COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 17/LM/Apr10
In the matter between:
Bidpaper Plus (Pty) Ltd Acquiring Firm
And
Sprint Packaging (Pty) Ltd Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on : 29 July 2010
Order issued on : 12 August 2010
Reasons issued on : 10 January 2011
Reasons for Decision
Approval
1] On 12 August 2010 the Competition Tribunal (“Tribunal”) approved the
acquisition by Bidpaper Plus (Pty) Ltd of Sprint Packaging (Pty) Ltd.
The reasons for approving the proposed transaction follow below.
1
Parties and their activities
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 a wholly owned subsidiary of the Bidvest
Group Limited (“Bidvest”). Bidvest is listed on the JSE Securities
Exchange and controls a number of subsidiaries worldwide. Bidpaper
is a manufacturer and distributor of commercial office products,
services, stationary and packaging products through a network of
outlets in Southern Africa.
3] The division of Bidpaper which is relevant for the purpose of this
transaction is Lufil. Lufil is primarily a paper packaging and serviette
manufacturer.1 These manufacturing operations are split into two
factories namely (i) the Red Street factory which focuses on the
production of serviettes and limited manufacturing of greaseproof 2
bags; and (ii) the Green Street factory which manufactures kraft 3 based
paper bags, carrier bags, greaseproof reams and bags, poly chicken
and other bags. Lufil operates from three warehouses in
Johannesburg, KwaZulu-Natal and Cape Town. It conducts very limited
distribution of products that are not manufactured within Lufil.
4] The primary target firm is the business and assets of Sprint Packaging
(Pty) Ltd (“Sprint”), a company incorporated in accordance with the
laws of the Republic of South Africa. Sprint is jointly controlled by Alan
John Harrington, with shareholding of 40% and Peter Robert Davis
(“Davis”) with a shareholding of 60% in Sprint. Sprint is a manufacturer
of a limited range of paper bags as well as printed folded board
products and operates principally as a distributor of packaging
materials, plastic and paper bags. Its distribution activities entail the
distribution of packaging materials to the reseller market throughout the
country. It has distribution outlets in Pretoria, Johannesburg, Cape
country. It has distribution outlets in Pretoria, Johannesburg, Cape
Town, George, Port Elizabeth and Bloemfontein.
Proposed transaction
5] In terms of the agreement of sale, Bidpaper intends to acquire the
business of Sprint as a going concern subject to a number of
suspensive conditions. According to the merging parties they have no
plans to post merger integrate Sprint’s operations with those of Lufil.
Rationale for the proposed transaction
6] From the perspective of Bidpaper the rationale for the proposed
transaction is that Sprint has the capacity to produce a different range
of board based products to those of Lufil which would complement
Lufil’s product range. According to the acquiring firm what attracted it to
the Sprint business was their expertise and presence in the folding
1 None of the food service divisions of Bidvest have packaging production capabilities.
2 Paper that is impermeable to grease and oil.
3 Kraft paper is a strong and coarse paper which can be used to carry relatively heavy products.
2
carton market and the ability to produce high quality, high-end
lithographic printed folding cartons. In regard to paper packaging Lufil
is seen as a trade manufacturer whilst Sprint is regarded as a supplier
to the end-user with some manufacturing capability. Furthermore
Bidpaper has established a relationship with a UK based packaging
company and Sprint’s production capacity will give Bidpaper the
immediate capability to produce certain products. The availability of
additional products is seen as a benefit to the customers of both
parties.
7] The rationale from the perspective of Sprint is that Davis, the senior
shareholder, wishes to retire and realise his stake in the company.
Product overlap and relevant markets
Horizontal overlap
8] From the above-mentioned description of the activities of the merging
parties it is evident that there is a horizontal overlap with regard to the
broad market for the manufacture of packaging. We deal with this
market in further detail below.
9] The merging parties submitted that the key difference between the type
of packaging manufactured by Sprint and that of Lufil is that Lufil is
primarily a bag manufacturer with a few speciality products, whilst
Sprint has limited bag production capacity but produces board products
and distributes a very wide range of packaging products.
Vertical dimension
10]There is also a vertical dimension to the proposed transaction in
respect of paper napkins or serviettes since Lufil is a manufacturer of
serviettes while Sprint distributes serviettes. The Commission however
concluded that vertical concerns are unlikely to arise from this merger
based on Lufil’s current market share in serviette manufacturing and
the fact that a number of (potential) distributors of serviettes exist. The
Commission concluded that this merger does not actually change the
potential for vertical foreclosure and we therefore do not deal with
potential for vertical foreclosure and we therefore do not deal with
these vertical issues in any further detail.
Manufacturing of paper packaging
11]The merging parties took a demand-side approach and defined the
relevant product markets based on the categories of products that they
supply. They found there to be a horizontal overlap in respect of the
manufacture of the following product categories of packaging:
i) Branded fast food, i.e. paper packets used by fast
food chains such as Nandos, Steers and KFC at
point of sales;
ii) Branded retail/deli, i.e. paper packets used for
3
bread and similar products by grocery stores and
delis; and
iii) Generic paper packaging, i.e. multi-
purpose/versatile bags used for food and other
product packaging, the distinction being that there
is no customer branding on the material and it may
be used for all sorts for products, for example food,
groceries, house wares and clothing.
12]In regard to the paper packaging manufacturing activities of the
merging parties the Competition Commission (“Commission”) took a
divergent view from the merging parties and defined the following
relevant product markets based on supply-side considerations i.e. the
configuration of the machinery used to produce paper packaging
products:
i) flat bottom 4 paper packaging bags
(including all paper substrates such as
greaseproof5, kraft6 and generic paper
packaging);
ii) square (block) bottom 7 paper packaging
bags, commonly referred to as self-
opening bags (including all paper
substrates such as greaseproof, kraft and
generic paper packaging);
iii) sacks used for cement, charcoal and
other applications that require a large
sturdy bag; and
iv) paper napkins or serviettes (see
paragraph above).
13]The Commission and the merging parties were in agreement that the
scope of the relevant geographic market for the manufacturing of the
relevant paper packaging products is national.
Distribution of paper packaging
14]In regard to the distribution of paper packaging products the
Commission defined a national broad product market for the provision
of distribution or logistical services in general. Since the Commission
identified no competition concerns in regard to the merging parties’
distribution activities we do not deal with these activities in any further
4 These types of bags are sealed at the bottom and used for the packaging of inter alia food items such as chips and
pies.
5 See footnote 2 above.
6 See footnote 3 above.
pies.
5 See footnote 2 above.
6 See footnote 3 above.
7 These types of bags are stable and can stand unsupported when fully opened or being filled. They are used for the
packaging of inter alia sugar and fast food take away items.
4
detail below suffice to say that the merged entity will post merger face
competition from large national players such as Ace Packaging,
Stamford Sales and Digistics, as well as from a number of smaller
regional distributors of paper packaging products.
Conclusion
15]It is not necessary for the Tribunal in this case to define the exact
parameters of the relevant markets since the proposed transaction
does not raise any competition concerns under any plausible market
delineation. We therefore leave the issue of market definition open in
this case.
COMPETITIVE ASSESSMENT
Manufacturing of paper packaging
16]If the approach of the merging parties to market delineation is adopted
the proposed deal does not raise likely competition concerns in any of
the potential manufacturing markets given the post merger market
shares of the merged entity, the presence of significantly sized
competitors in each of these potential markets as well as the other
potential mitigating factors discussed below.
17]If the approach of the Commission to market delineation is adopted
there is no horizontal overlap in the activities of the merging parties in a
potential market for the manufacturing of self-opening bags since
Sprint does not produce self-opening bags. Likewise there is no
horizontal overlap in a potential market for the manufacturing of
serviettes since Sprint does not manufacture serviettes (also see
paragraph above).
18]The Commission initially raised competition concerns in regard to the
potential market for the manufacture of flat bottom paper packaging
where the merged entity would post merger have a high market share
in a highly concentrated market with high barriers to entry according to
the Commission. The Commission however concluded that the
proposed merger is unlikely to substantially prevent or lessen
competition in this potential market given (i) the presence of other
competition in this potential market given (i) the presence of other
competitors; and (ii) sufficient customer countervailing power. The
customers of the relevant types of packaging products are large
concerns such as Pick ‘n Pay, Shoprite, Woolworths, Spar, Nandos,
King Pie, McDonalds and KFC with the ability to switch to alternative
suppliers according to the Commission. The Commission’s market
investigation found that these customers in general continually monitor
supplies of paper bags and benchmark their pricing.
19]Noticing certain statements in the Commission’s report in regard to
excess production capacities in the market(s) under consideration the
5
Tribunal at the hearing of this matter requested the Commission to
obtain further details in regard to the paper packaging production
capacities of the various players. The Commission subsequently
obtained relevant capacity related information from the merging parties
as well as from Atlas Packaging, Detpak, Counterpoint, Finpak,
Lanpak, Fast Food Packaging, Laughtons and Bismillah. The
Commission submitted this information to the Tribunal on 11 August
2010 and the Tribunal’s issued its order in this matter on 12 August
2010.
20]The available capacity related information obtained by the Commission
indicates that most of the players have significant excess capacity
available to produce specifically flat bottom paper packaging, a number
of these players having very significant unutilised existing production
capacity. Therefore a number of players in the relevant market(s) can
significantly increase production in the short term without incurring
additional capital expenditure.
21]The merging parties have furthermore stressed that there is some
degree of substitution between paper packaging products and other
packaging materials such as plastic, polystyrene, boxes, non-
corrugated cardboard boxes and foil and at the hearing gave a number
of practical examples of these specifically relating to the fast food
sector and the packaging of food stuffs such as cold (sliced) bread, hot
chicken, cakes and tarts. The merging parties also gave some
examples of imports of flat bags by Woolworths and McDonalds. As
stated in paragraph above we have left the market definition open in
this case and therefore do not have to conclude on these issues.
22]The merging parties also argued that they are not close competitors in
the manufacturing of paper packaging (also see paragraph above). At
the hearing Mr. Swan of Bidvest described Atlas Packaging and
the hearing Mr. Swan of Bidvest described Atlas Packaging and
Detpak as Lufil’s closest competitors. No evidence to the contrary
exists.
23]Furthermore, the customers of the relevant types of packaging
products contacted by the Commission as part of its market
investigation raised no competition concerns in relation to this
transaction and in fact pointed to the number of players in the
market(s) and the possibility of switching to alternative suppliers.
24]We therefore find that there is no evidence in this case that suggests
that the proposed transaction would substantially prevent or lessen
competition in any relevant market.
PUBLIC INTEREST
25]The merging parties confirmed that the proposed deal will not result in
any job losses or have any negative effect on employment given that
Bidpaper is acquiring the business of Sprint as a going concern as well
as the fact that there are no plans to integrate the various operations of
6
Sprint with those of Lufil in the regions where both firms have
operations (also see paragraph above). 8 No other public interest
issues arise from the proposed transaction.
CONCLUSION
26]We approve the proposed transaction unconditionally.
____________________ 10 January 2011
Andreas Wessels DATE
Norman Manoim and Yasmin Carrim concurring
Tribunal Researcher: Thandi Lamprecht
For the merging parties: Bowman Gilfillan
For the Commission: Fergus Reid
8 See inter alia page 8 of the record.
7