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[2015] ZACT 8
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Ethos Private Equity Fund VI v TP Hentiq 6128 (Pty) Ltd (019935) [2015] ZACT 8 (20 January 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 019935
In the matter
between:
Ethos
Private Equity Fund
VI
..............................................................................
Primary
Acquiring Firm
And
TP
Hentiq 6128 (Pty)
Ltd
..........................................................................................
Primary
Target Firm
Panel: Yasmin Carrim
(Presiding Member),
Andiswa Ndoni
(Tribunal Member)
Medi Mokuena
(Tribunal Member)
Heard on:18 December
2014
Order issued on: 18
December 2014
Reasons issued on :
20 January 2015
Reasons for
Decision
Approval
[1] On 18 December
2014 the Competition Tribunal (“Tribunal”)
unconditionally approved the large merger between Ethos
Private
Equity Fund VI ("Ethos Fund VI”) and TP Hentiq 6128 (Pty)
Ltd (“Autozone Holdings”). The reasons
for approving the
proposed transaction follow.
Parties to
transaction
[2] The primary
acquiring firm is Ethos Fund VI, a private equity investment fund
that comprises various local and foreign limited
partners. Ethos, is
advised by Ethos Private Equity (Proprietary) Limited (“’’Ethos”),
a private equity
firm which, through various private equity funds,
makes investments on behalf of investors. Ethos also advises Ethos
Private Equity
Fund V (“Ethos Fund V”). Ethos Fund V’s
current investments consist of various portfolio companies, including
Tiger Automotive Investments (Proprietary) Limited (“TiAuto”)
which is involved in the wholesale and retail supply
of passenger car
tyres and aftermarket sales of alloy wheels in Southern Africa.
[3] The primary
target firm is Autozone Holdings, a holding company that does not
sell any goods or services. Autozone Holdings
has a 100% shareholding
in Autozone Retail and Distribution (Proprietary) Limited
(“Autozone”). Autozone is a wholesaler
and retailer of a
wide range of aftermarket automotive spare parts which it supplies
throughout South Africa to its franchisees,
independent stores,
workshops, fleets and various outlets such as engineering stores and
chain stores.
Proposed
transaction and rationale
[4] Ethos Fund VI,
acting through a newly established private company, Main Street 1257
Proprietary Limited (“Main Street
1257”), wants to
acquire the business of Autozone Holdings and its subsidiaries
(“Autozone Business”). The sellers
however will retain
some investment in Autozone Holdings through the repurchase of the
shares.
[5] Ethos Fund VI
submits that the proposed transaction will provide it with an
opportunity to participate in the automotive spare
parts industry by
partnering with an already established player, Autozone. Whilst the
Sellers submit that the transaction provides
them with an opportunity
to realise their investments, and for others to reinvest in Autozone.
In particular Corvest 6 (Proprietary)
Limited (“Corvest 6”),
the single largest shareholder in Autozone Holdings, was looking to
dispose of this investment.
Competition
assessment
[6] The Commission
submitted that the proposed transaction gives rise to a horizontal
overlap in the markets for the retail of non-OEM
automotive
aftermarket parts and wholesale of non-OEM automotive aftermarket
parts. It is worthy to note that there is no readily
available data
on the size of the identified markets which is why the Commission
relied on market shares provided by market participants.
[7]
Although the market shares supplied by market participants differed
significantly from each other,
1
the Commission’s analysis revealed that both markets are
fragmented with a significant number of companies competing with
the
merging parties. In addition to this the Commission submitted that
TiAuto is fairly insignificant in the identified markets
and the
merged entity woufd continue to be constrained by other players in
the markets such as Midas, Alert Engine Parts, Kaizen’s
Motor
Spares, Goldwagen, Autobarn, Sparepro, amongst others.
[8]
Moreover the transaction that was approved by the Tribunal between
Business Venture and TiAuto
2
on 12 December 2014 resulted in the overlap between the merging
parties falling away. The Commission thus concluded that the proposed
transaction results in no substantial preventing or lessening of
competition in the identified markets.
Public
Interest
[9]
The Commission also considered the post-merger shareholding in the
Autozone Business, since one of the main exiting shareholder
is a BEE
shareholder. The Commission thus decided to impose an undertaking (as
opposed to a condition) on the merging parties to
ensure that they
maintain a BEE shareholding post-merger and that their BEE
shareholding does not drop below level four rating.
3
[10]
During the hearing the merging parties informed us that they were
opposed to the imposition of the proposed undertaking (which
would
effectively become a condition of the merger were it to be imposed)
for a number of reasons. First, the merging parties themselves
have
contemplated a further BEE transaction and this has been recorded in
the shareholders’ agreement entered into between
Ethos and the
sellers.
4
In addition to this, it was their view that such an
undertaking/condition was likely to harm the very public interest
consideration
that the Commission sought to protect because it would
have the effect of preventing the existing BEE shareholders from
realising
value from their investment. In addition the proposed
condition, if imposed, would create transaction uncertainty. Finally,
they
submitted that no matter how well-meaning the Commission’s
approach might be, the imposition of such a condition would be
ultra
vires section 12A(3)(c) of the Competition Act because that provision
requires the Commission or the Tribunal to consider
the effect of a
merger on the ability of
small
business
or
firms
controlled
or owned by historically disadvantaged persons, to become
competitive. None of the factors contemplated in that subsection
are
present in this transaction.
[11] We agree with
the merging parties’ submissions that the imposition of such an
undertaking might have unintended consequences
for the existing BEE
shareholders and that none of the factors contemplated in section
12A(3)(c) are present in this transaction
in order to justify the
imposition of such an undertaking or condition.
CONCLUSION
[12] The proposed
transaction is unlikely to substantially prevent or lessen
competition and we thus approve the transaction without
conditions.
The proposed transaction raised no public interest concerns.
20
January 2015
DATE
Ms
Yasmin Carrim
Ms Andiswa Ndoni
and Ms Medi Mokuena concurring.
Tribunal
Researcher:
Caroline
Sserufusa
For the merging
parties: Robert Wilson of Webber Wentzel
For the Commission:
Reabetswe Molotsi
1
Each
market participant gave different market share estimates with large
variations e.g. one market participant submitted that Midas
is the
biggest competitor, whilst another one might have submitted that
Midas is a not the largest player. See pages 29-30 of the
Commission’s Report.
2
See
Business Venture Investments 1858 (Pty) Limited and Tiger
Automotive.Investments (Pty) Ltd; Case no: 020008.
3
See
Annexure A attached to the Commission’s report.
4
See
pages 6-7 of the transcript of the hearing.