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[2015] ZACT 58
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Bidvest Namibia Fisheries Holdings (Pty) Ltd v Foodcorp (Pty) Ltd in relation to its ownership of the Glenryck Brand (LM234Mar15) [2015] ZACT 58; [2015] 1 CPLR 239 (CT) (20 May 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM234Mar15
DATE:
19 JUNE 2015
In
the matter between:
Bidvest
Namibia Fisheries Holdings (Pty)
Ltd
..............................................
Primary
Acquiring Firm
And
Foodcorp
(Pty) Ltd in relation to its ownership of the Glenryck
Brand
.........................
Target
Firm
Panel
: Norman Manoim (Presiding Member)
:
Andiswa Ndoni (Tribunal Member)
:
Medi Mokuena (Tribunal Member)
Heard
on : 20 May 2015
Order
Issued on : 20 May 2015
Reasons
Issued on : 19 June 2015
Reasons
for Decision (Non-confidential)
Approval
[1]
On 20 May 2015, the
Competition Tribunal (‘Tribunal”) unconditionally
approved the merger between Bidvest Namibia Fisheries
Holdings
(“Bidfish”) and Foodcorp (Pty) Ltd (“Foodcorp”)
in relation to its ownership of the Glenryck Brand.
[3]
The
proposed transaction emanates from the large merger between Oceana
Group Limited (“Oceana”) and Foodcorp
(“Oceana
matter”)
[2]
whereby
Oceana acquired the entire fishing business of Foodcorp as a going
concern.
[3]
Significantly, the proposed transaction included Foodcorp’s
fishing assets as well as its fishing rights.
[4]
The Commission was of the
view that the proposed merger would substantially lessen or prevent
competition in the market. The competition
concerns effectively arose
from the fact that Oceana and Foodcorp were the respective owners of
the Lucky Star and Glenryck brands,
which are the two biggest
competitors in the South African market for canned pilchards.
Further, it was estimated that the merged
entity’s combined
market share would be in excess of 80% post-merger in a market
characterized by high barriers to entry.
[5]
In order to remedy these
competition concerns, the merging parties offered to divest of the
Glenryck trademark. The Commission was
however concerned that the
brand would not survive without the fishing quota and so approved the
merger subject to the condition
that the merged entity divest of the
Glenryck trademark, together with the fishing rights.
[6]
According to the Tribunal,
it was unlikely that the brand, divorced from its quota, would remain
an effective competitor post-merger.
It thus approved the merger on
condition that Oceana divest of the Glenryck Trademark, together with
Foodcorp’s fishing rights.
[7]
The merging parties appealed
to the Competition Appeal Court against the Tribunal’s
conditions on the basis that they had
no interest in the Glenryck
brand and were only concerned with acquiring Foodcorp’s local
fishing quota. The appeal was upheld
and thus, the merger was
approved subject to the following conditions: ® the merged entity
(Oceana) divest of the Glenryck
brand, whilst being permitted to
retain Foodcorp’s fishing quota;
•
Foodcorp
retain and continue to operate the Glenryck Brand in accordance with
good business practice;
•
the
subsequent sale of the Brand would be notified to the Commission.
[8]
The present transaction
results from these conditions.
Parties
to transaction and their activities
Primary
acquiring firm
[9]
The
primary acquiring firm is Bidvest Namibia Fisheries Holdings (Pty)
Ltd (“Bidfish”), a company incorporated in the
Republic
of Namibia. Bidfish is a wholly-owned subsidiary of Bidvest Namibia
Limited (“Bidvest Namibia”), which is
listed on the
Namibian Stock Exchange. Bidvest Namibia is controlled by Bidvest
Group Limited (“Bidvest”) with 52.27%
shareholding.
[4]
Bidfish controls Namsov Fishing Enterprises (Pty) Ltd (“Namsov”)
which in turn controls other fishing entities including
Namibian Sea
Products (Pty) Ltd which controls United Fishing Enterprises (Pty)
Ltd (“UFE”).
[5]
[10]
Bidfish
is comprised of a number of subsidiaries that are engaged in various
sectors of the Namibian fishing industry, its product
offering
includes frozen horse mackerel, monk fish, cannel pilchards, other
canned products, fishmeal, fish oil and oysters. Namsov,
the main
operating company of Bidfish, supplies horse-mackerel.
[11]
Relevant
to the proposed transaction is Namsov’s subsidiary, UFE, which
is active in the harvesting and processing of pilchards.
In this
regard, UFE owns and operates its own vessels in relation to the
harvesting of pilchard and has a processing canning facility
in
Namibia. UFE previously sold small volumes of pickled and curried
hake into South Africa under the Oceana Fresh brand. Other
canned
products of UFE, are marketed under the Ocean Fresh and Ekunde
labels. UFE has never marketed its canned pilchards in South
Africa
under its own brand. Thus, its activities are limited to the upstream
segment of harvesting, processing and selling pilchard
as an input to
third party customers in various countries including South Africa,
Namibia and Botswana. These third party customers
use the pilchard
sourced from UFE as inputs into their own brands for on-sale; and UFE
does not sell any raw/frozen/fresh pilchard
to any customer to
process and can. All pilchards are processed and canned in 400gm
and/or 155gm cans.
Primary
target firms
[12]
The
primary target firm is The Glenryck Brand, which is owned by
Foodcorp. Foodcorp is a whoily-owned subsidiary of Foodcorp Holdings
(Pty) Ltd ("Foodcorp Holdings”). Foodcorp is wholly owned
by RCL Foods Limited (“RCL”). RCL is controlled
by Remgro
Limited which owns 77.7% of the issued share capital of RCL.
[13]
The
Glenryck brand is a canned pilchard brand found in most grocery
stores at retail and wholesale level. The brand is currently
manufactured by Oceana and Pioneer Fishing (Pty) Ltd (“Pioneer”)
on behalf of Foodcorp following the merger with Oceana,
but was
historically manufactured and marketed by Foodcorp.
Proposed
transaction and rationale
[14]
In
terms of the proposed transaction, Bidfish will acquire sole,
unfettered control of the Glenryck brand.
[6]
[15]
Bidfish’s
submitted rationale is that the proposed transaction presents an
opportunity for acquisitive growth in the canned
pilchard sector.
Foodcorp submitted that its quota allocations were in jeopardy as a
result of a dilution of its empowerment shareholding.
Thus, it took
the decision to divest of its entire fishing division and sell it to
an entity that would satisfy the DAFF BEE requirements.
Further, the
proposed transaction was in line with Foodcorp’s strategy to
dispose of its fishing operations in order to focus
on grain based
products as its core operations in the future. The proposed
transaction also tied in with the order of the CAC that
the Glenryck
brand be divested.
[16]
In
defining the relevant market, the Competition Commission
(“Commission”) considered the activities of the merging
parties in light of the Tribunal’s decision in the
Oceana/
Foodcorp
merger. In that
merger, the Tribunal held that the market is a vertically integrated
market which includes the harvesting, processing
and canning of
pilchard products further divided into canned pilchard and fishmeal.
The vertically integrated market was defined
as national in
geographic scope.
[17}
The market is further characterised by firms which operate at certain
levels of the supply chain but which are not vertically
integrated.
These players are smaller right holders that possess quota and merely
on-sell their fish to larger players or process
and can the fish for
larger players. The larger players such as Oceana, Pioneer, Saldanha
and Gansbaai Marine (Pty) Ltd (“Gansbaai”)
are all
vertically integrated.
[18]
In
relation to the present transaction, the Commission found that
Bidfish is a vertically integrated firm involved in the harvesting,
processing and canning of pilchards. Prior to the
Oceana/
Foodcorp
merger, Foodcorp
was also a vertically integrated firm operational throughout various
levels of the supply chain. As stated above,
the net result of that
merger was that Oceana purchased the entire fishing business of
Foodcorp including its quota and processing
capabilities, leaving
behind only the divested Glenryck Brand. During the period between
that merger and the present transaction,
the Glenryck branded
products were supplied by Oceana and Pioneer.
[19]
The
Commission accordingly followed the Tribunal’s decision in the
Oceana
/
Foodcorp
merger,
defining the relevant market as the vertically integrated market for
canned pilchards which includes the harvesting, processing
and
canning of pilchards.
[20]
In
terms of the geographic market, the Commission found that Bidfish is
based in Namibia and does not have any harvesting, processing
or
canning facilities in South Africa. As stated above, the Glenryck
Brand is currently manufactured through agreements between
Foodcorp,
Oceana and Pioneer. As such, there is no geographic overlap in the
activities of the merging parties.
[21]
The
Commission found that there is no horizontal overlap between the
merging parties’ activities as Bidfish does not have
a canned
pilchard brand in South Africa. Thus there will be no market share
accretion as a result of the proposed merger. Oceana’s
Lucky
Star brand will remain dominant with approximately 70% market share
whilst Glenryck will remain the second biggest competitor
with
approximately 8% of the market. On such basis, the Commission did not
believe the proposed transaction raised any competition
concerns.
[22]
However,
the Commission noted that a vertical relationship exists in that
Bidfish sells approximately 65% of its produce to the
South African
market. The Commission thus considered whether Bidfish would be able
to support the Glenryck Brand and remain competitive
in the South
African market for canned pilchards. More specifically, whether
Bidfish would withdraw its current supply and divert
it to sustaining
the Glenryck brand post-merger. These concerns will be dealt with
below.
Brand
sustainability
[23]
The
Commission investigated the current needs of the Glenryck Brand and
compared it to the capacity of Bidfish.
[24]
As
mentioned above, Glenryck is currently being supplied by Oceana and
Pioneer. According to the Commission, Foodcorp consumed a
total of
approximately [CONFIDENTIAL] tons from January-April 2015.
[7]
The terms of the supply agreement between Oceana and Foodcorp were
such that Oceana would supply Foodcorp with a maximum of 1000
tons of
canned pilchard per month (12 000 tons per annum or 600 000 cartons).
This was in line with the production levels and brand
requirements as
set out in the Ocean/Foodcorp merger. Further, Bidfish has the
capacity to harvest and process [CONFIDENTIAL] tons
of pilchards per
annum from its own allocation of TAC (quota) and other independent
third party quota holders in Namibia.
[25]
Based
on these figures, the Commission found that Bidfish would be able to
support the Glenryck Brand post-merger and still have
a surplus of
roughly [CONFIDENTIAL] tons for other customers. Further that Bidvest
South Africa’s strength in resources and
expertise will ensure
that Glenryck is able to compete effectively in South Africa.
Withdrawal
of supply
[26]
Bidfish
submits that it will effectively withdraw 1 million trays of canned
pilchard from supply into SA and divert it to the Glenryck
Brand.
Based on the merging parties’ submissions, the Commission found
that approximately 65% of Bidfish’s total production
of canned
pilchards is sold to the South African market. Of this 65%,
[CONFIDENTIAL] is sold collectively to Monteagle
[8]
and Saldanha. Both these firms indicated that they do not have
concerns as there are other locally available sources such as Pioneer
and Gansbaai. Further, Pioneer and Oceana will have excess supply of
canned pilchards as they will no longer need to supply the
Glenryck
Brand.
Our
analysis
[27]
Although
the Commission has analysed the merger as one of a vertically
integrated market for the supply of pilchards, the effects
of this
merger should be analysed as the effect it has on the wholesale
market for the supply of canned pilchards to retailers.
[28]
If
one adopts this approach then the transaction is a vertical one as an
existing wholesaler (Bidfish) is buying an input (a brand)
from a
firm that has since exited this market. The effect of the merger is
that Bidfish now has a brand that enables it to compete
in the higher
value branded canned pilchard segment, where it previously did not
compete, as it did not use the brand it has in
Namibia to compete in
South Africa. Rather Bidfish was a supplier of unbranded cans to
others where its product ended up primarily
as household brands or
white label products.
[29]
Given
that the pre-merger counterfactual is not Foodcorp as it was prior to
the merger with Oceana, but Foodcorp as it is now (as
in no longer
possessing a TAC allocation or processing facilities and which is
conditionally required to sell the Glenryck brand),
then the merger
may be pro-competitive in the branded segment as a stronger company
with a supply of pilchards will be incentivized
to enter this segment
aggressively and compete for market share with the overwhelmingly
dominant Oceana brand. The Glenryck brand
also appears to have been
weakened
of late, due in part
to the protracted merger process with Oceana and Foodcorp’s
desire to exit the sector. In the hands of
Bidfish, which it appears
has access to its parent’s distribution network, this might
well change.
[30]
Of
course this means that depending on how successful it is in
strengthening demand for Glenryck, Bidfish has the incentive to
divert its pilchards from the lower priced household brands segment
to the higher priced branded segment. However, some of the previous
supply that went into Glenryck, as the Commission has pointed out,
will still be in the market to replace it. Furthermore, if there
is
intensified competition in the branded segment this is likely to
either lead to fish being displaced from that segment into
the
household branded segment, if for instance, Oceana loses market share
and divests its supply into the household branded segment,
or it may
lead to lower prices in the premium segment with a knock-on effect in
the household segment, for which the branded segment
constitutes a
price leader.
[31]
We
concur with the Commission's competition assessment, i.e. that the
proposed transaction is unlikely to substantially prevent
or lessen
competition in the relevant market.
Public
interest
[32]
The
proposed transaction does not raise any substantial public interest
concerns since this only involves the purchase of a brand
and related
intellectual property
Conclusion
[33]
In
light of the above, we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition in the
relevant market. In addition, no public interest issues arise from
the proposed transaction. Accordingly we approve the proposed
transaction unconditionally.
19
June 2015
Norina^ Manoim
Andiswa
Ndoni and Medi Mokuena concurring
Tribunal
Researcher: Derrick Bowles
For
the merging parties: Jocelyn Katz (ENS) for the Acquiring Firm and
Chris Charter
(Cliffe
Dekker Hofmeyr) for the Target Firm.
For
the Commission: Lindiwe Khumalo and Mogau Aphane
[1]
The transaction consisted of the
business of catching, processing (including Laaiplek processing
facility and employees) and selling
deep sea trawl hake, lobster
and/or pelagic fish carried out by the relevant sellers. It also
included the head office of the Cape
Town fishing operations which
consists of the business assets and liabilities; the business assets
of each seller; and all shares
(excluding minority shares where there
are minority shareholders) of certain subsidiaries of the sellers.
See
Oceana Group Limited and
another v Competition Commission
(the
Tribunal Case no: 018101)
[2]
See
Oceana
Group Limited and another v Competition Commission
(the Tribunal Case no: 01810. See also
Oceana
Group Limited and another v Competition Commission
(CAC Case no: 130/CAC/May14).
[3]
The reasons for approving the proposed transaction follow.
[4]
Bidvest is a company listed on the Johannesburg Stock Exchange
(“JSE”) and is not controlled by
any
single firm.
[5]
UFE is of particular relevance to the present transaction as it is
involved in the Pilchard fishing
industry.
[6]
This includes the Glenryck Trademarks, Glenryck Know-How being all
the confidential information
relating
to the Glenryck Trademarks and its exploitation including designs,
formulae, processes,
recipes,
specification and information concerning materials, suppliers,
customers, manufacturing
techniques,
marketing and distribution.
[7]
See Table 4 on page 23 of the Commission’s Report.
[8]
Monteagle mostly supplies white label or house brands.