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[2015] ZACT 81
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JDG Trading (Pty) Ltd v Rochester Home Furnitures Ltd (LM103Aug15) [2015] ZACT 81 (17 November 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM103Aug15
In
the matter between:
JOG
TRADING
(PTY)
LTD
Acquiring Firm
And
ROCHESTER
HOME FURNITURES
LTD
Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: Medi Mokuena (Tribunal
Member)
: Andiswa Ndoni (Tribunal
Member)
Heard
on
: 4 November 2015
Order
Issued on
: 4 November 2015
Reasons
Issued on
: 17 November 2015
Reasons
for Decision
Approval
[1]
On 4 November 2015, the Competition Tribunal ("Tribunal")
unconditionally approved the merger between JDG Trading
(Pty) Ltd
("JOG Trading") and Rochester Home Furnitures (Pty) Ltd
("Rochester'').
[2]
The reasons for approving the proposed transaction follow.
Parties
to transaction and their Activities
Primary
acquiring firm
[3]
The primary acquiring firm is JOG Trading, a private company
incorporated in terms of the laws of the Republic of South Africa.
It
is a wholly owned subsidiary of JD Group Ltd ("JD Group")
which is ultimately controlled by Steinhoff International
Holdings
Ltd ("SIH"). Relevant to the proposed transaction is SIH's
43% shareholding in KAP Industrial Holdings Ltd ("KAP")
which controls Restonic (Pty) Ltd ("Restonic") and Vitafoam
(Pty) Ltd ("Vitafoam").
[4]
JD Group's activities can be divided into the following broad
categories: (i) furniture retail; (ii) consumer electronics and
appliance retail; (iii) building material and DIY; (iv)
automobile retail; and (v) finance and insurance services.
Primary
target firm
[5]
The primary target firm is Rochester, a private company incorporated
in terms of the
laws of the
Republic of South Africa. It is a wholly-owned
subsidiary
of Geros Retail Holdings (Ply) Ltd
which is
controlled
by
Geros
Betriligungsverwaltung GmbH
("Geros
Austria").
[1]
Rochester
does not
control any
firm.
[6]
Rochester is an independent furniture retailer.
Proposed
transaction and rationale:
[7]
In terms of the proposed transaction, JOG Trading intends to acquire
Rochester's furniture retail business as a going concern.
[8]
The JD Group submits that the proposed transaction will enable it to
reposition its business model away from the lower LSM market,
in
which the granting of credit remains challenging, towards the higher
LSM segment where there are opportunities for growth. Rochester
submits that the proposed transaction will place these furniture
stores in a stronger financial position and facilitate their
continued growth.
Relevant
Markets:
[9]
The Competition Commission ("Commission") identified the
relevant product markets to be the broad market for the retail
of
furniture and the narrow market for furniture retail
targeted at
middle-upper
income customers (LSM
6-8)
as Bradlows
and
Morkels,
which
form part
of
the JD
Group, and Rochester compete in
this
segment.
[2]
[10]
The
Commission found the geographic markets to be national in
scope.
[3]
Further, in
its
investigation, the Commission found that generally in areas where
there are more
than six
stores there is sufficient competition. However, in
the
Carnival/ Brakpan and
Klerksdorp
areas there were fewer stores which indicated a high level of
concentration. The Commission accordingly identified that
these areas
posed potential competition concerns and considered the impact of the
proposed transaction on these regions in particular.
Impact
on Competition:
[11]
The Commission found that a horizontal overlap exists
in
the
activities of the merging parties in the broad market for furniture
retail and the narrow market which is focused on middle
to upper
income customers. In each of these markets, the Commission found that
the merged entity's post-merger market shares will
be as follows:
•
19.4% (2.2% accretion) in
the broad national market for the retail of furniture;
•
18.3% (3.6% accretion)
in
the national middle-upper furniture retail market;
•
36.8% (22%
accretion) in the middle-upper furniture
retail market in Carnival/Brakpan;
and
•
31.7% (10%
accretion) in the middle-upper furniture
retail market in Klerksdorp.
[12]
The Commission concluded that there were no competition concerns in
the broad national market for the retail of furniture and
in the
national middle-upper furniture retail market because the market
share accretions were low and the merging parties would
continue to
face significant competition from market players such as Coricraft,
House & Home, the Lewis Group and Ok Furniture.
[13]
The Commission found that despite the relatively higher post-merger
market shares
in the
Carnival/Brakpan and Klerksdorp areas, the merged entity would
continue to
face
significant
competition
from
market
players
such
as
Coricraft
and the
Lewis Group
post-merger. In any event, the merging parties drew attention to the
fact that the Commission identified at least
six
competitors
in
these
regions signifying
sufficient
competition. They further submitted that customers in
the LSM
6-8
segment are
mobile
customers.
They
generally
have
access
to
transport
and
are
likely
to travel
outside of these regions to obtain their goods. For example,
customers in the Carnival/ Brakpan region might travel to
Springs or
Benoni where there is sufficient
competition
from a number offurniture retailers.
[4]
[14]
Based on these market shares and the fact that the merged entity will
continue to face significant competition in the affected
markets
post-merger, the Commission found that the proposed transaction would
not result in unilateral effects.
[15]
In its vertical analysis, the Commission found that a vertical
relationship exists as the target firm procures mattresses,
base sets
and foam mattresses from Restonic and Vitafoam which are subsidiaries
of KAP. The Commission found that this vertical
relationship would
not result in foreclosure concerns as Vitafoam's mattress amount to
1.1% of its bedding turnover whilst Restonic's
bedding sales to
Rochester amounts to 0.1% of its turnover.
[16]
The Commission accordingly concluded that the proposed transaction is
unlikely to substantially lessen or prevent competition
in any of the
relevant markets.
Public
interest:
[17]
The Commission concluded that there are no public interest concerns
likely to arise from the proposed transaction.
Conclusion:
[18]
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. In addition, no
public interest issues arise from the proposed
transaction.
17
November 2015
DATE
____________
Yasmin
Carrim
Medi
Mokuena and Andiswa Ndoni concurring
Tribunal
Researcher:
Ammara Cachalia
For
the merging parties: Heather
Irvine, Norton Rose Fulbright
For
the Commission:
Maanda Lambani
[1]
Geros
is
a
company
incorporated
in
accordance
with the
laws of
the
Republic
of
South
Africa
whilst
Geros
Austria
was
incorporated
in
accordance
with the
laws of
Austria.
[2]
The Commission based
its
market
definition
on
previous
cases
where
the
Tribunal
has
held
that
furniture
retailers
diversify
across
LSM
categories
to
capture
customers within the umbrella
of a
single brand.
More
specifically
in the
Relyant/Ellerines
merger
(case
no:
62/LM/Aug04),
the
Tribunal
noted that
'the
relevant
markets
were
determined
by
a
threefold
segmentation
of
furniture
consumers
into
a
low
income
category
(LSM3-5),
middle
income
segment
(LSM
4-7)
and
an
upper
segment
(LSM
8).'
See
also the
Steinhoff/JD
Group
transaction
(Case no:
013672).
[3]
The
Commission
based
its
findings
on
previous
cases
and a
number
of
other
factors.
These
factors
include the following:
(i)
furniture
stores
with
national
presence set their
prices and
key trading conditions
nationally,
(ii) the
merging
parties'
stores
are
located
nationally
and (iii)
both the
JD
Group and
Rochester
follow
a national
pricing
policy.
[4]
See page 5 of the transcript from the
hearing.