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[2016] ZACT 19
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Steinhoff Doors and Building Materials (Pty) Ltd v Illiad Africa Limited (LM128Sep15) [2016] ZACT 19 (11 January 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM128Sep15
In
the matter between:
Steinhoff
Doors and Building Materials (Pty)
Ltd
Primary Acquiring Firm
And
Iliad
Africa
Limited
Primary Target Firm
Panel
: Norman Manoim (Presiding Member), Andiswa Ndoni (Tribunal Member)
Anton Roskam (Tribunal Member)
Heard
on
: 15 December 2015
Order
issued on
: 15 December 2015
Reasons
issued on
: 11 January 2016
Reasons
for Decision (Public Version)
Approval
[1]
On 15 December 2015 the Competition
Tribunal {"Tribunal") conditionally
approved
the large merger between Steinhoff Doors and Building Materials {Ply)
Ltd ("SDBM") and Iliad
Africa
Limited ("Iliad). The reasons for approving the
transaction follow.
Parties
to the transaction
[2]
The primary acquiring firm is SDBM, a company incorporated in
accordance with the company laws of the Republic of
South Africa
("RSA"). SDBM is a subsidiary of the JD Group Limited ("JD
Group"), which in turn is ultimately
controlled by Steinhoff
International Holdings Limited ("SIH"). SIH is a
public company listed on the Johannesburg
Securities Exchange Limited
("JSE"). SIH is an integrated retailer that manufactures,
sources and retails
furniture and
household goods in Europe, Africa and Pacific Rim.
The JD Group is a diversified and
differentiated retailer of
furniture, appliances, electronic goods, home entertainment and
office automation, automotive, building
materials, hardware and
related products and a provider of insurance. These business
activities are conducted through the Group's
subsidiaries such as
Pennypinchers, Timbercity, Hardware Warehouse, Unitraco,
Tilehouse and Trusses & Timber. Of relevance
to the proposed
transaction is PG Bison which supplies particle board and medium
density fibre board ("MDF") to hardware
and building supply
retailers like Pennypinchers, Timbercity, and Iliad's retail stores.
[3]
The primary target firm is Iliad, a firm also incorporated in
accordance with the company laws of RSA Iliad supplies hardware
and
building supplies to a range of customers form large scale
development and constructions groups to DIY homeowners, through
its
72 retail stores nationally. Iliad's main clientele are tradesmen and
small to medium sized contractors. Iliad's building material
business
division operates under the BUCO brand which makes up 80% of Iliad's
business. Iliad also has a specialised building material
division,
which trades in more differentiated and value-added products
such as ironmongery, wholesale plumbing
hardware
boards and equipment hire. Iliad's specialised division trades under
brands such as Buchel, Bildware, Saflok, Citiwood
amongst others.
Proposed
transaction and rationale
[4]
The
proposed
transaction
involves
SDBM
acquiring
all
of
the
shares
in
Iliad by
way
of
a
Scheme
of
Arrangement
in terms
of
section
114 of the
Companies
Act.
[1]
Post-merger
SDBM will
have sole
control over
Iliad.
[5]
The acquiring group submits that the proposed transaction will assist
it to extend its footprint to the inland regions as well.
Whilst the
target firm submits that the proposed transaction will assist it to
grow and compete with its much larger competitors.
Competition
assessment
[6]
The proposed transaction gives rise to a horizontal overlap. This
is because both merging parties are active in
the broader
national market for the retailing of building supplies, hardware and
related products. The proposed transaction also
gives rise to a
vertical overlap. This is because PG Bison, a company which
Steinhoff has a minority shareholding, currently
supplies raw and
upgraded particle board and MDF to Iliad's BUCO hardware and building
supply stores.
[7]
The Commission identified the relevant product market as the national
market for the retailing of building supplies, hardware
and related
products. The Commission found that post-merger, in the broader
national market for the retailing of building supplies,
hardware and
related products, the merged entity will have a market share of less
than 12%. It is evident from this market share
that the merged entity
will still face significant competition from a number of market
players, such as Builders Warehouse, Build-It
and Cashbuild. In
addition to this, the Commission submitted that even in the affected
regional markets where there is an overlap
between the merging
parties' stores within a 40 kilometre("km") radius in
Eastern Cape, Western Cape, Mpumalanga,
KwaZulu Natal and Gauteng
respectively, the market is highly fragmented with the presence of
big national players such as Cashbuild,
Build-It and Builders
Warehouse. The Commission thus concluded that the proposed
transaction is unlikely to substantially prevent
or lessen
competition in that market. We conclude with the Commission on its
findings.
[8]
In relation to the vertical overlap, the Commission considered
whether the merging parties, through PG Bison may have
the ability to
foreclose post-merger because they have high
market shares (approximately
50%) in the upstream
market for the supply of raw and upgraded particle board and MDF
board. However the Commission concluded that
the merging
parties would not be able to sustain credible threat to either the
rivals of its upstream business or downstream market,
as Iliad's
business only accounts for approximately 5% of PG Bison's sales. It
is thus highly unlikely that PG Bison would partake
in any
foreclosure conduct as this would impact severely on its business. We
agree with the Commission's findings.
Third
party concerns
[9]
A
third
party,
[2]
[
] a
supplier
to
the
merging
parties
alleged
that
the
proposed
transaction will affect the viability and long term sustainability of
its [
].
It
submitted that
since
Steinhoff
and
Iliad are
both one of
its
large
customers,
the
merged
entity
may
exercise
buyer
power.
The
Commission
found
that
the
merging
entity is
unlikely
to be
able
to exercise
buyer power as the merged ent
ty would
have
l
ess
than [ ] % of the
national
market for
the supply
of [ ]. The
Commission
also
discovered
that the
merging
parties
have
been
procuring
their
[ ]. The
proposed
transaction
is
therefore
unlikely to
negatively impact
the
market
for [ ].
We agree
with the Commission on its findings.
Public
Interest
[10]
The proposed transaction gives rise to a duplication of roles
and a relocation and integration of the merging parties'
head office
in Johannesburg or Cape Town, which may
result in merger specific
retrenchments
affecting about 50 employees. To address this employment issue,
the Commission and the merging parties agreed
on the following
employment conditions: retrenchments affecting about 50 employees. To
address this employment issue, the
Commission and the
merging parties agreed on the following employment conditions:
•
No retrenchments will be
effected in the merging parties' stores for a period of 24 months
after the approved date of the proposed
transaction;
•
No more than 50
retrenchments will be effected at the merging parties' head offices
for a period of 18 months after the approved
date of the proposed
transaction; and
•
The Merging parties must
explore opportunities for alternative employment for any head office
staff that are retrenched within the
acquiring firm's group of
companies.
[11]
The proposed transaction raised no other public interest concerns.
CONCLUSION
[12]
We agree with the Commission's findings that the proposed transaction
is unlikely to substantially prevent or lessen competition
in the
relevant product market. We therefore approve the transaction subject
to the conditions attached hereto as Annexure "A".
11
January 2016
DATE
________________________
Mr
Norman Manoim
Ms
AJdiswa Ndoni and Mr Anton Roskam concurring.
Tribunal
Researcher:
Caroline Sserufusa
For
the merging parties: Heather Irvine of Norton
Rose Fullbright
For
the Commission:
Thelani Luthuli
ANNEXURE
"A"
CONFIDENTIAL
STEINHOFF
DOORS AND BUILDING MATERIALS (PTY) LTD / ILIAD AFRICA LTD CC CASE
NUMBER: 2015SEP0511
CONDITIONS
1.
Definitions
The
following expressions shall bear the meanings assigned to them below
and cognate
expressions
bear corresponding meanings -
1.1.
"Acquiring Firm" means SDBM;
1.2,
"Approval Date"
means the date referred to in the
Tribunal's merger clearance certificate (Form CT15);
1,3.
11Commission
11
means the Competition Commission
of South Africa;
1.4.
"Commission
Rules',
means the
.Rules for the Conduct of Proceedings in
the Commission;
1.5.
11Competition
Act0
means the
Competition Act 89 of
1998
, as amended;
1.6.
"Conditions"
mean these conditions;
1.7.
"Iliad"
means Iliad Africa Ltd;
1.8,
"Implementation
Date"
means the date,
occurring after the Approval Date, on which the merger is implemented
by the merging parties;
1.9.
"Merging
Parties"
mean SDBM and Iliad;
1.10.
"Proposed Transaction"
means the
acquisition of control over the Iliad
business by SDBM;
1.11.
"SDBM" means Steinhoff Doors and Building Materials
(Pty) Ltd;
1.12.
"Target Firm"
means Iliad; and
1.13.
“
Tribunal
Rules"
mean the Rules for
the Conduct of Proceedings in the Tribunal.
2.
Conditions to tlle approval of the merger
2.1.
There shall be no retrenchments in the Merging Parties'
stores as a result of the Proposed Transaction, for a period of
twentyfour months after the Implementation Date;
2.2.
The Merging Parties shall not retrench more than 50 employees at
their
head offices as a result of the Proposed Transaction for a
period of 18 months after the Implementation Date; and
2.3.
The Merging Parties undertake to explore opportunities for
alternative
employment within the Acquiring Firm's group of companies
for the 50 employees that are retrenched at the head offices of the
Merging
Part[es as a result of the Proposed Transaction.
3.
Monitoring of compliance with the Conditions
3.1.
The Merging Parties shall:
3.1.1.
Inform the Commission of the Implementation Date within five days of
it becoming
effe_ctlve.
3.1.2.
Notify at! of its employees and registered trade unions and/or
employee representatives, in
writing of the conditions reflected in
paragraph 2 above within 5 (five) business days of the Approval Date
of!he Proposed Transaction.
3.1.3.
Submit an affidavit attesting to the notification referred to in
paragraph 3.1.2 above,
and provide a copy of the notice to the
Commission within 5 (five) business days of the circulation of the
conditions.
3.2.
Twelve months after the Implementation Date, the Merging Parties
shall
submit a report:
3.2.1.
confirming that no retrenchments occurred in any of the Merging
Parties' stores as a result
of the Proposed Transaction.
3.2.2.
indicating the number of retrenchments at head office which have
occurred as a result of the
Proposed Transaction, including a
description of the relevant job function and skill level which relate
to the retrenchments in
question.
3.3.
One month after a period of 18 (eighteen) months from the
lmplementatlon
Date:
3,3.1.
The Merging Parties shall submit a further report to the
Commission in accordance with clause 3.2.1 and clause 3.2.2
above,
3.4.
Twenty-four months after the Implementation Date, the Merging Parties
shall submit a final report confirming that no retrenchments
have
occurred in any of the Merging Parties' stores as a result of the
Proposed Transactlon:
3.5.
In the event that the Commission determines that there has been
an apparent breach by the Merging Parties of these
Conditions, this
will be dealt with in terms of Rule 39 of Commission Rules read
together with Rule 37 of the Tribunal Rules.
3.6.
The Merging Parties may at any time, on good ca.use shown, approach
the Tribunal for the conditions
to be !lfted, revised or amended.
3.7,
All
correspondence
in
relation
to these Conditions should be
forwarded
to
mergerconditions@compcom.co.za
[1]
Act
71
of 2008.
[2]
The third party
claimed
confidentiality
over its
identity.
Since the
detail of
the concerns might
identify
it as
well, this public
version of
the reasons
contains
portions
indicated
by the brackets
where
words
bave been
redacted.