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COMPETITION TRIBUNAL OF SOUTH AFRICA
In the matter between:
Parentco (Pty) Ltd
and
Edcon Limited
Panel
Heard on
Order Issued on
Reasons Issued on
Approval
Case No: LM117Sep16
Primary Acquiring Firm
Primary Target Firm
: Norman Manoim (Presiding Member)
: Mondo Mazwai (Tribunal Member)
: Medi Mokuena (Tribunal Member)
: 23 November 2016
: 23 November 2016
: 14 December 2016
Reasons for Decision
[1] On 23 November 2016, the Competition Tribunal ("Tribunal") conditionally
approved the large merger between Parentco (Pty) Ltd ("Parentco") and Edcon
Limited ("Edcon"). The reasons for approving the proposed transaction follow.
Parties to the transaction
Primary acquiring firm(s)
[2] Parentco is a company incorporated in South Africa. Parentco is wholly-owned
by New Holdco 1 which is also incorporated in South Africa. New Holdco 1 will
be owned and controlled by New Holdco 2 which is also incorporated in South
Africa. Parentco, New Holdco 1 and New Holdco 2 are all new companies that
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have been established solely for the proposed transaction. Therefore none of
the three companies conducts any business activities, nor do they own or
control any firms. The shareholders of Hew Holdco 2 are the current creditors
of the target firm. These creditors consist of financial investors in the form of
private equity investments and banks. At the time of the hearing the
shareholding percentages of New Holdco 2 had not yet been finalized, however
the merging parties re-assured us that no single firm will control New Holdco 2,
and that the current potential shareholders will still remain the same regardless
of what agreement is reached post-merger.1
Primary target firm
[3] Edcon is a company incorporated in South Africa. Edcon is controlled by Edgars
Consolidated Stores limited ("ECSL"), which is controlled by Edcon Acquisition
(Pty) Ltd ("Bidco"). Bidco is controlled by Edcon holdings Limited ("Edcon
Holdings"), which is controlled by Edcon (BC) S.a.r.I. ("Edcon BC"). Edcon BC
is ultimately controlled by Bain Capital Investors LLC ("Bain Capital"). The
Edcon Group is active in the retail of apparel market. Through its various
subsidiaries such as Edgars, CNA, Samsung stores, Jet and Legit, the Edcon
Group sells men's, women's and children wear, fragrances, cosmetic products
and cellular products. In addition to this, The Edcon Group also provides
insurance products to its customers through Hollard Limited ("Hollard").
Proposed transaction and rationale
[4] This transaction is a financial restructuring of the Edcon Group due to the dire
financial situation of the Edcon Group. To avoid a business rescue situation,
Edcon's creditors have entered into an arrangement to partially equitize their
debt claims and take the majority equity in the Edcon Group. Some of the
creditors will also provide liquidity. Parentco will acquire 100% of the shares in
Bidco, which holds 100% shares in ECSL, and ultimately the entire issued
share capital of Edcon.
1 See pages 8-11 of transcript of hearing.
share capital of Edcon.
1 See pages 8-11 of transcript of hearing.
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Impact on competition
[5] The proposed transaction does not result in any overlaps.
[6] The Commission identified the relevant market as the market for the retail of
apparel, cosmetics, homeware, and mobile cellular products. Since no overlaps
arise, the Commission thus submits that the proposed transaction is unlikely to
substantially lessen or prevent competition in the identified market.
[7] However given the fact that post-merger some of the shareholders of the
merged entity will be the leading banks in the country, the Commission
assessed to ascertain whether there won't be any information exchange post
merger. The Commission perused the intended shareholders' agreement and
noted that the terms of the Equity and Governance Term Sheet, are such that
none of the leading banks will be able to appoint a board member and therefore
information exchange is highly unlikely post-merger. The Commission thus
submits that the proposed transaction is unlikely to substantially lessen or
prevent competition in any of the identified markets. We concur with the
Commission on its findings.
[8] We agree with the Commission's competition assessment that the proposed
transaction is unlikely to substantially prevent or lessen competition in any
relevant market.
Public interest
Trade Union
[9] During the Commission's investigation, the South African Commercial and
Allied Workers Union ("SACCAWU") raised concerns in relation to the proposed
transaction, particularly in relation to employment. These concerns were
however addressed by the merging parties when it re-assured SACCAWU that
the financial restructuring emanating from the proposed transaction is in fact
necessary to ensure that no retrenchments will take place in the Edcon Group.
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As a result thereof SACCAWU no longer had issues with the proposed
transaction.
Minister of Economic Development Department
[1 O] The Commission also received a notice of intention to participate from
the Economic Development Department ("EDD") in relation to the proposed
transaction. EDD submitted to the Commission that due to the nature of the
transaction i.e. it might save the Edcon Group from liquidation, the Commission
should deal with the transaction as expeditious as possible. The EDD submitted
that even though the proposed transaction will result in jobs being saved, the
EDD nonetheless required some assurance from the merging parties that no
job losses will result from the proposed transaction. When the Commission
referred the transaction to the Tribunal, the EDD had not yet submitted its
proposals in relation to the proposed transaction. Subsequently prior to our
hearing the EDD and the merging parties reached agreement on proposed
conditions. The merging parties had no objection to them being made
conditions for the approval of the merger.
[11] The EDD's conditions2 address three issues namely, employment,
procurement of South African brands by the merged entity and Black Economic
Empowerment ("BEE"). In relation to employment the merged entity plans to
employ and train a further 2000 new staff who will be deployed in its stores
throughout South Africa as part of its strategy to improve customer service.
[12] In relation to the procurement of South African brands, the merged entity
will expand its procurement from South African suppliers as part of its Import
Replacement Programme.
2 See Annexure A below.
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[13] Lastly in relation to BEE, the merged entity will ensure that the current
shareholding participation of the Ed con Empowerment Trust is not reduced and
the rights of the beneficiaries of such trust will not be adversely affected.
Conclusion
[14] In light of the above, we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition in the identified market.
We conditionally approved the proposed transaction with the conditions
ttached hereto as Annexure A.
14 December 2016
DATE
Ms Mondo Mazwai and Ms Medi Mokuena concurring
Tribunal Researcher:
For the merging parties:
For the Commission:
Caroline Sserufusa
Mark Garden of ENS and Heather Irvine of
Falcon and Hume
Grashum Mutizwa
For Minister of Economic Development: Mohamed Vawda
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ANNEXUREA
CASE NUMBER: LM117Sep16
PARENTCO PROPRIETARY LIMITED
and
EDCON LIMITED
CONDITIONS TO THE APPROVAL OF THE MERGER
1. DEFINITIONS
Unless inconsistent with the context, the words and expressions set forth below shall bear the
following meanings and cognate expressions shall bear corresponding meanings.
1.1. "Approval Date" means the date referred to in the Tribunal's merger clearance certificate
(Form CT 10) In respect of the Proposed Transaction;
1.2, "Commission" means the Competition Commission of South Africa, a statutory body
established in terms of section 19 of the Competition Act;
1.3. "Competition Act" means the Competition Act, Number 89 of 1998, as amended;
1 .4. "Ce!rose" means Celrose Proprietary Limited, registration number 2006/033124/07;
1.5. "DTI'' means the Department of Trade and Industry of South Africa;
1.6. l'Edcon" means Edcon Limited, registration number 2007/003525/06;
1.7. "EDD" means the Economic Development Department of South Africa;
1.8. "Eddels" means Eddels Shoes Proprietary Limited, registration number 2001/020614/07;
1.9. "Edcon Empowerment Trust" means that Edcon Staff Employment Trust created ln July
2005 as part of the Edcon group's black economic empowerment programme, which holds
10,6% (ten comma six percent) of the issued share capital of Edcon Holdings Limited.
1.10. "Government" means the Government of the Republic of South Africa; in particular the EDD
and DTI, duly represented by their respective Directors General;
1. 11. "Merging Parties" means Parentco and Edcon;
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1. 12. "Parentco" means K2016470295 {South Africa) Proprietary Limited, registration number
20161470295107;
1.13. "Proposed Transaction" means the acquisition of contra! over Edcon by Parentco, as
contemplated in the transaction notified to the Commission under Commission Case Number
2016Sep0477;
1. 14. "Small Enterprises" has the meaning set out in the National Small Enterprises Acl, Number
102of1996;
1.15. "Trlbunal" means the Competition Tribunal of South Africa, a statutory body estab!Ished In
terms of section 26 of the Competition Act;
2. EMPLOYMENT
2.1. As at the Approval Date, Edcon operates 1,377 (one thousand three hundred and seventy
seven) stores across South Africa and employs 19,681 (nineteen thousand srx hundred and
eighty one) full time employees and 23,949 {bNenty three thousand nlne hundred and forty
nine) other employees (lncludlng casual staff), a combined workforce of 43,630 (forty three
thousand and six hundred and thirty) employees in South Africa.
2.2. Ed con plans to employ and train a further 2,000 (two thousand) new staff who will be deployed
in its stores throughout South Africa as part of its strategic focus on improving customer
service delivery across the group. Depending on extraneous circumstances {such as
prevailing macro and rnlcro economic conditions and trading conditions) and internal
circumstances (such as the state of Edcon's financial position and operating performance),
these additional staff-members are likely to be employed within 2 (two) years of the Approv81
Date.
3. SOUTH AFRICAN INPUTS
3.1. Edcon is committed to fostering and developing a more competitive production environment
In South Africa throtigh building and Implementing an Import Replacement Programme which
wi!I entail-
3, 1.1. expanding its procurement from Soutt1 African suppliers (including small, medium
and large enterprises); and
3.1.2. bulldtng relationships with South African suppliers of products for re-sale in its
3.1.2. bulldtng relationships with South African suppliers of products for re-sale in its
stores, inter alia to mitigate the risk of exchange rate fluctuation, secure faster
supply chain turnaround and cater for local consumer preferences.
3.2. In furtherance of its Import Replacement Programme, Edcon will run -
3.2.1. quality assurance information sessions with South African producers to assist
them in manufacturing world class products al competit1Ve local pri'ces; and
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3.2.2. orientation sessions with small and medium enterprises in South Africa to assist
them in doing business with Edcon.
3.3. Edcon will engage with South African suppliers and manufacturers relevant to its operations
Jn South Africa wlth the aim of identifying opportunities for partnerships, initiatives and
programs to build the capacity, technological capabilities (Including equipment and intellectual
property requirements) and competitiveness of those local suppliers and manufacturers,
inc!uding working with Government where appropriate,
3.4, Edcon will continue to extract significant qualitative and quantitative value from managing an
in-house clothing (Celrose} and footwear (Eddols) value chain, with a view to maximising and
accelerating its local procurement, including exploring opportunities to expand production for
tho domestic market and exports at Celrose and Eddels.
3.5. To give effect to the above, for a period of 5 (five) years from the Approval Date, Edcon
commits to meeting on a quarterly basis with representatives of the EDD and other public
entities that may be invited by the EDD from lime lo time, which may Include the DTJ and the
Industrial Development Corporation, to help identify local sourcing opportunities and
measures that can lmprove tho competttiveness of local manufacturers.
4. BEE
Edcon will ensure that, as a result of the Proposed Transaction, the shareholding participation of the
Edcon Empowerment Trust In the Edcon group will not be reduced; and the rights of the beneficiaries
of the Edcon Empowerment Trust will not be adversely affected.
5. MONITORING OF COMPLIANCE WITH THE CONDITIONS
5.1. For a period of 5 (five) years from the Approval Date, Edcon shall, within 30 (thirty) days of
each anniversary of the Approval Date, provide to the Commission and the EDD a report
detailing its efforts in pursuing and achieving the public interest objectives set out in clauses
2 and 3 above.
2 and 3 above.
5.2, Any person who believes that the Merging Parties have not complied with these conditions
may approach the Commission. ln the event that the Commission determines that there has
been an apparent breach by the Merging Parties of these conditions, the matter shall be dealt
with in terms of Rule 39 of the Rules for the Conduct of Proceedings fn the Commission.
5.3. All correspondence in relation to these conditions must be submitted to the following email
address: merqercondltlons@corn pcom .co.za.
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6. VARIATION
6.1. The Merging Parties or the Commission shall be entitled, on good cause shown, to apply to
the Tribunal for a waiver, relaxation, modification and/or substitution of any of these condilions
at any time after t11e Approval Date.
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