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[2016] ZACT 8
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Cashbuild Management Services (Pty) Ltd v P and L Hardware (Pty) Ltd (LM123Sep15) [2016] ZACT 8; [2016] 1 CPLR 161 (CT) (22 February 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM123Sep15
In
the matter between:
CASHBUILD
MANAGEMENT
SERVICES
(PTY)
LTD
Primary Acquiring Firm
and
P
&
L HARDWARE
(PTY)
LTD
Primary Target Firm
Panel
: Norman Manoim (Presiding Member)
: Medi Mokuena (Tribunal
Member)
: Andiswa Ndoni (Tribunal
Member)
Heard
on
: 03 February 2016
Order
Issued on
: 03 February 2016
Reasons
Issued on
: 22 February
2016
Reasons
for Decision
Approval
[1]
On 03 February 2016, the Competition Tribunal ("Tribunal")
approved the proposed transaction between Cashbuild Management
Services (Pty) Ltd and P & L Hardware (Pty) Ltd.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Cashbuild Management Services (Pty) Ltd
("Cashbuild Management Services") a company
incorporated in
accordance with the company laws of the Republic of South Africa.
Cashbuild Management Services is a wholly
owned subsidiary of
Cashbuild Limited. Cashbuild Limited is not controlled by any firm.
[4]
Cashbuild and all firms directly or indirectly controlled by
Cashbuild are referred to herein as the "Cashbuild Group".
The Cashbuild Group is primarily involved in the retail supply of
building materials, hardware and related products in six countries
across Southern Africa.
Primary
target firm
[5]
The primary target firm is
P&L
Hardware (Pty) Ltd
("P&L"),
a company incorporated in accordance with the company laws of the
Republic of South Africa.
[6]
P&L is jointly controlled by the Andre Prinsloo Trust ("APT")
(25%) and
FJP
Beleggings (Pty) Ltd ("FJP")
(75%).
FJP
is 100% owned by the FCA Trust ("FCA").
P&L
holds 20% of the shareholding in
P&L
Boerebenodighede Investments (Pty) Ltd ("P&L
Investments") pre-merger and will acquire the remaining 80% by
virtue
of the proposed transaction.
[7]
Rio Ridge 1027 CC ("Rio Ridge") is a close corporation. As
part of the proposed transaction Rio Ridge is to be converted
into a
private company and
P&L
will acquire the entire issued
share capital of the company.
[8]
P&L
is a retailer of building materials, hardware and
related products. P&L's stores are predominantly located in
Limpopo, but
also has branches in Mpumalanga and Gauteng.
Proposed
transaction and rationale
[9]
Cashbuild Management Services shall acquire the entire issued share
capital of
P&L,
while P&L intends to acquire a 100%
shareholding in P&L Investments, as well as the entire issued
share capital of the private
company resulting from the conversion of
Rio Ridge 1027 CC as a simultaneous integral part of the single,
indivisible proposed
transaction. As a result of the transaction
Cashbuild Management Services will acquire direct control over P&L
and indirect
control over P&L Investments and Rio Ridge.
[10]
Prior to the implementation of the proposed transaction P&L will
dispose of its minority interest in a Zimbabwean firm
(United
Builders Merchants-PANDL (Private) Limited ("UBM-P&L"))
and a South African subsidiary company (Zim Conglomerate
Proprietary
Limited ("Zim Conglomerate")) controlled by P&L
pre-merger. P&L's shares in Zim Conglomerate and
UBM-P&L will
be transferred to a third party controlled by the Prinsloo family.
Cashbuild Management Services will accordingly
not acquire any direct
or indirect shareholding or control in Zim Conglomerate or UBM-P&L
by virtue of the proposed transaction.
[11]
Cashbuild Management Services' rationale for the transaction is an
intention to expand its footprint.
[12]
The rationale of those in control of P & L is that they wish to
realize its value for investment in other opportunities.
Impact
on competition
[13]
The Competition Commission ("Commission") submits that the
proposed transaction gives rise to a horizontal overlap
in respect of
the retail supply of building materials, hardware and related
products.
[14]
Cashbuild is present in most of South Africa's provinces, whereas P&L
has 38 outlets located in Gauteng, Mpumalanga, and
Limpopo.
[15]
The Commission finds that in the national market, the merged entity
will have a post merger market share of approximately
13.8%,
with a market share accretion of between 1% and 2% post-merger. There
are other independents such as MICA, DIY Depot, Essential
Hardware,
and Voltex, which are well established in the market and will also
pose as a competitive restraint on the merging parties.
[16]
In the provinces of Gauteng and Mpumalanga there are no competition
concerns, as in Gauteng, the merged entity will have a
market share
accretion of less than 1% with a post-merger market share of 16%. In
Mpumalanga the post-market share will be 25%-30%
with an accretion of
5%.
[17]
In the narrow market, of Limpopo, the Commission finds that the
merged entity would have an average post-merger market share
of 21%
with a market share accretion of about 10%. However, this does not
present a competition concern, as there are other viable
alternatives
in Limpopo such as EH Hassims, Laduma Hardware, Buco and the presence
of big national players, namely, Massbuild,
Build-It, Iliad and SBDM,
who will constrain the merging parties.
[18]
The Commission found that the barriers to entry were low and that new
entry into this market was possible.
[19]
The Commission found that often customers would first obtain quotes
from bigger players such as Cashbuild, P&L and Build-It,
once
they have these quotes they would take it to independent traders for
them to beat, which they would do in most cases. This
market dynamic
was one of the key reasons why smaller independents could survive.
[20]
The Commission therefore concluded that the proposed transaction is
unlikely to substantially prevent or lessen competition
in any
relevant market.
[21]
We concur with the Commission's conclusion that the proposed
transaction is unlikely to substantially prevent
or
lessen competition in any relevant market.
Public
interest
[22]
The merging parties confirmed that the proposed transaction will not
result in any adverse impact on employment.
[23]
The proposed transaction further raises no other public interest
concerns.
Conclusion
[24]
In light of the above, we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition
in any
relevant market. In addition, no public interest issues arise from
the proposed transaction. Accordingly, we approve the
proposed
transaction unconditionally.
22
February 2016
DATE
________________________
Mr
Norman Manoim
Mrs
Medi Mokuena and Ms Andiswa Ndoni concurring
Tribunal
Researcher:
Kameel Pancham
For
the merging parties:
Webber Wentzel
For
the Commission:
Thelani Luthuli