About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Tribunal
SAFLII
>>
Databases
>>
South Africa: Competition Tribunal
>>
2015
>>
[2015] ZACT 89
|
|
VAPS Holding (Pty) Ltd v Motorite Administrators (Pty) Ltd and Others (LM053Jun15) [2015] ZACT 89; [2015] 2 CPLR 678 (CT) (4 November 2015)
COMPETITION
TRIBUNAL
OF
SOUTH
AFRICA
Case
No:LM053Jun
1
5
In
the matter between:
YAPS
Holdings
(Pty)
Ltd
Acquiring Firm
And
Motorite
Administrators
(Pty)
Ltd;
Engine
Room
(Pty)
Ltd;
and
Small
Area Repair
Technology
Underwriting
Managers
(Pty)
Ltd
Target
Firms
Panel
: Yasmin Carrim (Presiding Member)
:Andiswa
Ndoni (Tribunal
Member)
: Anton Roskam
(Tribunal Member)
Heard
on
: 28 October 2015
Order
Issued on
: 29 October 2015
Reasons
Issued on
: 4 November 2015
Reasons
for Decision
Approval
[1]
On 29 October 2015, the Competition
Tribunal ("Tribunal") conditionally approved the
merger
between
VAPS
Holdings
(Ply)
Ltd
("Newco")
and
Motorite
Administrators
(Pty)
Ltd
("Motorite"), Engine
Room
(Ply)
Ltd
("Engine
Room")
and
Small
Area
Technology Underwriting
Managers
(Ply) Ltd
("SMART").
[2]
The reasons for approving the proposed transaction follow.
Parties
to the Transaction and their Activities
Primary
acquiring firm
[3]
The primary acquiring firm
i
s
Newco, a newly formed entity incorporated specifically for
the
purpose
of
the
proposed
transaction.
Newco
will
be
jointly
controlled
by
Newinvest 231
(Pty)
Ltd
("Newinvest")
(81.22
%
)
and
Sand
Olive
I
nvestments
(Pty) Ltd ("Sand Olive")
(18.78%). Newinvest is ultimately controlled by First Rand Limited
("First Rand") whilst Sand
Olive is controlled by Hollard Holdings (Pty) Ltd ("Hollard").
Relevant
to
the
proposed
transaction is
FirstRand's
Wesbank
Division.
Further,
Hollard's
controlling
interest
i
n
Hollard Life Assurance Company
(Pty)
Ltd ("Hollard Life")
and
the
Hollard
I
nsurance
Company
("HIC")
are
relevant
to
the
proposed transaction. Hollard
also
controls
SMART,
one
of
the
target
firms
in
the
present
transaction.
[4]
At present, Newco is a shelf company and does not engage in any
operations. Post merger, Newco will act as the holding
company
of various subsidiaries which will perform certain services in
relation to the distribution of value-added products
("VAPS")
in the motor vehicle chain. In South Africa, FirstRand provides
automotive financial services through WesBank
which is a provider of
vehicle and asset finance. More specifically, WesBank provides
secured installment finance to retail,
public sector and corporate
markets as well as various related services which include insurance,
fleet management and full maintenance
retail. WesBank also acts as an
intermediary and offers various insurance products. Hollard provides
insurance products. Hollard
Life offers a range of long-term
insurance policies whilst HIC provides short-term insurance. HIC
operates across eight product
lines, one of which is motor insurance
and includes VAPS.
Primary
target firm
[5]
The primary target firms are Motorite, Engine Room and SMART.
Motorite and Engine Room are controlled by the trustees for the
time
being of the Greenacres Trust which hold 55% of Motorite and Engine
Room's shares respectively. SMART is ultimately controlled
by Hollard
(55%). Relevant to the proposed transaction is SMART's
controlling interest in Streamline Repair Holdings Limited
("Streamline").
[6]
Motorite acts as the underwriting manager in respect of vehicle
warranty products and provides full maintenance and service
plans.
Engine Room conducts telesales of VAPS products and will continue to
do so post-merger. SMART acts as an underwriting manager
in respect
of bodyline insurance and (through Streamline) offers bodyline
maintenance products.
Proposed
Transaction and Rationale
[7]
The
proposed transaction comprises a joint venture in terms of which
Hollard and
FirstRand
will, through Newco, provide insurance and non-insurance VAPS in
the
motor
vehicle
chain.
[1]
I
t
will
take
place
i
n
two
steps. Firstly,
Hollard
and
F
i
rstRand
will
contribute
their
respective
VAPS
businesses
and
revenue
streams
to
Newco.
[2]
Newco
will
then
acquire
sole
control
over
the
target
firms.
[8]
Hollard and WesBank submit that the proposed transaction provides
them with an opportunity to create a dedicated, integrated
entity
focused on VAPS in the motor vehicle chain so as to enable both
companies to grow. They have a long-standing insurance relationship
whereby WesBank would supply leads from its customer base whilst
Hollard would act as the insurer and provide insurance expertise.
[9]
The target firms submit that the joint venture will facilitate the
provision of all motor insurance VAPS (including warranty
and
bodyline products} through a single point of contact.
Relevant
M
arkets
[10]
I
n
determining
the
relevant
market,
the
Competition
Commission
("Commission")
found
that
the
merging
parties
offer
services
in
the
national
market
for
short-term
insurance.
[3]
I
t
furt
h
er
noted
that
a
distinct
i
on
m
u
st
be
made between
insurance
and non-insurance products which form separate markets.
[4]
In
this
regard,
i
t
is pertinent to note that Newco will merely facilitate the
distribution of
i
nsurance
and non-insurance products
but
will
not
i
tself
have
an
insurance
license.
Conversely,
SMART
and
Motorite will
act
as
underwriting
managers
in
relation to certain licensed
insurance
products and will
issue
certain other non-insurance products. Significantly,
SMART
and
Motorite
both
offer
non-insurance
bodyline
products.
The
Commission
accordingly
assessed the effects of the proposed transaction on the national
market
for
the provision of non-insurance bodyline products as this is the
narrowest possible
market
where the merging parties' activities overlap.
[11]
The
Commission
also
considered
the
impact
of
the
proposed
transaction
on
the
national market for the provision of vehicle finance
i
n
wh
i
ch
WesBank operates.
[5]
Impact
on Competition:
Unilateral
Effects:
[12]
The Commission
found
that a horizontal overlap exists in
the
market
for
the
provision
of non-insurance
bodyline
products as both Motorite and Streamline offer
these products. The merging parties
estimated that the merged entity's post-merger
market
share would be 28.57%.
[6]
The
Commission contacted market participants for
further
market
share
estimates
but was
unable to
independently
verify
the
figures provided. Ultimately, it
was
satisfied that the merged
entity
will
face
significant
competition
from other players such as Traficc, lmpac, CCV and Liquid Capital
post
merger.
[13]
The Commission further found no evidence to suggest that Newco would
change the
terms
and
prices
of
i
ts
current
offerings
as a
result
of
i
ts
al
i
gnment
with WesBank
post-merger.
Significantly, the merging parties submitted that SMART and Motorite
would continue to conduct business on the same
terms and conditions.
It was further submitted that SMART is already a partner of WesBank
and Hollard in the market for bodyline
products as all bodyline
products that they sell are provided by SMART.
[14]
The Commission accordingly concluded that the proposed transaction
was unlikely to result in unilateral effects.
Vertical
Effects:
[15]
The Commission identified a vertical relationship between the merging
parties in the market for vehicle finance. The relationship
arises
from the fact that SMART, Streamline and Motorite offer various VAPS
that require financing from vehicle financiers such
as WesBank. The
Commission considered whether this vertical relationship would lead
to potential foreclosure effects.
[16]
The
Commission
found
that
WesBank
i
s
the
l
eading
provider
of
veh
i
cle
finance
i
n
the country with a market share of
approximately 38.8% in
the
vehicle
finance
market.
On
this
aspect,
the
Commission
received
concerns
from
a
number
of
market
participants regarding the
relative position of WesBank
in the
market for vehicle
finance
and
i
ts
potential
i
nfluence
over
the
VAPS
offered
to
consumers
post-merger. The concerns were
inter
a/ia
that the merger would enable
WesBank to exert an
unfair
i
nfluence
over the Finance and
I
nsurance
Representatives (F&l's) and the dealerships
themselves
by
i
ncentivising
them
to
sell
Newco's
VAPS
to
the
exclusion of the products of
competitors.
The
Commission investigated these concerns and made
the following findings.
[17]
In relation to the role of F&l's,
the Commission noted that WesBank
employs its own
F&l's in various dealerships and
that this situation could potentially result in Newco's
products
being
promoted
and
sold
over
those
of
i
ts
competitors. However,
the Commission
found that F&l's
have
to
comply with the Financial
Advisory
and
I
ntermediary
Services
Act
37
of
2002
as
well
as
the
Treating
Customers Fairly Regulation
which
requires them
to
offer
all
available
products
to
the
customer.
It
follows
that the customer
has
the discretion to determine which VAP it would like to
purchase
and
is
not
obliged
to
choose
any
particular
VAP.
The
Commission
was
however alert to the fact
that there are practical challenges with ensuring that F&l's
comply with their regulatory obligations.
[18]
In relation to whether WesBank would have the incentive not to
approve the financing of competitors' products, WesBank indicated
that it has an internal process whereby various VAPS have been
screened and placed on an approved list. Where a customer selects
a
VAP that is on this list, it will automatically be approved subject
to certain exclusions. The Commission further found that
WesBank is
focused on the vehicle finance market and is unlikely to refuse to
finance competitors' VAPS as it would run the risk
of losing finance
deals of a much higher value.
[19]
Of further significance is
the merging parties' submission that
WesBank, SMART and
Motorite
are already engaged
I
n
a commercial relationship thus the merger does not change the
existing market structure. In addition, the merging parties
maintained
that
WesBank
will
continue
to
finance
competitors' products post-merger.
[20]
Notwithstanding these factors, the
Commission was of the view that the various third
party
concerns were valid. Particularly
when considering
WesBank's prominent
position and the fact that the same
concerns were raised by a substantial number of
the merging
parties' competitors.
[21]
The merging parties and the
Commission were
able to
reach agreement
on certain
conditions remedying
these vertical effects. The merger has
accordingly been
approved
subject
to
these conditions.
Public
Interest
[22]
The proposed transaction
does
not raise any public interest concerns.
Conclusion:
[2
3
]
In
light
of the above, we agree with the Commission's analysis and conclude
that the proposed transaction is unlikely to substantially
prevent or
lessen competition in the relevant
market and that
the
merger
should
be
approved
subject
to the
conditions
reto,
marked "Annexure A".
04
November
2015
DATE
_________________________
Yasmin
Carrim
Andiswa
Ndoni
and
Anton
Roskam
concurring
Tribunal
Researcher:
Ammara Cachalia
For
the merging parties:
Andries Le Grange, Cliffe Dekker Hofmeyr
For
the Commission:
Portia Bele
ANNEXURE
A
VAPS
HOLDINGS (PTY) LTD
AND
MOTORITE
ADMINISTRATORS (PTY) LTD AND ENGINE ROOM (PTY) LTD AND SMALL AREA
REPAIR TECHNOLOGY UNDERWRITING MANAGERS (PTY) LTD
CASE
NUMBER:
LM053Jun
1
5
CONDITIONS
1.
DEFINITIONS
The
following
expressions
shall
bear
the
meanings
assigned
to
them
below
-
1.1
“
Acquiring
firm"
means
VAPS
Holdings Proprietary Limited, a
joint
venture
that
will
ultimately
be jointly
controlled
by
FirstRand
Limited
and
Hollard Holdings
(Pty)
Ltd;
1.2
“
Approval
Date"
means
the date referred
to
in
the
Competition
Tribunal's
merger
clearance
certificate
(Form
CT
1
O);
1.3
“
Commission"
means the Competition Commission of South Africa;
1.4
“
Competition
Act"
means
the
Competition
Act
89
of
1998
,
as
amended;
1.5
"Competitors"
means
firms
in
the
market
offering
Motor
VAPS
Products
in
competition
with
Newco;
1.6
"Conditions"
means these conditions;
1.7
“
Engine
Room"
means
Engine
Room
(Pty)
Ltd
forming
part
of
the
Target
Firm;
1.8
"FAIS"
means the FAIS Act 37 of 2002;
1.9
“
Finance
and
I
nsurance
Represe
n
tatives"
or
"F&
I
"
means
the
personnel offering vehicle finance and insurance
advise at Motor Dealerships;
1.10
"Floorplan
Financing
Agreements"
means
a
short-term
l
oan
agreement entered
i
nto
by
WesBank
and Motor Dealerships as a credit facility to purchase
vehicle
stock on
the Motor
Dealership's floor.
1.11
"Implementation
Date"
means the
date,
occurring
after
the
Approval
date,
on which the Merger
i
s
implemented by the Merging Parties;
1.12
"Life
I
nsurance
Policy"
means
a
life
insurance
policy
issued
under the Long
Term
I
nsurance
Act;
1.13
"Merger"
means the acquisition
of control
of
Motorite,
Engine
Room
and SMART by Newco notified to the Commission under case number
2015Jun0343;
1.14
"
M
erging
Parties"
means the Acquiring Firm and the Target Firm;
1.15
"
M
otor
Dealersh
i
ps"
means the
motor
dealerships through
which
Newco's
VAPS
Products
will
be
sold
and/or
dealerships
in
which
WesBank has Floorplan
Financing Agreements
and/or
dealerships
in
which
WesBank has own F&I;
1.16
"Motor
VAPS
Products"
means
insurance
and
non-insurance
value added products in
the motor value chain
sold by
or
through Newco and
its
subsidiaries;
1.17
"
M
otorite"
means Motorite Administrators (Pty) Ltd forming part of the
Target Firm;
1.18
"Newco"
means the Acquiring
Firm;
1.19
"S
M
ART"
means Small Area
Repair
Technology Underwriting
Managers (Pty) Ltd
forming part
of the
Target Firm;
1.20
"Streamline
"
means
Streamline
Repair
Holdings Limited, which is
controlled by
SMART and forms part of the Target Firm;
1.21
"Target
Firm"
means
Motorite,
Engine Room and SMART.
1.22
"WesBank"
means WesBank
a division
of
FirstRand
Bank Limited;
2.
RECORDAL
2.1
On 23 June 2015, the Merging Parties
filed a large merger transaction with the Commission. The
Merger constitutes
the formation
of
a
joint
venture
by Hollard and
FirstRand
(WesBank)
which
will
provide
insurance
and
non-insurance
Motor
VAPS
Products.
2.2
The Commission received
concerns
in
relation to the Merger as
follows:
2.2.1
WesBank
will
be
in a position to
refuse
the inclusion of
Competitors'
motor VAP
products
in
i
ts Vehicle
Financing Arrangements
as WesBank
will
have
i
ts own
internal
Motor
VAPS
Products.
Competitors that
rely
on WesBank
to
finance
their
motor VAPS
product will therefore
be at a disadvantage;
2.2.2
Motor Dealerships rely on WesBank
to fund their
businesses
through the
Floorplan
Financing Agreements. WesBank
would
be
in a
position
to
incentivise
Motor
Dealerships to
only sell
Newco's
Motor VAPS
Products through the
Floorplan
Financing
Agreements;
and
2.2.3
The F&ls
employed by
WesBank will
be
incentivised to only sell
the products
of Newco. Currently, WesBank has
i
ts
own F&I
in
some Motor Dealerships
that
are
facilitating
the
vehicle
finance
and
insurance
offerings.
2.3
In
order
to
remedy
the abovementioned
competition
concerns,
the
Commission hereby recommends the imposition of the Conditions
as set out in paragraph 3 below.
3.
CONDITIONS
3.1
WesBank
shall
not
incentivise or
require
the
F&I
employed
by
i
t and
operating on Motor Dealership
floors
to promote the sale of Motor VAP Products
sold
by
or
through
Newco
and
i
ts
subsidiaries
on
a
more favourable basis
than
the
products
sold
by
the
Competitors.
3.2
WesBank shall not, through Floorplan
Financing Agreements
entered
i
nto with
Motor Dealerships, oblige Motor Dealerships to promote the sale of
Motor VAP
Products
sold by or through
Newco
and its subsidiaries
to
the
exclusion
of
the
Competitors.
3.3
WesBank
shall not require or oblige a customer
to purchase a Motor VAP Products
sold
by
or
through Newco
or
i
ts
subsidiaries, as
a condition to providing motor vehicle
finance to such customer, with the
exception
that
WesBank may
require a customer
to
enter
into
credit
insurance as provided for under Section 106
of the National Credit Act,
i
ts
regulations and any amendments to the aforementioned Act or any other
l
egislation
that may be
applicable..
3.4
WesBank shall not require
or
oblige Motor Dealerships and/or F&ls
to remove
or exclude Competitors VAPS Products
from the list of Motor VAPS Products
sold in particular Motor Dealerships,
provided that (1)
WesBank
may refuse to
finance
a Competitor VAPS Products, in
general,where the Competitor VAPS
Product
has
not
been
approved
by
i
t
in terms
of
i
ts
reasonable
approval requirements
applicable
to
Motor
VAPS Products
(including,
without
limitation,
the financial standing of the
Competitor,
i
ts
claims administration procedures and
ability to refund premiums,
i
ts
compliance with legislation and with the rules and determinations
under FAIS), or (2)
WesBank
may refuse to
finance
a Competitor VAPS product in
a
particular
i
nstance
where
the
i
nclusion
of the Competitor VAPS
Product
exceeds the credit limits or credit approval requirements applicable
to the particular customer or transaction or
the pricing of
the Competitor VAPS Product is excessive in terms of the Treat your
Customer Fairly rules, as prescribed by the Financial
Services Board
or (3) where another justifiable basis exists for the exclusion or
removal of the Competitor VAPS Product from the
aforementioned list
of Motor VAPS Products (as approved by the Competition Commission in
writing from time to time).
4.
M
ON
I
TORING
OF COMPLIANC
E
WITH THE
CONDITIONS
4.1
The Merging Parties shall circulate a
copy of the Conditions to Motor
Dealerships and F&ls
within
10
days of
the
Approval Date.
4.2
As proof
of
compliance
thereof,
WesBank
shall
within
1
0
(ten)
business days
of circulating
the Conditions, submit
an
affidavit by
a
senior
official
attesting to the circulation of the
Conditions and provide a copy of the
notice
that
was sent
to
Motor Dealerships and F&ls.
4.3
The Commission shall forward the
Conditions to the Competitors that
raised
concerns during
the investigation.
A copy
of
the Conditions may be
published
on
the
Tribunal's
website
together
with
the
reasons.
4.4
WesBank
shall
i
nform
the
Commission
of
the
I
mplementation
Date within
five (5)
business days of
i
t
becoming
effective.
4.5
In
the
event that the Commission receives any complaint in relation to
non-compliance
with
the
above conditions,
or otherwise
determines
that
there
has been
an
apparent breach by
WesBank of
the conditions, the breach shall be
dealt with
in
terms
of
Rule 39 of the Competition
Commission
Rules
of
Conduct.
4.6
All
correspondence
i
n
relation to th
i
s
merger must be submitted to the Commission's email address:
mergerconditions@compcom.co.za.
5.
Duration of the Conditions
5.1
The above undertakings shall apply for the duration of the Newco
joint
venture.
[1]
These
products will be offered as stand-alone insurance policies which can
be purchased in addition to
comprehensive
motor insurance policies
.
They
will
need
to
be
underwritten
by
a
short-term
licensed insurer.
[2]
These
products
include:
SMART
Bodyline
Insurance,
Motorite
Warranty
Insurance,
Credit
Life
Insurance,
Coverplus/Extended Cover and
others
such as
deposit
protector, return
to
invoice,
retrenchment
and tyre and rim cover.
[3]
The
Tribunal has previously accepted that the broad market for the
provision of automotive financial
services
can
be
segmented
into
a
narrow
market
for
short-term
insurance.
See
Combined
Motor
Holdings Limited
and
Forza (Pty) Limited,
case
no:
64/LM/Apr06.
See
also Volkswagen,
Financial
Services South
Africa
(Pty)
Ltd
and
Volkswagen
Financial
services
South
Africa,
A
division
of
WesBank,
a division of FlrstRandBank, case no:
016774.
[4]
The
difference
between
I
nsurance
and
non-insurance
products
i
s
that
only
authorised
insurance
companies are permitted to offer licensed Insurance products whereas
non-insurance products do not
require
a licensed insurer and are unregulated.
Further,
non-insurance products are not high risk as they are financed for a
specific time period.
[5]
The
Commission
followed
previous
decisions
by
the
Tribunal
where
it
was
held
that
the
broad
financial
services market can be divided into the following narrow markets:
(i) motor vehicle finance;
(ii)
industrial
equipment; and (iii) Property finance.
More specifically, in
the
merger between WesBank,
a
division of FirstRand
Bank
Ltd and Barloworld Leasing, a division
of Barloworld
Capital
(Pty) Ltd
(case
no: 2002Nov300),
the
relevant
market
i
dentified
was
the
market
for
the
provision
of
vehicle
finance.
[6]
The
merging
parties
estimate
that
Streamline's
24.1
1
%
whilst
Motorite's
market
share
i
s
4.46%
in
this
market.