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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 016774
In the matter between:
Volkswagen Financial Services South Africa (Pty) Ltd Acquiring Firm
and
Volkswagen Financial Services South Africa Target f irm
a division of Wesbank, a division of FirstRand Bank
Panel: N Manoim (Presiding Member)
T Madima (Tribunal Member)
A Roskam (Tribunal Member)
Heard on: 26 June 2013
Order issued on: 26 June 2013
Reasons and Order issued on: 23 July 2013
Reasons for Decision and Order- Non confidential
Unconditional Approval
1.
On 26 June 2013 the Competition Tribunal approved a transaction between
Volkswagen Financial Services South Africa (Pty) Lt d and FirstRand Investment
Holdings (Pty) Ltd which involves the establishment of a joint venture Volkswagen
Financial Services (Pty) Ltd (“Newco”).
2.
The Reasons for approving the transaction are set out below.
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The Transaction
3.
The transaction involves the establishment of Newco as a joint venture between
Volkswagen Financial Services AG and FirstRand Bank Investment Holdings (Pty) Ltd.
4.
The primary acquiring firm is Newco, a firm which i s to be incorporated in
accordance with the laws of the Republic of South A frica. Volkswagen Financial
Services AG (“VWFS AG”), which is owned by Volkswag en AG in Germany will hold a
shareholding of 51% in Newco.
5.
Wesbank, which is selling its Volkswagen Financial Services South Africa division to
Newco, is a division of FirstRand Bank Ltd. FirstRa nd Investment Holdings (Pty) Ltd a
wholly owned subsidiary of First Rand Ltd will hold a shareholding of 49% in Newco.
6.
Post the transaction Newco will conduct the busines s of Volkswagen Financial
Services SA and such additional business provided for in its business plan.
Rationale for the transaction
7. Wesbank has prior to this transaction acted as a pr eferred supplier of vehicle
financing to customers of Volkswagen SA (Pty) Ltd ( “VW SA”) in accordance with the
Finance Alliance Agreement concluded between VW SA and Wesbank. Post the
transaction Newco will be considered the preferred provider of vehicle financing
services to VW Group customers and its dealer customers.
8.
According to Volkswagen Group it has extensive expe rience in financing services in a
number of jurisdictions other than South Africa. Th rough its participation in Newco it
will be in a position to introduce and provide inno vative and competitive financing in
order to promote the sale of vehicles in South Africa.
9. FirstRand, as the current supplier of VW financing services, says that it will
contribute its employees, know-how, intellectual pr operty and funding to the joint
venture and believes that coupled with Volkswagen F inancial Services’ AG
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experience will increase the value proposition and levels of service to its VW
customers. The transaction, according to FirstRand, will also allow for increased
product innovation and development.
Competition Assessment
10.
The parties’ activities overlap in the provision of vehicle financing services,
comprising vehicle finance and short-term vehicle i nsurance brokerage services to
customers in South Africa.
11.
We analyse the transaction from a horizontal as well as vertical perspective.
Horizontal assessment
12. Wesbank is the largest supplier of vehicle financin g in South Africa. Its current pre-
merger market share is 32%. Post the transaction Ne wco will have a market below
10% while Wesbank’s market share will decrease acco rdingly because the activities
previously conducted by its VW division will cease and taken over by Newco. There is
therefore no change in concentration post the trans action. Wesbank’s main
competitors are Nedbank Motor Finance Corporation ( 24% market share), ABSA
(18%) and Standard Bank (18%).
13.
With respect to short-term vehicle insurance servic es Wesbank sells an insignificant
amount of insurance policies in its capacity as an insurance broker, only below 10%
of the transactions involving vehicle finance provi ded by Volkswagen Financial
Services SA. Large players such as OUTsurance, Dia l Direct, Sanlam, Clientele and
Mutual and Federal are active in this market.
14.
In light of the above we are therefore of the view that, from a horizontal
perspective, the transaction is unlikely to substan tially prevent on lessen
competition.
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Vertical assessment
15. In the upstream market VW SA is the second largest supplier of vehicles in South
Africa with a market share of 17%. Toyota has a mar ket share of 21%. Volkswagen
submits that [confidential] of its sales occur thro ugh dealerships and the remainder
are direct sales to customers such as the government and through rental sales.
16.
In the downstream market for vehicle financing Wesb ank estimates that
approximately [confidential] of all VW SA motor veh icles sold through dealerships
are financed through its Volkswagen Financial Services division.
17.
The Commission in its investigation, and after obta ining the views of independent
dealers, found that VW SA was unlikely to foreclose other players offering vehicle
financing to VW customers and that VW did not have the power to influence
customers to finance their VW vehicles through Newc o. However, the Tribunal was
concerned that the relationship between Newco, as t he preferred supplier, and
independent VW dealers will post the transaction ch ange to such an extent that
other financing institutions would find it impossible to compete for VW customers.
18.
The merging parties said that although there would be an incentive to try and get
customers to finance their deals through VW Financi al Services the customer would
still choose the best financial option offered. The y explained the process and said
that dealers normally submit a customer’s applicati on form electronically to various
financial institutions via vendor software provider s. The banks respond to these
applications within seconds using their own financi al scoring models which the
dealer then presents to the customer. Customers who choose not to accept any of
the offers can contact their bank of choice to ne gotiate a lower rate. The final
decision always lies with the customer. Thus, as fa r as the dealer is concerned the
new structure does not change its relationship with VW SA and Newco as its main
new structure does not change its relationship with VW SA and Newco as its main
focus remains the same, i.e. to increase sales volumes.
19. In light of the above the Tribunal is of the view t hat foreclosure is unlikely. We
therefore find that the transaction, from a vertica l perspective, is unlikely to
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substantially prevent or lessen competition given that customers of VW dealers have
countervailing power with regard to their choice of vehicle financing.
Public Interest
20. The transaction will not result in any job losses.
21. There are no other public interest issues arising from this transaction.
Conclusion and Order
22. Having regard to the above, we find that the trans action is unlikely to substantially
lessen or prevent competition in the relevant marke t. The merger is accordingly
approved without conditions.
23 July 2013
N Manoim Date
Concurring: T Madima and A Roskam
Tribunal Researcher: Rietsie Badenhorst
For the Commission: Portia Belege
For the merging parties: Edward Nathan Sonnenbergs Inc for VW Financial Services SA
and Cliffe Dekker Hofmeyr for FirstRand Bank