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[2014] ZACT 33
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Paycorp Group (Pty) Ltd v Saicom Group (Pty) Ltd (018705) [2014] ZACT 33; [2014] 1 CPLR 131 (CT) (9 June 2014)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case
No: 018705
In
the matter between:
PAYCORP
GROUP (PTY)
LTD
Primary Acquiring Firm
And
SAICOM
GROUP (PTY) LTD
Primary Target Firm
Panel:
Dr. Takalani Madima (Presiding Member), Prof. Imraan Valodia
(Tribunal Member), Andiswa Ndoni (Tribunal Member)
Heard
on: 21 May 2014
Order
Issued on: 21 May 2014
Reasons
Issued on: 9 June 2014
Reasons
for Decision
Approval
[1]
On 21 May 2014 the Competition Tribunal (“the Tribunal”)
unconditionally approved the acquisition by Paycorp Group (Pty)
Ltd
of Saicom Group (Pty) Ltd.
[2]
The reasons for unconditionally approving the proposed
transaction follow hereunder.
Parties
to the Transaction
Primary acquiring
firm
[3]
The primary acquiring firm is Paycorp Group (Pty) Ltd
(“Paycorp”), a private company incorporated in terms of
the laws
of the Republic of South Africa and wholly owned by Paycorp
Holdings (Pty) Ltd (“Holdco”). Holdco is in turn
controlled
by Actis Columbus Limited which, further in turn, is
controlled by AEM3 PCC- Cell Columbus which has its principal place
of business
in Port Louis, Mauritius.
[4]
Paycorp conducts its business through its three main
subsidiaries/divisions, namely ATM Solutions, EFTPOS (Pty) Ltd and
DrawCard
(Pty) Ltd.
[5]
ATM Solutions is involved in the provision of automated teller
machines (ATMs) to banks in Southern Africa while EFTPOS provides
point of sale credit and debit card terminals (“POS Terminals”)
to retailers in South Africa. These POS Terminals provide
numerous
functions, including the sale of prepaid airtime and electricity, but
their primary function is that they allow retailers
to accept
electronic payments. DrawCard is an issuer of Visa- certified prepaid
value cards such as gift cards.
Primary target firm
[6]
The primary target firm is Saicom Group (Pty) Ltd (“Saicom”),
a firm incorporated in terms of the laws of the Republic
of South
Africa with its shares held, roughly, as follows:
*
BPESAM 1 Ltd- 36%;
*
Teim Ventures (Pty) Ltd- 22%;
* Mr
David Murray- 13%;
* Mr
Martin Wright- 20%;
and
•
Regiments
Telecommunications (Pty) Ltd- 9%
[7]
Saicom conducts its operations through its wholly owned
subsidiary, Saicom Payphones. Saicom Payphones does not control any
other
firm and is involved, principally, in the provision of mobile
voice, prepaid vending and other payment services (further explained
below). Saicom provides these services through three divisions,
namely Kazang Division (“Kazang”), Saicom Payphones
Division and the International Vending Division. For the purposes of
this transaction, the relevant division is Kazang.
[8]
Kazang is primarily involved in the provision of mobile
vending terminals. These vending terminals stock prepaid airtime and
prepaid
electricity and also allow users to pay for services like
DSTV and sports betting. They are situated primarily in rural areas.
Kazang performs this function by situating mobile vending terminals
in busy consumer environments such as
Proposed
Transaction
[9]
The proposed transaction is structured simply as a sale of
shares agreement in terms of which Paycorp intends to acquire the
entire
issued share capital of Saicom. Post-merger Paycorp will hold
sole control over Saicom in terms of
section 12(2)(a)
of the
Competition Act 89 of 1998
as amended (“the Act”).
Rationale
[10]
Paycorp views the transaction as an opportunity to expand its
service offerings into a service area in which, pre-merger, it is
limited.
[11]
Saicom’s shareholders consider the purchase price an
attractive return on their investment and in light thereof are keen
to
dispose of Saicom.
Relevant Market and
Impact on Competition
[12]
The Competition Commission (“the Commission”)
found that no vertical overlap exists between the merging parties’
activities but did identify the existence of a minor horizontal
overlap in the following markets:
1.
The national market for the wholesale sale of prepaid airtime;
and
2.
The national market for the bulk vending of electricity.
These two markets will
now be dealt with in turn below.
The market for the
wholesale sale of prepaid airtime:
[13]
This market was identified as an area of horizontal overlap in
the merging parties’ activities in that they both distribute
bulk prepaid airtime (Paycorp through EFTPOS' and Saicom through
Kazang) to retailers for on-sale to end- users.
[14]
Notwithstanding this overlap, the Commission is unconcerned by
the suspected impact of the proposed transaction on the prepaid
airtime
market because the merged entity will hold a market share of
less than 1% and will remain constrained by capable competitors such
as Blue Label and Smart Call who jointly hold about 60% market share
and thus wield considerable constraining power.
[15]
In light of this, the Commission concludes that the proposed
transaction is unlikely to alter the structure of the market or lead
to a substantial prevention or lessening of competition.
The market for the
bulk vending of electricity:
[16]
In this market, Paycorp operates at two levels in the supply
chain- as an integrator through its POS Terminals (where it sells to
retailers) and as a retailer through its ATMs (where it sells to
end-users). Saicom, however, only operates as an integrator.
[17]
The Commission thus identified the existence of a horizontal
overlap in the market for the bulk vending of electricity, i.e. at
the integrator level. The Commission, however, does not view the
proposed transaction as likely to substantially prevent or lessen
competition because the merged entity will hold a small market share
(roughly 3.7%), it will remain constrained by numerous viable
players
in the market and Eskom and the municipalities will “continue
to provide the billing and administration services
to end-users
Further, and similarly in mitigation of any competition concerns, the
tariffs for the sale of electricity to end-users
are regulated by the
National Energy Regulator of South Africa (NERSA) and for the merged
entity to engage in unilateral conduct
will thus be very difficult if
not impossible.
[18]
Finally, both customers and competitors of the merging
entities were of the opinion that the proposed transaction posed no
concerns
whatsoever.
[19]
Accordingly, the Commission concluded that the proposed
transaction was unlikely to substantially prevent or lessen
competition
in either of the aforementioned markets and proposed the
unconditional approval of the transaction in terms of
section
14A(1)(b)(i)
of the Act.
Public
Interest
[20]
The Commission identified no public interest concerns likely
to arise from the proposed transaction.
Conclusion
[21]
In light of the above I conclude that the proposed transaction
is unlikely to substantially prevent or lessen competition in the
relevant markets. Accordingly, I approve the transaction
unconditionally.
9 June 2014
DATE
Dr
Takalanf Madima
Prof
Imraan Valodia and Andiswa Ndont concurring
Tribunal
Researcher: Shannon Quinn
For
the merging parties: Shawn van der Meulen- Webber Wentzel
For
the Commission: Dineo Mashego