COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 02/LM/Jan09
In the matter between:
Clidet No 851 (Pty) Ltd Acquiring Firm
And
Sunshine Cash and Carry CC Target Firm
Panel : D Lewis (Presiding Member) N Manoim, (Tribunal Member),
and Y Carrim (Tribunal Member)
Heard on : 1 April 2009
Order Issued : 2 April 2009
Reasons Issued: 18 September 2009
Reasons for Decision
Approval
[1] On 1 April 2009, the Tribunal unconditionally approved the merger between
Clidet No. 851 (Pty) Ltd and Sunshine Cash and Carry CC. The reasons for
approving the transaction follow.
The parties
[2] The primary acquiring firm is Clidet No. 851 (Pty) Ltd (“Newco”), a newly
formed company for the purposes of this transaction. Initially, Newco is subject
to the joint control of Kyriacos Theodosiou (“George”) and Theodosiou
Theodosiou (“Theo”) each holding 50%. Masscash Holdings (Pty) Ltd
(“Masscah”), which is in turn a wholly owned subsidiary of Massmart Holding
Limited (“Massmart”) will then acquire 51% of Newco as fully described below.
[3] Massmart is a public company that is not controlled by any firm and its shares
are traded on the Johannesburg Securities Exchange. Massmart controls in
excess of seventy firms.1
[4] The primary target firm is Sunshine Cash and Carry CC (“Sunshine”). Sunshine
is jointly controlled by Theo and George, each with 50% members’ interest.
1 For a complete list of Massmart’s subsidiaries, see Annexure A1 and A2.
Apart from their members’ interest in Sunshine, Theo and George control 2
firms each with a 50% interest. These firms are KT Theodosiou Investments
CC (“KTT”)2 and Nelicor Property Holding CC (“Nelicor”).3
Description of the transaction
[5] Prior to the implementation of the transaction, the business of Sunshine will be
transferred to Newco as a going concern. George and Theo will be the only
shareholders of Newco. Masscash will then acquire 51% of the issued share
capital of Newco and the remaining 49% will be collectively held by Theo and
George.4 On completion of the transaction, Masscash will acquire sole control
of Newco.
THE PARTIES’ ACTIVITIES
Primary acquiring firm
[6] Newco is a newly formed company that has not traded before. Masscash,
which will acquire 51% in Newco, is a wholly owned subsidiary of Massmart.
Massmart is a retailer and wholesaler of grocery products, liquor and general
merchandise throughout South Africa. It operates through four divisions namely
Massdiscounters, Masswarehouse, Massbuild and Masscash.
Massdiscounters
[7] This division is comprised of retail stores around South Africa trading as Game,
Dion Wired stores. Game offers a wide range of general merchandise and
limited non-perishable grocery products. Dion Wired offers a wide range of hi-
tech appliances and audio and digital products.
Masswarehouse
2 KTT owns the property from which Sunshine’s store situated at the corner of Main Reef Road
and Van Wyk Street, Roodepoort Plaza Shopping Centre, Roodepoort, conducts its business.
Sunshine leases this property from KTT3 Nelicor owns the property from which Sunshine’s store situated at Number 2 Electron Road,
Manufacta, Roodepoort, conducts its business. Sunshine leases this property from Nelicor.4 See letter dated 30 March 2009 from the merging parties to the Commission and the
Commission’s further submissions dated 31 March 2009.
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[8] This division comprises wholesale stores located in Gauteng, Western Cape,
Eastern Cape and KwaZulu Natal trading as Makro. Makro stores offer a broad
range of food, liquor and general merchandise.
Massbuild
[9] The division comprises of the Builders Warehouse and Builder Trade Depot
stores. These stores offer building supplies, hardware and related products
throughout South Africa.
Masscah
[10] This division comprises CWB and Jumbo stores which are primarily engaged in
the wholesale distribution of grocery products, cosmetics toiletries and hair care
products.
[11] Masscash also owns Shield, a voluntary buying association serving
independently owned food wholesale and retail outlets.
Primary target firm
[12] Sunshine is primarily described as a retail supermarket with two stores in
Roodepoort. Its activities include a butchery, grocery (perishable and non-
perishable items), limited general merchandise and fresh produce.
Approximately 20% of Sunshine’s products are sold at a wholesale level.
Rationale for the transaction
[13] Massmart submits that the proposed transaction presents an opportunity to
acquire an interest in a successful business in a growing market where it is
underrepresented, in particular the retail market targeting lower LSM customers
in urban and peri-urban areas.
[14] Theo and George, current owners of the business of Sunshine, view the
transaction with Massmart as an attractive opportunity to realise a return on
their investment, while retaining a significant stake in and continued input into
the business of Sunshine. It is also expected that Massmart will bring additional
resources which will allow the business to expand.
The relevant market
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[15] There is an overlap in the merging parties’ activities, as both the merging
parties are involved in the provision of grocery products. Grocery products
encompass food, cigarettes, health and beauty products and non-edible
consumables such as detergents and house care products. The Commission
further delineated the market into two sub markets namely wholesale grocery
product market and retail grocery product market in line with previous Tribunal
decisions.5 The parties further submitted that the LSM classification targeted by
the relevant stores could be used to further delineate the product market as
stated in the Pick ‘n Pay/Boxer6 case.
[16] The Commission further submitted that the market for wholesale grocery is
local and covers a radius of 40km from Sunshine stores in Roodepoort; and the
market for retail grocery is local covering a 10km radius of the Sunshine stores
in Roodepoort. The merging parties have averred that the relevant geographic
market covers a radius of 5-7km. We will analyse competition in the relevant
market using the Commission’s approach as it defines the geographic market
broadly and gives a clearer picture of the competition being faced by Sunshine.
Competition analysis
Horizontal analysis
[17] The merging parties are both active in the wholesale provision of grocery
products within a 40km radius from Sunshine stores in the Roodepoort area.
The market participants are as follows:
Table 1: The wholesale grocery market in Roodepoort and surrounding areas
Company Market share (%)
Masscash 30.3
Metcash 24
Sunshine 0.6
Kit Kat 6
Crown Cash & Carry 3.4
Saania Distributors 3
Orient Cash & Carry 2.5
Yarona Cash & Carry 6.4
Devland Cash & Carry 9
5 Massmart and Jumbo Case No. 47/LM/Aug01, para 13; and Pick ‘n Pay Retailers (Pty) Ltd
and Boxer Holdings (Pty) Ltd Case No. 52/LM/Jul02.6 Pick ‘n Pay Retailers (Pty) Ltd and Boxer Holdings (Pty) Ltd Case No. 52/LM/Jul02.
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Key Distributors 5
Frontline Cash & Carry 2
Hikma Cash & Carry 2
Lenasia Halal 5
Astor Cash & Carry 2
Total 100
Source: Merging parties’ and competitors’ estimates
[18] As shown above, Sunshine has an insignificant presence in the wholesale
grocery market in Roodepoort and surrounding areas with a 0.7% market
share, relative to Masscash with 30.3% of the total wholesale grocery market in
Roodepoort and surrounding areas.
[19] As far as the retail grocery market is concerned the Commission submitted that
there is not sufficient evidence to conclude on the LSM categories targeted by
Sunshine. It averred further, that there are many participants in the retail
grocery market within a 10km radius from Sunshine stores in Roodepoort. 7
These include Shoprite Roodepoort, Multisave Roodepoort, Game Westgate,
Pick ‘n Pay Roodepoort, Spar (both Florida Junction and Gold Reef), and
Makro Strubens Valley. While the Commission did not provide relative market
shares of this relevant market, all of the listed players are much larger than
Sunshine, some having more than one branch within that radius.
Vertical integration
[20] The vertical integration in this transaction stems from the fact that Sunshine
purchases products from Shield, a voluntary buying group owned by Masscash.
Input foreclosure is unlikely even if Shield were to opt to foreclose other
independent supermarkets that compete with Sunshine as there are other
buying groups that serve independent traders, which include but are not limited
to UCM, ICC, IBC, and Elite.
[21] Customer foreclosure is unlikely as Sunshine is an insignificant wholesale
buyer of groceries. As a result, the elimination of Sunshine as a customer to
competitors of the Shield buying group is therefore unlikely to have an impact
on Shield’s competitors’ ability to compete.
Public Interest
7 The merging parties intimated that Sunshine serves a region of 5-7km as a typical customer
7 The merging parties intimated that Sunshine serves a region of 5-7km as a typical customer
is limited by means of transport and the concomitant need for a supermarket offering to be on
or very close to that customer’s daily commute, as well as the significant levels of competition
within the vicinity of the Sunshine store.
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[22] There are no public interest issues.
Conclusion
[23] The merger is approved without conditions for the reasons mentioned above.
________________ 18 September 2009
Y Carrim DATE
Tribunal Member
D Lewis and N Manoim concurring.
Tribunal Researcher : R Kariga
For the merging parties: Cliffe Dekker Hofmeyr
For the Commission : N Mateane and T Ravhugoni (Mergers and Acquisitions)
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