COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 60/LM/Aug09
In the matter between:
Reunert Ltd Acquiring Firm
And
Siemens Enterprise Communications (Pty) Ltd Target Firm
Panel : N Manoim (Presiding Member)
A Wessels (Tribunal Member)
A Ndoni (Tribunal Member)
Heard on : 28/10/2009
Order issued on : 29/10/2009
Reasons issued on : 02/03/2010
Reasons for Decision
APPROVAL
[1] On 28 October 2009 the Competition Tribunal unconditionally approved the
merger between Reunert Ltd and Siemens Enterprise Communication (Pty)
Ltd. The reasons follow below.
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THE TRANSACTION
[2] Reunert Ltd currently has 40% shareholding in Siemens. This transaction
entails an acquisition by Reunert of the remaining 60% shares in Siemens
from Siemens AG, which jointly controls Siemens. On completion of the
transaction, Reunert will solely control Siemens.
THE RATIONALE
[3] Reunert submitted that it is exercising its pre-emptive right to purchase the
60% shareholding as provided for in the shareholders agreement with
Siemens. Siemens AG submitted that it is no longer able to procure
technology and products for Siemens as it wants to realise profits in other
businesses, hence the decision to sell Siemens.
THE PARTIES AND THEIR ACTIVITIES
[4] The primary acquiring firm is Reunert Ltd (“Reunert”), a public company listed
on the JSE Securities Exchange (“JSE”). Reunert’s major shareholders are as
follows:
• Old Mutual Investment Group SA (“Old Mutual”) 14%
• Public Investment Commissioners SA (“Public Investment”) 10%
• Investec Asset Management 7%
• Polaris Capital (Pty) Ltd 7%
[5] Reunert has direct and indirect controlling interest in several firms. 1 Reunert’s
subsidiary relevant for this transaction is Nashua Electronics (Pty) Ltd
(“Nashua Electronics”). Reunert is active in the provision of multifunctional
electronic devices and electrical engineering. Nashua Electronics imports and
distributes Private Branch Exchange Systems (“PABX Systems”) from
Panasonic, Futronic and Akai in Southern Africa.
[6] The primary target firm is Siemens Enterprise Communications (Pty) Ltd
(“SEC”), a company incorporated in accordance with the company laws of the
Republic of South Africa. SEC is jointly controlled by Siemens AG and the
Gauze Group. SEC is active in the distribution of enterprise
telecommunication solutions of voice communications and related services in
1 Refer to form CC(1) for the names of these firms.
2
South Africa. It distributes PABX Systems on behalf of Siemens AG and the
Gauze Group.
THE RELEVANT MARKET AND THE IMPACT ON COMPETITION
[7] The activities of the merging parties overlap in respect of the distribution of
PABX Systems. There is also a vertical relationship in the activities of the
merging parties as Nashua Electronics sources PABX products from the
target firm.
[8] The PABX System is a private telephone exchange which ties together
telephone, fax and data system in a company and connects these to the
public network. The PABX system largely provides integrated applications
such as inter alia, voice mail and voice recording functions, systems and
voice network management, telephone call cost management, video
recording and least cost routing and contact centres.
[9] The parties contend that the market for PABX Systems can be further
segmented depending on the size of the system, i.e. between systems of less
than 128 Ports and those greater than 128 Ports. The speed or capacity of
each device defines the communication between the server and client and
consequently sets out how data is communicated over the network. The
PABX System of less to medium capacity (less than 128 Ports) is mainly
utilised by small enterprises while the large capacity (greater than 128) PABX
System relates more to large enterprises.
[10] Reunert, through Nashua Electronics, distributes PABX Systems of a small to
medium capacity of less than 128 Ports. SEC distributes PABX Systems of a
large capacity of greater than 128 Ports.
[11] In its assessment of the relevant product market, the Commission
investigated whether or not the two types of PABX Systems fall within the
same market. Customers of the merging parties such as Gracan
Communications and Tongaat Hullett informed the Commission that PABX
Systems are considered to have the same features and facilities, with the only
Systems are considered to have the same features and facilities, with the only
difference being the capacity that generally has to be determined by the
requirements of a particular customer.
3
[12] The European Union (“EU”) previously assessed a merger dealing with PABX
Systems.2 In that transaction, the merging parties submitted to the EU that
small and large PABX Systems belong to the same product market, as their
function is the same regardless of the size and customers seek solutions
which may include both small and large PABX Systems. The EU however
found it not necessary to further delineate the relevant product market
because in all alternative market definitions, effective competition would not
be significantly impeded.
[13] The Commission submitted at the hearing that it made a distinction between
the products only to highlight that the market looks at the PABX Systems as
such.3 The Commission therefore decided not to segment the market
between large and small systems.
[14] For purposes of the present transaction, we will leave the definition of the
relevant product market open as there are a number of alternative firms
competing with the merged entity. The geographic market for PABX Systems
is defined by the Commission as national.4
[15] The merging parties’ combined post-merger market share in the PABX
Systems is approximately 18%. The merging parties face competition from
firms such as LG/Marconi (Telkom) with 28%, Samsung with 23%, Aristel with
12%, Phillips with 7% and others.5
[16] The Commission’s investigation found that the PABX market is highly
fragmented with a large number of competing firms and that there very little
differentiation between the products. Further, the Commission also found that
customers in this market have buyer power. In this regard, customers such
Edcon and ABSA bank, Mediclinic, Gracan, Panasonic Business Solutions
and Tongaat Hullett submitted that they get to choose what they want, are the
ultimate deciders who determine prices for PABX packages and that they
negotiate better deals depending on volume and size of the deal.
negotiate better deals depending on volume and size of the deal.
2 In the merger between Flextronics and Network Services/Telaris Sodra, case no: COMP/M.
2654.
3 This was also confirmed by Mr. Raymond Padayachee, Chief Executive Officer of SEC.
4 As defined in the merger between Vox Telecom Ltd and STWS Ltd, Commission case no:
2007Oct3312.
5 Such as Alcatel-Lucent (3%), Aastra-Ericsson (2%), Nortel (2%) as well as many others.
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[17] In addition, none of the competitors contacted by the Commission raised
concerns regarding the merger. There was only one concern raised by a
customer, namely Gracan. Gracan’s concern was that as Reunert already
owns Siemens, Nashua Mobile and Panasonic, it can manipulate the pricing
and distribution of the PABX Systems. Gracan, however, confirmed that there
are many alternative players in the market which it can turn to in the event
that the merged entity increases prices.
[18] As indicated above, there is a vertical relationship between the merging
parties as Nashua Office automation, a subsidiary of Nashua Electronics,
has, through its distributors, sourced PABX products from SEC. The purchase
by Nashua Office Automation represents a very negligible 0.1% of the entire
PABX Systems distribution business of SEC. This figure is insignificant to
result in any foreclosure concerns in the national market for the distribution of
PABX Systems.
[19] In light of the above, we find that the transaction would not substantially
prevent or lessen competition in the market for distribution of PABX Systems.
CONCLUSION
[20] There are no significant public interest issues and we accordingly approve the
transaction.
__________
____________________ 02/03/2010
Norman Manoim DATE
A Wessels and A Ndoni concurring.
Tribunal Researcher: I Selaledi
For the merging parties: Cliffe Dekker Hofmeyr Inc
For the Commission: L Madihlaba
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