Non-Confidential version
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 68/LM/Oct09
In the matter between:
Shoprite Checkers (Pty) Ltd Acquiring Firm
And
Transfarm (Pty) Ltd and 6 Others Target Firms
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal Member)
and A Wessels (Tribunal Member)
Heard on : 25 November 2009
Order Issued : 25 November 2009
Reasons Issued: 2 February 2010
Reasons for Decision
Approval
[1] On 25 November 2009, the Competition Tribunal (“Tribunal”) unconditionally
approved the acquisition by Shoprite Checkers (Pty) Ltd of Transfarm (Pty) Ltd
and 6 Others. The reasons for approving the transaction follow.
Parties
[2] The primary acquiring firm is Shoprite Checkers (Pty) Ltd (“Shoprite”), a
supermarket group with approximately 984 stores in 17 countries. Shoprite is a
subsidiary of Shoprite Holdings Limited, a public company listed on the JSE
Securities Exchange.
[3] The primary target firms are Transfarm (Pty) Ltd (“Transfarm”), Exfarma (Pty)
Ltd, Group 2 Transport (Pty) Ltd, Medsnel Transport (Pty) Ltd, Pretoria IT
Services (Pty) Ltd, Schulenburg Verbeek (Pty) Ltd and Welmed Marketing (Pty)
Ltd (collectively referred to as “the Transfarm Group”). The Transfarm Group is
Non-Confidential version
controlled by the Dirk Verbeek Family Trust and the Schulenberg-BWS Trust
(the “Trusts”).
[4] Transfarm is the main constituent company in the Transfarm Group and is a
wholesale distributor of pharmaceutical, galenical and surgical products. The
other afore-mentioned target firms provide support services to Transfarm.
Proposed transaction
[5] Due to the interrelated nature of the business of the Transfarm Group, and in
order to provide job security and a smooth succession planning process, the
Transfarm Group decided to sell all of the said target firms as part of one
indivisible transaction. Shoprite intends to acquire the entire issued share
capital in the Transfarm Group.
Rationale for the transaction
[6] Shoprite wishes to expand its pharmaceutical business operations by obtaining
specialist wholesale logistics and procurement expertise through the acquisition
of a national pharmaceutical wholesaler. Shoprite believes that such expansion
shall enable it to secure improved efficiencies and effectively manage and
control the costs of their supply chains. Shoprite submitted that the acquisition
shall also place it on equal footing with its vertically integrated competitors,
such as Dis-Chem and Clicks.
[7] From the sellers’ perspective, certain trustees of the Trusts are approaching
retirement and wish to exit the pharmaceutical wholesale market.
Activities of the merging parties
[8] The Shoprite group of companies primarily operate retail grocery supermarkets
and stores. Their activities predominantly relate to the retail of a wide range of
fast moving consumer goods as well as the distribution of these goods,
including groceries, food, household, health, beauty and lifestyle consumer
products, clothing retail, home ware, textiles, cellular telephone products and
the distribution of these products to its various supermarkets and stores.
2
Non-Confidential version
[9] Of specific relevance in the context of this transaction is MediRite, one of the
value added retail divisions of the Shoprite Group. 1 MediRite operates as a
retail pharmaceutical business, i.e. 83 MediRite pharmacies, which are almost
exclusively located in Shoprite Checkers supermarkets and stores. MediRite
retails scheduled and unscheduled pharmaceutical products and general
consumer products such as health, lifestyle and beauty products (so-called
“front shop” products).
[10] Transfarm is a national wholesaler and distributor of pharmaceutical products,
being scheduled and unscheduled products, which include surgical and
galenical products and vitamins and minerals. These products are sold to
registered vendors and dispensaries such as retail pharmacies, hospitals,
doctors’ practices and veterinary practitioners.
[11] As such, there is no horizontal overlap between the activities of the merging
parties since Transfarm is a pharmaceutical wholesaler who distributes to
retailers whilst Shoprite (MediRite) sells pharmaceutical products to end
consumers. The proposed merger thus results in the vertical integration of the
merged entity in the pharmaceutical products supply chain, i.e. the merged
entity would be active at both wholesale and retail level (see vertical analysis
below).
Relevant product market
[12] The Commission and the merging parties submitted, in line with the Tribunal’s
previous decisions, 2 that the pharmaceutical supply chain can be delineated
into upstream (wholesale) and downstream (retail) segments. They submit that
the upstream market can be further delineated into separate markets for the
wholesale distribution of (i) scheduled pharmaceuticals and (ii) unscheduled
pharmaceuticals. The Commission further analysed the downstream markets
for the retail sale of (i) scheduled pharmaceuticals and (ii) unscheduled
for the retail sale of (i) scheduled pharmaceuticals and (ii) unscheduled
pharmaceuticals and front shop products (which include health, beauty and
lifestyle products).
1 The other value added retail divisions include Money Market counters, Computicket,
Liquorshop, Freshmark and Meat Market and the operational divisions consist of the following
supermarkets and stores: Shoprite, Checkers, Checkers Hyper, Shoprite USave, OK
Furniture, House and Home, OK Power Express, OK Franchise Division and Hungry Lion. 2 See Clicks Pharmaceutical Wholesale (Pty) Ltd and New United Pharmaceutical Distributors
(Pty) Ltd, Case No. 69/LM/Sep02.
3
Non-Confidential version
Relevant geographic market
[13] The Commission and the merging parties submitted that the relevant
geographic market for the above-mentioned upstream (wholesale) markets is
national. The merging parties argued for a local market for the retail sale of
pharmaceuticals, but the Commission left this open. It is also not necessary for
us to make a definitive finding on the exact scope of the relevant geographic
market(s) for the retail distribution of pharmaceuticals since our decision in this
case does not alter with any alternative geographic market definition, i.e.
whether the retail market is considered to be national, regional or local.
Vertical analysis
[14] To assess potential foreclosure effects as a result of this transaction, we shall
analyse the market positions of the merging parties both in the upstream
(wholesale) and downstream (retail) markets.
Table 1 National market shares of Transfarm and competitors in 2009 in
the wholesale distribution of (i) scheduled and (ii) unscheduled
pharmaceuticals3
Upstream market Scheduled
pharmaceuticals
Unscheduled
pharmaceuticals
Market participant Market share
range [%]
Market share
range [%]
Transfarm [0-10] [0-10]
New United Pharmaceutical Distributors [20-30] [20-30]
International Healthcare Distributors [10-20] [10-20]
Alpha Pharm Distributors – Bloemfontein [0-10] [10-20]
Clidet 549 (Pty) Ltd t/a Imithi Distributors [0-10] -
Natal Wholesale Chemists t/a Alpha Pharm
Durban
[0-10] [0-10]
Adcock Ingram Healthcare - [0-10]
Source: Above ranges estimated by Transfarm based on information obtained from
IMS Health (Pty) Ltd, a company that provides market information in the
pharmaceutical and healthcare industries.
[15] As is clear from Table 1 above, Transfarm has a national market share of less
than 10% in the wholesale distribution of both scheduled and unscheduled
pharmaceuticals. A number of market players compete with Transfarm in these
pharmaceuticals. A number of market players compete with Transfarm in these
markets, among others, large players such as New United Pharmaceutical
Distributors (with market shares of above 20% for the wholesale of scheduled
and unscheduled pharmaceuticals respectively) and International Healthcare
3 Sales to retail pharmacies, dispensing doctors, private hospitals and other private outlets.
4
Non-Confidential version
Distributors (with market shares of above 10% for the wholesale of scheduled
and unscheduled pharmaceuticals respectively).
Table 2 National market shares of MediRite and competitors in 2009 in
the retail distribution of (i) scheduled and (ii) unscheduled
pharmaceuticals
Downstream market Scheduled
pharmaceuticals
Unscheduled
pharmaceuticals
Market participant Market shares (%) Market shares (%)
Shoprite (MediRite) [0-10] [10-20]
Clicks [0-10] [20-30]
Pick ‘n Pay [0-10] [10-20]
Woolworths [0-10] [0-10]
Dis-Chem [10-20] -
Dis-Chem and
other pharmacy groups
- [40-50]
Independent pharmacy groups [70-80] -
Source: Shoprite’s estimates based on information obtained from IMS (for scheduled
pharmaceuticals) and AC Nielsen (for unscheduled pharmaceuticals).
[16] The national market shares as shown in Table 2 above provide an indication of
the relative size of MediRite in relation to numerous competitors in the
downstream (retail) markets. These competitors include players such as Clicks,
Pick ‘n Pay, Dis-Chem and numerous smaller independent pharmacy groups.
[17] As stated in paragraph 15 above, Transfarm’s market shares in both upstream
(wholesale) product markets are below 10%. Given this relatively small market
share in the upstream markets, combined with the fact that a number of
competitors will compete with the merged entity in the downstream markets (of
which the larger ones have a national presence), foreclosure effects seem
unlikely regardless of the geographic scope of the retail market(s). Based on
the above, the proposed merger is unlikely to result in either customer or input
foreclosure.
Public Interest
[18] No public interest issues arise as a result of the proposed transaction.
Conclusion
[19] Given that the proposed transaction does not result in a substantial prevention
or lessening of competition in any relevant market and, furthermore, raises no
or lessening of competition in any relevant market and, furthermore, raises no
public interest concerns, the merger is approved without conditions.
5
Non-Confidential version
________________ 2 February 2010
A Wessels DATE
Tribunal Member
N Manoim and Y Carrim concurring
Tribunal Researcher : R Kariga
For the merging parties : Werksmans Attorneys
For the Commission : N Ramroop (Mergers and Acquisitions Division)
6