009
Reasons for Decision
Introduction
[1] On 14 May 2009 the Tribunal conditionally approved the acquisition by
Bidpaper Plus (Pty) Ltd of Pretoria Wholesale Stationers (Pty) Ltd. The
reasons follow below.
Parties
[2] The primary acquiring firm is Bidpaper Plus (Pty) Ltd (“Bidpaper”), a company
incorporated in accordance with the laws of the Republic of South Africa.
Bidpaper is controlled by the Bidvest Group Ltd (“Bidvest Group”). Bidpaper
is a listed company and therefore is not controlled by any single shareholder.
Its major shareholders are as follows:
• Public Investment Corporation Ltd (SA) 14.32%
• Dinatla Investment Holdings (Pty) Ltd 8.82%
• Old Mutual Life Assurance Company (SA) Ltd 4.60%
• Investment Solutions Ltd 4.07%
1
[3] Bidvest has in excess of 100 subsidiaries nationwide. 1 Those relevant for the
purposes of the instant transaction are Waltons (Pty) Ltd (“Waltons”) and
Silveray Statmark Company (Pty) Ltd (“Silveray”).
[4] The primary target firm is Pretoria Wholesale Stationers (Pty) Ltd (“PWS”), a
company incorporated in accordance with the laws of the Republic of South
Africa. PWS is controlled by PWS Holdings Ltd (“PWS Holdings”), which is in
turn controlled by the De Klerk Trust (“De Klerk Trust”). The De Klerk Trust
controls the following firms:
• RNA Holdings (Pty) Ltd (“RNA”)
• Sledge International Trading (Pty) Ltd (“Sledge International”)
• Durable Data System (Pty) Ltd (“Durable Data”)
• PWS Namibia (Pty) Ltd (“PWS Namibia”)
• Tshwane Stationers (Pty) Ltd (“Tshwane Stationers”)
The transaction
[5] In terms of the sale of shares agreement Bidpaper intends to acquire the
assets, business and shares in the firms controlled by the De Klerk Trust (i.e.
PWS, RNA, Sledge International, Durable Data System, Tshwane Stationers
and PWS Namibia). On completion of the transaction these firms will be
controlled by Bidpaper.
Rationale for the transaction
[6] Bidpaper submitted that this transaction will enable it to, inter alia, speedily
establish the wholesale channel for common stationery brands, which are
currently supplied by PWS.
[7] For the target firm, the parties submitted that its founder is approaching
retirement and wants to exit the market.
1 Refer to Bidvest’s Group Annual Report for a complete list of its subsidiaries.
2
Parties’ Activities
Acquiring Group
[8] Bidpaper manufactures and distributes commercial office products, stationery
and packaging products through a network of outlets in Southern Africa for
the Bidvest Group. Through Silveray, its subsidiary, Bidpaper manufactures
and distributes a full range of blank books and pads, filing binders and filing
accessories, writing instruments, drawing instruments, calculators and rulers.
[9] The products that Silveray distributes include locally manufactured and
imported brands (Croxley, Lion and Springbok), foreign brands to which
Silveray has exclusive distribution rights such as Stabilo, Helix and Esselte,
brands to which Silveray does not have exclusive distribution rights such as
Rexel, Bic and 3M as well as overseas brands which are available locally via
branches of the manufacturers such as Pentel, Henkel/Pritt. Waltons is a
retailer and reseller of home, school and office products.
[10] Bidvest is an international investment holding company for a group of
companies involved in, inter alia, catering, freight-forwarding, financial and
related services and motor retail and related services.
The Target Group
[11] PWS operates as a wholesaler of stationery and offers brands on a non-
exclusive basis such as Bantex, Henkel/Pritt, 3M, Faber Castell, Reeves,
Rolfes, flip file, RBE, Files, Sealed Air, Eurocell etc. Its imported brands
include Durable, Corb and Inoxcrom. RNA Holdings operates a chain of
franchised and company owned stationery retail outlets under the name RNA.
[12] Sledge International is a company in which the transportation of the business
of all the entities controlled by the De Klerk Trust is housed. Durable Data and
Tshwane Stationers own some of the trade marks distributed by PWS.
3
Relevant Product Markets
[13] The Commission found that the activities of the merging parties overlap at two
levels, i.e. wholesale market for stationery products (PWS and Silveray) and
retail/reseller markets for stationery products (Waltons and RNA). However,
the merging parties submitted that the two firms are not competitors as they
target different customers – Bidpaper targets large commercial sector
customers that are able to carry large stock, whilst PWS offers reduced-pack
sizes aimed at the smaller resellers.
[14] There is also vertical integration in the activities of the merging parties as
Bidpaper (through Silveray) is active in the manufacture of books and other
paper related stationery products and PWS is active in the wholesale market
for the distribution of such products.
Wholesale market
[15] Although the merging parties were of the view that the two firms are not
competitors as they target different customers (large commercial sector
customers for Bidpaper and smaller resellers for PWS), the Commission’s
investigation revealed that they can exert a competitive constraint on each
other in that Silveray can easily supply smaller retailers with reduced
stationery packs and in the same way PWS can easily switch supplying
smaller packs and start supplying larger ones. According to the Commission,
this is evidenced by the fact that the parties concede that there are customers
who source stationery products from both Silveray and PWS.
Retail/Reseller market
[16] Resellers are those firms that sell directly to commercial businesses and not
to individual end-consumers, whereas retailers target individual customers.
Bidpaper, through Walton’s, is active in both the reseller and retailer markets.
PWS, through RNA stores, is only in the retailer market for stationery
products.
4
[17] In this regard, the Commission’s view is that there is nothing preventing a
reseller to act as a retailer and vice versa. The Commission further submits
that it does not regard a reseller any different form a retailer (e.g. of Waltons
acting as both is evidence of this fact). The Commission therefore regard the
reseller and retailer markets as constituting a single relevant market.
Geographic Market
Wholesale market
[18] According to the merging parties, the geographic market for wholesale
products is national. In this regard, the Commission concurred with the
parties.
Reseller/Retail market
[19] The major resellers/retailers such as Walton’s, Checkers, Shoprite, Spar,
Game and Pick ‘n Pay compete nationally. RNA, however, operates in the
Pretoria area, mostly in the east, i.e. Atterbury, Hatfield and Waltloo and in
the Northern suburbs, i.e. Attridgeville, Montana, Hamanskraal and Pretoria
North.
[20] The Commission therefore concluded that the merging parties’ activities do
not geographically overlap in this market.
Competition Analysis
[21] The merging parties’ post merger market share for the wholesale of stationery
products is approximately 50%. Competitors in this market include BCS
Stationers (15%), Interstat Agencies (15%), Shalmay Stationers (5%), Tre
Foil (5%), Flip File (5%) and others. The Commission found that the market
for wholesale products is highly concentrated with a post-merger HHI of about
3050 and a change in HHI of 1200 points.
[22] The majority of third parties contacted by the Commission in its investigation
of this merger raised concerns. Firms which raised concerns include
5
competitors of the merging parties such as Freedom Stationery, Interstat,
Shalmay Stationers, BSC Stationers and TreFoil.
[23] The concern raised was mainly that the merged entity would have significant
market presence in the wholesale market for stationery products and would
have greater bargaining power to import the products. Mr. A. H Mohamed,
who represented Shalmay Stationers at the hearing, submitted that the
merged entity - with such high post-merger market shares will get all the
distribution rights to distribute exclusive brands and thereby undercutting
smaller players like Shalmay.
[24] In response to this, Mr. Birch, CEO of Bidpaper Plus, submitted that there are
many competing exclusive brands and that it would not be logical for
suppliers of these brands to grand exclusivity to one single firm as the
suppliers would not get critical volumes for their products and the firm in
question would also be confused about what its marketing pitch would be. Mr.
Birch further submitted that the Chinese and European markets have grown
to such extent that retail chains have their own buying groups that source
directly from these markets. Mr. Mohamed also conceded that his firm
currently source products from abroad and would still be able to do so post-
merger.
[25] The Commission’s investigations also revealed that competitors of the
merging parties could source stationery products from other wholesalers,
local manufacturers or they could turn to imports should the merged entity
engage in a foreclosure strategy. In addition, the Commission also contacted
Shop SA, an association governing the stationery market. Shop SA’s
response was that this transaction is unlikely to have a negative impact on the
affected markets as they believe that the target firm cannot grow its business
further without strong equity which the acquiring firm is likely to provide. Shop
further without strong equity which the acquiring firm is likely to provide. Shop
SA also stated that currently most of PWS’s customers are switching to Tre
Foil and BSC Stationers.
[26] Shop SA further submitted that Freedom and Palm Stationery, both of whom
are active in the manufacturing of books and paper stationery, are also active
in the wholesaling of stationery products. This fact, in the view of the
6
Commission, suggests that it is easy for manufacturers of stationery products
to enter the wholesale market of stationery products.
[27] Although the Commission’s view is that this transaction results in the removal
of an effective competitor, it concluded that the transaction does not raise any
serious anti-competitive concerns as there are no significant barriers to entry
citing inter alia, that there are no licences required to enter this market and
that firms can still compete even with no distribution rights to distribute a
specific or particular brand. This is supported by the fact that some
competitors of the merging parties have been competing in the wholesale
market by supplying their self-branded products.
[28] Further, the Commission found that customers of the merging parties have
countervailing power in that they are knowledgeable on aspects such as
quality and price of products and can also source products from abroad. In
addition, the dynamics of this market are such that there are designated
distributors such as Pilot, Pentel, Rexel and Bantex who import writing
instruments and sundries (mainly from China) and then distribute them to
wholesalers, retailers and resellers.
Vertical Analysis
[29] The activities of the merging parties are vertically integrated in that Bidpaper
is active in all there levels of the stationery market, i.e. manufacturing,
wholesaling and retailing/reselling markets and PWS is active in the
wholesaling and retailing of stationery markets. In the manufacturing of books
and paper stationery products, Bidpaper has a market share of 13%. It
competes with firms such as Freedom Stationery (25%), CTP Stationery
(15%), Power Stationery (9%) and Palm Stationery (7%).
[30] The Commission found that it is unlikely that the transaction would lead to any
foreclosure concerns as Bidpaper’s market share is low. Further, the
foreclosure concerns as Bidpaper’s market share is low. Further, the
manufacturing of books will still remain competitive post-merger with credible
competitors such as Freedom Stationery and CTP Stationery competing with
the merging parties. In relation to customer foreclosure, these competitors
have submitted that they distribute their products through several wholesalers
and that in the event of the merged entity engaging in a foreclosure strategy,
7
they would have the services of other independent wholesalers such as
Interstat, BSC Stationers and others.
[31] Similarly in both the wholesale of stationery products where PWS is active
(“upstream market”) and in the reseller market where Waltons is active
(“downstream market”), the Commission found that there is no likelihood of
any foreclosure concerns despite the merged entity’s 50% post-merger
market share. This is so because competitors of the merging parties indicated
that they have the capacity to serve resellers and retailers of stationery
products.
[32] The Commission also found that there are alternative players active in the
wholesale market of stationery products that can serve Walton’s competitors
in the reseller market in the unlikely event of a foreclosure strategy by the
merged entity. Furthermore, although almost 45% of Silveray’s products are
distributed by Waltons (and in the event that Silveray decides to sell the
remaining 55% of its stationery products to Waltons and PWS), the
competitors of Waltons can still acquire these products from firms such as
BSC Stationery, Shalmay and Interstat.
[33] Based on the above, we agree with the Commission that this transaction is
unlikely to substantially lessen or prevent competition in the affected markets.
Public Interest
[34] In their filing to the Commission, the merging parties had submitted that about
24 employees would be retrenched following the merger. The reason cited by
the merging parties for these retrenchments was that there would be
duplication of work as their plan was to combine their respective distribution
facilities in Cape Town, Durban and Johannesburg.
[35] However, during the hearing Mr. Welile Nolingo of CEPPWAWU (the union
representing employees of the merging parties), submitted that it was not
consulted regarding this and that it was likely that the number of
consulted regarding this and that it was likely that the number of
retrenchments would be much higher than the envisaged 24. The Tribunal
therefore imposed an employment condition to the effect that retrenchments
8
at the merging firm, arising from post merger rationalisation of the merging
firms, must be limited to no more than 24 employees.
___________________ 17 July 2009
D Lewis Date
N Manoim and Y Carrim concurring.
Tribunal Researcher : I Selaledi
For the merging parties : Bowman Gilfillan
For the Commission : T Mahlangu
9