COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 23/LM/Mar11
In the matter between:
JD Group Limited Acquiring Firm
And
Steinhoff Doors and Building Materials (Pty) Limited Target Firm
And
Unitrans Motor Enterprises (Pty) Limited Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on : 06 July 2011
Order issued on : 06 July 2011
Reasons issued on : 02 August 2011
Reasons for Decision
Approval
1] On 6 July 2011 the Competition Tribunal (“Tribunal”) approved the proposed
large merger between JD Group Limited and Steinhoff Doors and Building
Materials (Pty) Limited and Unitrans Motor Enterprises (Pty) Limited. The
Tribunal’s reasons for approving the transaction are set out below.
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Parties to the transaction
2] The primary acquiring firm is JD Group Limited (“JD Group”), a public company
listed on the Johannesburg Stock Exchange (“JSE”). The JD Group is not
controlled by a single entity and its major shareholders and their shareholding
are as follows: the Government Employees Pension Fund (17.6%); Investec
Asset Management (Pty) Ltd (17.3%) and the Public Investment Corporation
(11.3%).1
3] The primary target firms are Steinhoff Doors and Building Materials (Pty) Limited
(“SDBM”) and Unitrans Motor Enterprises (Pty) Limited (“Unitrans”) both of which are
subsidiaries of Steinhoff International Holdings Ltd (“SIH”). SIH is a public company
listed on the JSE2 and is as such not controlled by a single entity. SIH is a multi-
national company with presence in the United Kingdom, Asia, India, Europe, Africa,
Australia and New Zealand. Steinhoff Europe and Steinhoff Africa are managed as
two separate divisions and the target firms, together with other entities, form part of
Steinhoff Africa.
Proposed Transaction
4] In terms of the proposed large merger, the JD Group seeks to acquire 100%
shareholding in SDBM and in Unitrans. In terms of this proposed large merger,
the JD Group seeks to acquire 100% shareholding in SDBM and in Unitrans. In
consideration for the above shareholding, SIH will acquire all of the JD Group’s
shares in Abra3 as well as 28% shareholding in the JD Group.
In response to questions from the Tribunal at the hearing of this matter, the
merging parties unequivocally confirmed that the 28% shareholding referred
to above, does not give SIH control over the JD Group nor does it confer
upon it the power to appoint a director to the board of the JD Group. The
parties further confirmed that should such control be obtained by SIH through
any means, that a notification of such a transaction would again be necessary
to the Commission.
Rationale for the proposed transaction
to the Commission.
Rationale for the proposed transaction
5] JD Group submits that the proposed acquisition will enable it to enhance its
position as a diversified retail and consumer finance service provider as well as
1 http://jdgroup.co.za/2011/analysis_shareholders.htm
2 SIH is listed on the JSE Top 40 index.
3 Abra is a furniture retailer in Poland operating 74 stores. JD Group acquired its stake in
ABra in 1999.
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provide it with a large new customer base to which it can cross-sell new financial
services products.
SDBM and Unitrans submit that their acquisition will facilitate their
combination with JD Group’s South African retail and consumer finance
operations and ensure their continued growth.
3] At the hearing, the representatives of the merging parties further mentioned the
acquiring firm’s intentions to change the format of its stores in order to
diversify its product offering away from pure furniture retail. This will be done
using a business model which has worked well for SIH in other jurisdictions
and this exchange in know-how also forms part of this transaction.
Activities of the merging parties
4] The JD Group is a diversified retailer in furniture, appliance, electronics and
technology good, home entertainment, office automation and financial
services. The JD Group trades throughout South Africa through entities such
as Barnetts, Bradlows, Electric Express, Joshua Doore, Price ‘n Pride,
Morkels, Russels, Hi-Fi Corporation, Incredible Connection and JD Micro Life
Limited. The JD Group also owns “Supreme Stores” in Botswana, and shares
in Abra, a furniture retailer in Poland.4
Some of the acquiring firm’s brands5
5] SDBM, the first primary target firm sells and supplies building materials, hardware
and related products throughout South Africa through: Pennypinchers Stores
4 The Abra shareholding is being acquired by Steinhoff in terms of the proposed transaction.
5 http://jdgroup.co.za/2011/brands.htm
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which sells and distributes timber and board products, building materials and
paint; Truss Plant which supplies trusses and roofing solutions to the SDBM
stores; Timbercity which is involved in retail manufacturing of Formica, wood
and wood based products, joining materials to small tradesmen and the DIY
market, Tilehouse stores which sell tiles to architects and developers; Sand &
Stone which supplies bulk load sand and stone and Unitraco which is the
import division of SDBM for Sanware tools and accessories.
Unitrans, the second primary target firm, sells new and used Toyota,
Volkswagen, Audi, Fuso, Mercedes Benz, Mitsubishi, Opel, Nissan, Renault,
Hino, Dodge, Chrysler, Jeep, Mini, MAN, BMW, Lexus, Isuzu, Cadillac,
Chevrolet and Freightliner vehicles through its franchised dealerships located
throughout South Africa. Unitrans also provides motor body shop services
and driveway services, parts and accessories. Unitrans Automotive offers
finance to individuals and corporate clients for new and used vehicles through
all major financial institutions and Unitrans Insurance offers short term
insurance services to Unitrans customers.
Some of the target firms’ brands6
Competition Analysis
6] The proposed transaction presents a horizontal dimension in that the
merging parties provide insurance and financial services to South
African consumers. The proposed transaction further present’s vertical
dimensions in that firstly, the JD Group could have incentive to procure
6 http://www.steinhoff.co.za/group-operations/by-brand/
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products related to furniture through the Steinhoff Group and that
further, the JD Group purchases new and used vehicles from Unitrans.
Horizontal Relationship
7] The parties submit that the JD Group offers long-term insurance (credit life
insurance) and the target firms do not hold long-term insurance
licences and there for do not offer long-term life assurance. The JD
Group further offers short term insurance covering risks such as fire
and theft in relation to furniture, household goods and products sold by
JD Group stores, whereas Unitrans offers mechanical breakdown
warranty, credit protection and extra cover insurance to customers
purchasing vehicles. The Tribunal has previously accepted an
approach whereby a separate market exists for each type of short term
insurance product.7
Furthermore, with regards to financial services, JD Group provides
credit to customers for goods sold in JD Group stores and SDBM do
not offer finance but merely facilitate finance for their customers
through third party financiers such as banks.8 The parties therefore
submit that there is no horizontal overlap between their activities in
insurance and finance.
8] The Commission is satisfied that the parties operate in different
submarkets with respect to insurance and financial services and
therefore accepts that there is no horizontal overlap.
Vertical Relationship
9] Three vertical relationships are raised in this merger.
In the first place the purchase of vehicles by JD Group from Unitrans is
too insignificant to lead to foreclosure concerns.
The second is the supply of imported furniture by Steinhoff
International Sourcing (“SIS”) to JD Group. Here too, the level of supply
to JD Group is not significant nor is it likely that SIS, which supplies
7 See Tribunal Decision in Santam Ltd and Guardian National Insurance Company Ltd Case No:
14/LMFeb000.
14/LMFeb000.
8 The parties referred to Tribunal Decision Standard Bank and Sasfika Case Number: 30/LM/May05
where the provision of vehicle finance, a secured form of credit, was differentiated from the provision
of finance for consumer goods which is a form of unsecured credit and classified as constituting
separate product markets.
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rivals of JD Group with imported furniture, would have an incentive to
foreclose any of them.
The final vertical issue is that Steinhoff Africa, a subsidiary of SIH,
supplies important inputs to furniture manufacturers in South Africa
who in turn supply inter alia JD Group and its rivals. Whilst Steinhoff
was a dominant manufacturer of furniture domestically it has since sold
these interests to the Bravo Group9 in 2007 and therefore no longer
has any activities in furniture manufacturing in South Africa.
There is thus a break in the vertical supply chain between Steinhoff, as
an input supplier to the furniture manufacturers, and JD Group, as a
purchaser of manufactured furniture. Given its present non-controlling
shareholding in JD Group, and its lack of ability to influence
manufacturers’ pricing decisions to their customers, it is unlikely that
Steinhoff could use its position as an input supplier, to discriminate
between manufacturers who supply JD Group and those who supply its
rivals.
10]Furthermore, third parties, which included competitors and customers,
contacted by the Commission did not raise any objections to the proposed
transaction and SIH’s acquisition of JD Group shares post-merger.
Public interest
11]The merging parties and the Commission are in agreement that no foreseeable
negative effects on employment are envisaged as a direct result of the
proposed transaction.
The merging parties further submit that they envisage that the proposed
transaction will have a positive effect on employment as it will result in
investment opportunities leading to stability and job creation.
Conclusion
12]The parties confirmed that the proposed transaction does not confer control of
the JD Group to SIH and that such acquisition of control would have to be
notified.
13]In light of the above factors and the Commission’s analysis, the Tribunal
concludes that the proposed transaction is unlikely to substantially prevent or
concludes that the proposed transaction is unlikely to substantially prevent or
lessen competition as there is no horizontal product overlap and no
foreclosure and coordinated effect concerns.
9 This was through a transaction which was approved by the Tribunal. It sold Bravo its South African
bedding and lounge unit manufacturing unit and its dining room furniture import sub-division
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14]The Tribunal therefore approves the proposed transaction without conditions.
____________________ 02 August 2011
N Manoim DATE
Y Carrim and A Wessels concurring
Tribunal Researcher: Songezo Ralarala
For the merging parties: Heather Irvine of Norton Rose
For the Commission: Werner Rysbergen
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