COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:06/LM/Jan11
In the matter between:
PROUDAFRIQ TRADING 267 (PTY) LTD Acquiring Firm
And
S BUYS (PTY) LTD Target Firm
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member)
Merle Holden (Tribunal Member)
Heard on : 30 March 2011
Order issued on : 30 March 2011
Reasons issued on : 12 April 2011
Reasons for Decision
Approval
1] On 30 March 2011 the Competition Tribunal (“Tribunal”) approved the large merger between
Proudafrique Trading 267 (Pty) Ltd (“Proudafrique”) and S Buys (Pty) Ltd (“Buys”). The
Tribunal’s reasons for approving the transaction are set out below.
The Parties to the transaction
2] The primary acquiring firm is Proudafrique an newly formed wholly owned subsidiary of RTT
Group (Pty) Ltd (“RTT”), 1 a company incorporated in terms of the laws of the Republic. RTT
is ultimately controlled by First Rand Bank Limited and Actis Logistics Limited.
3] Buys2, the target firm is controlled by Sicily Van Rensburg and the S Buys Trust. The S Buys
Group provides management, product distribution and education directly to the consumer,
healthcare professionals and to corporate clients.
4] In terms of the proposed merger, Proudafrique intends to acquire the entire issued share
capital in Buys and all claims which the sellers may have against Buys.
The activities of the parties
5] The Acquiring Group:
a. The controllers of RTT:
(i) FirstRand Group3 is one of the largest financial institutions in South Africa,
(ii) the Actis Group 4 is a private equity investor in emerging markets in Asia, Latin
America and Africa. The Actis Group’s South African investments include
Alexander Forbes, Fuel, Peters Papers and Platmin.
b. RTT, which promotes itself as the largest and most successful privately owned
distribution company, provides various logistics services to a variety of industries,
through its various divisions. SOSPharm is the division which trades as the
Pharmaceutical Healthcare Distributors division and is relevant to this transaction.
Through this division, RTT distributes pharmaceutical products on behalf of 30
manufacturers in South Africa. RTT distributes to medical practitioners, hospitals,
clinics, the state, pharmacies, health shops, wholesalers and retailers in Gauteng,
Western Cape, KwaZulu-Natal and Eastern Cape.
6] The Target Firm:
a. Buys is involved in the retail supply of pharmaceutical through its 10 pharmacies in
Gauteng, Mpumalanga and North West Province.
b. The Buy Group also has subsidiaries in property, training and development and
purchasing in pharmaceutical products.
7] The parties are in a horizontal and a vertical relationship in that they are both in distribution
and wholesale of pharmaceutical products. Further Buys operates in the downstream retail
market and RTT, through PHD, operates in the upstream market of the distribution of
pharmaceutical products.
1 http://www.rtt.co.za
2 http://www.sbuys.co.za
3 http://www.firstrand.co.za/live/index.php
4 http://www.act.is/
The Rationale
8] RTT submits that the rationale behind the transaction is a strategic integration which will
provide it with the backbone of the courier pharmacy business in Carltonville and
surrounding areas.
9] The parties further submit that their proposed merger will result in pro-competitive gains in
that it will enhance their joint ability to effectively compete with other significant competitors
in the market.
The relevant market and the impact on competition
10] The parties define the relevant markets in which they operate as follows:
a. The wholesale supply of pharmaceutical products, being the market where the
parties compete, and
b. The retail supply of pharmaceutical products, this being the market in which Buys’
retail outlets compete.
11] The Commission views the pharmaceuticals sector as being characterized by a small
number of manufacturers and a large number of retail outlets and this leaves the
manufacturers with the task of having to distribute their products to the retailer. This then
leads to wholesaler / distributor being able to act as an intermediary between the
manufacturer and the retailer.
12] In the Commission’s view, the parties are in a vertical and horizontal relationship. Both
parties are active in distribution and wholesale of pharmaceutical products. While Buys is
active in the downstream retail market through its pharmacies, RTT targets corporate
pharmacies and also acts as a distributing agent for a number of principals who sell a
variety of pharmaceutical products to wholesalers, including Buys.
13] In the market for the wholesale distribution of pharmaceutical products, which comprises of
approximately 13 participants, the acquiring firm is ranked 4 th while the target firm is ranked
at about 11th in size. There are therefore a number of significant competitors in this market.
at about 11th in size. There are therefore a number of significant competitors in this market.
14] It is better to define the wholesale market as a distribution market. Wholesalers may
compete in a distribution market but so may other firms which have different business
models to traditional wholesaling. It is however relevant to consider the distribution market
from a competition market because although the retail price of pharmaceuticals in regulated
we were advised that at present the distribution price is not. For this reason we consider the
implications of the merger on the distribution market.
15] Although there is an overlap in respect of distribution this is unlikely to raise competition
concerns as the distribution models of the firms are very different. The target firm operates
from Carltonville and its major customers are primarily located in the North West province
and comprise mostly of independent pharmacies in smaller towns. The acquiring firm’s
major customers, however, consist of the larger corporate pharmacies across the country.
This then adds
credibility to RTT’s contention that the services offered by Buys will complement those
offered by RTT and enable the merged entity to compete more effectively with the its larger
competitors.
Public Interest
16] The transaction will have no negative effect on employment and no other public interest
issues arise.
17] The third parties contacted raised no concerns over the merger.
CONCLUSION
18] The Tribunal has considered the above merger and analysed the impact it is likely to have
on competition in the national market for the wholesale distribution of scheduled and
unscheduled pharmaceutical products. The market has relatively low barriers to entry and
vertical integration by various firms has previously taken place. The market is further
contested by various large distributors and the parties will hold a combined market share of
approximately 11%.
19] Accordingly, the merger is approved without conditions.
____________________ 12 April 2011
N Manoim DATE
Y Carrim and M Holden concurring.
Tribunal Researcher: Songezo Ralarala
For the merging parties: Shaun Read and Andrew Cadman from Read Hope Phillips
Attorneys,
For the Commission: Martin Van Hoven