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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 83/LM/Sep12
015560
In the matter between:
Humulani Marketing (Proprietary) Ltd Acquiring Firm
And
High Power Equipment Africa (Pty) Ltd Target Firm
Panel : Yasmin Carrim (Presiding Member),
Takalani Madima (Tribunal Me mber)
Medi Mokuena (Tribunal Member)
Heard on : 13 February 2013
Order issued on : 15 February 2013
Reasons issued on : 08 March 2013
Reasons for Decision
Approval
1. On 15 February 2013 the Competition Tribunal (“T ribunal”) approved the merger
between Humulani Marketing (Pty) Limited (“Humulani ”) a wholly owned
subsidiary of Humulani Investments (Pty) Ltd, the p rimary acquiring firm, and
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High Power Equipment Africa (Pty) Ltd (“HPE”), the primary target firm. The
reasons for approving the proposed transaction follow below.
Parties to the transaction
2. The primary acquiring firm is Humulani which dis tributes Case earthmoving
equipment in South Africa, through its CSE Division . Both Humulani and Disa
Equipment (Proprietary) Limited (“Disa”) are wholly owned subsidiaries of
Humulani Investments (Pty) Ltd. Disa distributes Do osan earthmoving equipment
in South Africa.
3. Although each brand has its own operational sale s and management team and
the brands compete independently in the market, bot h firms benefit from the
input, support and economies of scale as part of a single economic entity under
the umbrella of their parent company Invicta Holdin gs Ltd (“Invicta”). The Invicta
Group currently limits the flow of competitive info rmation between operational
sales and personnel at Humulani and Disa.
4. Invicta has measures put in place to protect the confidentiality of the
manufacturers’ sensitive information and has dedica ted sales teams and
workshop staff focusing exclusively on each brand a nd similar divisional
arrangements in place.
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5. The primary target firm is HPE, which distribute s various product categories of
earthmoving equipment and earthmoving equipment acc essories in Southern
Africa. The only relevant activity of HPE for the p roposed transaction is its
distribution of Hyundai earthmoving equipment in South Africa.
Proposed transaction and Rationale
6. From Humulani’s perspective, the proposed transa ction will expand the
operations of the Invicta Group’s existing Capital Equipment Group (“CEG”)
operating division. Although Invicta intends to kee p HPE’s operations and
distribution network independent from its existing CEG division, post-merger,
1 See submission by the merging parties during the hearing, at footnote 4.The merging parties submitted that this
type of arrangement is not unusual in this market as Barloworld distributes competing Caterpillar and SEM
earthmoving equipment and Babcock distributes competing Volvo and SDLG earthmoving equipment.
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HPE will be able to leverage off the efficiencies g enerated by the financial
services of the broader Invicta Group. According to HPE, the owner wishes to exit
the business and no successor exists in the family to take over the business. As
a result, the proposed transaction will proved the opportunity to dispose of the
business.
The Commission’s Recommendation
7. The Commission was of the view that due to the c urrent exchange of information
taking place in the market through the industry ass ociation, this might result in
industry participants coordinating behaviour post-m erger. In an effort to address
these concerns, the Commission recommended the impo sition of conditions
which essentially seeks to address the coordinated effects the transaction might
have in the market.
8. To alleviate this, the Commission recommended th e transaction be approved with
the following conditions:
1. Merging parties are not to appoint the same pers on(s) to the Board of
Directors of Disa, CSE and HPE.
1.1 No sharing of competitively sensitive non-publi c information (i.e. pricing,
margin information, cost information, marketing str ategies etc) amongst the
management teams of CEG, HPE and Disa.
1.2 Merging parties are to develop and adopt an int ernal competition policy for
CEG, HPE and Disa, to ensure that its employees are aware of anti-
competitive activities, and such policy shall be su bmitted to the Commission
for approval before implementation (herein collecti vely referred to as
“Condition 1”).
2. Merging parties are not to submit sensitive info rmation relating to the
overlapping markets, which are disaggregated by pro vince to the market
association (herein referred to as “ Condition 2”).
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9. Due to the fact that the merging parties were un willing to accept these conditions,
it was necessary to conduct a formal hearing.
The Hearing
10. A pre-hearing was held on 12 December 2012 wher e it was decided that the
Commission would subpoena a representative of a sup plier to the merging
parties who would inform the panel of its concerns with the proposed transaction.
The main hearing was held on 13 February 2013. The Commission led Mr Daniel
Dupuy, a Regional Director for the Doosan Africa Division as its witness.
The relevant market and the impact on competition
11. Based on submissions from market participants, the Commission disregarded the
merging parties broad product market
2 and decided to narrow down the product
markets to the sale of backhoe loaders, skid steer loaders, wheel loaders (for
heavy and light applications, wheeled excavators (f or heavy and light
applications), crawler excavators (for heavy and li ght applications), sale of
articulated dump trucks (for heavy and light applic ation), and all of the above
mentioned products related spare parts.
12. There is a horizontal overlap in the activities of the merging parties in relation to
the above-mentioned products as they are both invol ved in the distribution of
such products.
13. The Commission assessed the relevant geographic al market to be national as
many customers submitted that they don’t deal with any Original Equipment
Manufacturers (“OEMs”) directly but rather buy dire ctly from distributors. In
addition, customers submitted that even for after sales services they go directly to
distributors as opposed to dealing with OEMs.
14. The Commission submitted that although barriers to entry are high in the market,
they are not insurmountable as there have been abou t nine new entrants in the
market since 2006.
2 Page 67 of the Tribunal Record. The merging parties submitted that the product market is the broader
construction equipment and related spare parts market in South Africa.
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Unilateral Effects
15. The Commission submitted in its report that the proposed transaction would not
result in anti-competitive effects resulting from unilateral conduct.
16. Post-merger, the merged entity will have the following market shares:
− Backhoe loaders [5-7%]
− Skid steer loaders [14-17%]
− Wheel loaders for heavy application [11-14%]
− Wheeled excavators [40-43%]
− Crawler excavators [21-24%]
− Mini excavators [30-33%]
17. With the exception of the mini excavators, craw ler excavators and wheeled
excavator, the Commission submitted that the merged entity’s market share will
be small in comparison to other competitors in the market.
18. The Commission was of the view that merger woul d not result in any unilateral
effects because –
18.1. the merging entities will face sufficient co mpetition from other
competitors post-merger;
18.2. the transaction will not result in the remova l of an efficient competitor,
as HPE will be operated separately post- merger; and
18.3. Information from customers confirmed that the re are many alternatives
in the market, and customers are able to switch easily between distributors.
Coordinated Effects
19. In its report, the Commission submitted that th e merger will make the market
more conducive to coordination because of two centr al issues. The first was
because of a pre-existing practice in the industry. The majority of distributors (as
many as 21) currently exchange information through the industry association
(CONMESA) on monthly sales volume disaggregated by brand, product category
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and model, province, and consumer type. The data is circulated to a member on
a quarterly basis and shows a competitor’s aggregat ed sales volumes per
product category and per region. The second was the undertaking given by the
merging parties that HPE will be run independently and thereby, according to the
Commission, maintaining the pre-merger inter-brand competition between the
acquiring and target firms.
20. In order to address both these concerns the Com mission proposed two
conditions. Condition 1 one sought to prevent possi ble co-ordination between the
acquiring firm and HPE that could arise from the me rger and Condition 2
attempted to restrict the sharing of information at an industry level at a more
aggregated level than is currently the case.
21. The merging parties opposed the conditions on the basis that –
21.1. They had not given the Commission the underta king that HPE would
be run independently post-merger to such an extent that it would not form
part of the single economic entity. All that they had stated was that HPE
would be placed in a subsidiary of the acquiring fi rm. The merger did not
give rise to any co-ordination concerns because the target firm was being
acquired in its entirety and was intended to be par t of the single economic
entity of the acquiring firm
21.2. Condition 2 sought to address a practice that was in existence pre-
merger and which involved the entire industry, not merely the merging
parties. The merger itself would result in this pra ctice or lead to an increased
likelihood of it. This was an issue of non-merger specificity. .
22. The former issue became a major departure point between the parties. The
merging parties vehemently denied giving the Commis sion such an undertaking
and referred to their submissions in the record in support of their position. They
submitted that Invicta was acquiring 100% and not p artial ownership of the target
firm. While they intended at this stage to run HP Es’ operations independently
firm. While they intended at this stage to run HP Es’ operations independently
they would seek to achieve the benefits of the merg er by leveraging off the
group’s resources in order to achieve efficiencies for the operations. They could
only achieve these if HPE was part of the single ec onomic entity. The
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Commission on the other hand did not refer us to an y document or
correspondence in which such undertaking was given. Accordingly, we have
approached the transaction from the perspective tha t while HPE’s operations will
be run independently, it will form part of the acqu iring firm’s economic entity.
From such a perspective we would only be concerned with unilateral effects,
which the Commission has already concluded are not substantial enough to
warrant a prohibition.
23. Furthermore the Commission’s witness Mr Daniel Dupuy, a Regional Director for
the Doosan Africa Division, submitted that the cond itions proposed by the
Commission would not really address his concerns as an international
manufacturer, because his concern was not merger sp ecific.3 During his
testimony it became clear that in fact he was concerned that HPE would be better
managed post-merger and would become an effective c ompetitor to his
products. 4
24. In our view, neither condition recommended by the Commission is justified by the
evidence. Since post-merger the target firm will no t be run independently as
understood by the Commission no co-ordination conce rns arise. Condition 2
does not address an issue that arises as a result of the merger, but appears to be
levelled at an existing practice in the industry. 5 While we can understand the
Commission’s concerns about such a practice and its attempts to address it
through merger control, no evidence was put before us that this merger, by
reducing the number of players in the market, would possibly enhance co-
ordination or that a condition imposed on these two parties would reduce the
existing co-ordination through the information exch ange at CONMESA level.
Nevertheless the Commission is well advised to purs ue its investigation in the
industry.
Public Interest
25. The merging parties submitted that the proposed transaction will not result in any
job losses as Invicta intends to run the HPE busine ss as a separate subsidiary
job losses as Invicta intends to run the HPE busine ss as a separate subsidiary
3 See transcript page 21 para20.
4 See transcript page 22 para20.
5 Merging parties’ submission at the hearing page 5 para 14.
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within the Group, as a result the transaction will have no impact on public
interest. 6
CONCLUSION
26. Accordingly approve the merger without conditions.
____________________ 08 March 2013
Yasmin Carrim DATE
Medi Mokuena and Takalani Madima concurring.
Tribunal Researcher: Caroline Sserufusa
For the merging parties:
Adv Duncan instructed by Edward Nathans Sonnenberg s
For the Commission: Nelly Sakata and Kholiswa Mnisi
6 See transcript page 85 para10.