1
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:
95/LM/OCT12
015768
In the matter between:
Steinhoff Doors and Building Material
Acquiring Firm
Proprietary Limited
And
Hardware Warehouse Limited
Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on : 30 January 2013
Order issued on : 30 January 2013
Reasons issued on : 05 February 2013
Reasons for Decision
Approval
[1] On 30 January 2013, the Competition Tribunal (“ Tribunal”) approved the
merger between Steinhoff Door and Building Material (Pty) Ltd (“SDBM”)
and Hardware Warehouse Limited (“HW”) in respect of 100% of the shares
in HW. The reasons for approving the proposed transaction follow below.
Parties to the transaction
2
[2] The primary acquiring firm is SDBM, a wholly ow ned subsidiary of JD
Group (“JD Group”). SDBM focuses on manufacturing, sourcing of raw
materials and the distribution of household goods t hrough the stores,
Pennypinchers, Timbercity, Tilehouse, Sand and Ston e, Unitraco and
Trust Plant.
[3] The primary target firm is HW, which retails bu ilding materials and
associated products, to predominantly cash paying c ustomers, including
home builders, home improvers, contractors, traders and government
organisations. HW operates stores in the following provinces: 13 stores in
the Eastern Cape, 3 stores in Mpumalanga (Nelspruit , Bushbuckridge,
Hazyview) and 1 store in KwaZulu Natal (Mtubatuba).
Rationale for the transaction
[4] The transaction will provide SDBM with growth in areas where it’s
currently not operating, such as semi-rural and rur al areas in the Eastern
Cape.
Relevant markets and impact on competition
[5] The merger has both horizontal and vertical eff ects. The vertical effects
arise from the fact that PG Bison (Pty) Ltd (“PG Bi son”) a Steinhoff sister
company, supplies particle boards to HW. Whilst PG Bison holds a
significant share in the particle board market (35 -40% depending on the
type) its supplies to HW are miniscule, constitutin g less than 1% of its
sales.
1 Hence this issue requires no further consideration,
[6] There is a horizontal overlap in activities of the merging parties in that they
both operate as retailers of building products.
Market share
1 Both are subsidiaries of Steinhoff International Holdings.
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[7] The merging parties’ activities do not overlap in any geographic markets
except in Nelspruit which we consider later. The si ze of the geographic
market in this type of retail merger does not permi t of any precision.
According to testimony from Mr Miller (the CEO of H W) at our hearing this
depends on the type of customer. He stated that 95% of HW’s customers
were cash customers unwilling to travel further tha n 60 kilometres for their
purchases. The remainder might be more willing to t ravel further as they
were builders 2.
Other than in Nelspruit, HW does not have any store within a 60km radius of
the nearest Steinhoff store.
[8] Apart from the fact that the merging parties do not have stores in the same
geographic markets, their respective product offeri ngs are differentiated
both in type of product and likely customer profile . HW specialises in
material attractive to the small customer building at home in lower L.SM.
groups, Steinhoff on the other hand is involved in the provision of building
supplies to tradesmen, DIY homeowners in higher L.S .M.’s and
occasionally to other hardware stores, in urban cen tres across South
Africa through its subsidiaries Pennypinchers and Timbercity retail stores.
[9] In Nelspruit where both merging parties overlap geographically, Mr de
Klerk, who is the Managing Director of Steinhoff, submitted that there were
several large competitors in the region and indepen dent hardware stores
which would continue to compete with the merging pa rties post merger.
3
Further given the differentiation in product mix as explained above, neither
firm was the most direct competitor of the other.
Public interest
[10] The merger will probably lead to the retrenchm ent of 20 employees at
head office level due to redundancies. All these em ployees are skilled and
2 Transcript of hearing: page 8-9 para 20.
3 Transcript of hearing: page 7 para 5.
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will where possible find employment elsewhere in the JD Group. The small
number of employees at risk and their skill level suggests that although the
merger creates a public interest concern, it is not a substantial one. If
employees are retrenched the merging parties have u ndertaken to notify
the Commission of this fact. The Commission will thus be able to monitor if
the retrenchments, should they occur, exceed the level indicated to it. 4
CONCLUSION
[11] We approve the proposed merger unconditionally .
____________________ 05 February 2013
Norman Manoim DATE
Yasmin Carrim and Medi Mokuena concurring.
Tribunal Researcher: Caroline Sserufusa
For the merging parties:
Heather Irvine for Norton Rose
For the Commission: Rakgole Mokolo
4 Transcript of hearing: page 13 para5.