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[2017] ZACT 2
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EOH Mthombo (Pty) Limited v Cornastone Enterprise Systems (Pty) Ltd (LM170Nov16) [2017] ZACT 2 (22 February 2017)
COMPETITION
TRIBUNAL
OF
SOUTH
AFRICA
Case
No: LM170Nov16
I
n
the
matter
between
EOH
MTHOM
B
O
(PTY)
LTD
Acquiring
F
i
rm
And
CORNASTONE
ENTERPRISE SYSTEMS (PTY)
LTD
Target
F
i
rm
Panel
: Ms Andiswa Ndoni(Presiding Member)
: Mr Enver Daniels (Tribunal
Member)
: Prof lmraan Valodia (Tribunal
Member)
Heard
on
:
08
Febr
u
ary
20
1
7
Order
I
ssued
on
:
08
February 2017
Reasons
I
ssued
on
:
22
F
ebruary
2017
NON-
CONFIDENTIAL REASONS FOR DECISION
Approval
[
1
]
On
08 February 20
1
7,
the
Competition Tribunal ("Tribu
n
al")
approved the
l
arge
merger
between EOH Mthombo (Pty) Ltd ("EOH") a
n
d
Cornastone E
n
terprise
Systems
(Pty) Ltd ("Cornastone")
.
[
2]
The reasons for the approval follow.
Parties
to the transaction and their activities
Primary
Acquiring Firm
[3]
T
h
e
p
rimary
acquir
i
n
g
firm
i
s
E
OH,
a
company
i
ncorporated
i
n
accor
d
ance
with the
l
aws
of
the
Republic
of
So
u
th
Africa.
E
OH
i
s
a
wholly
owned
and
controlled subsidiary
of
EOH
Holdi
n
gs
Ltd
("EOH
Ho
l
dings"),
a
company
listed
on
the Johannesbu
r
g
S
ecur
i
ties
Exc
h
ange.
EOH
H
o
l
dings
controls
a
n
u
mber
of
firms
i
n
South
Africa.
[4]
EOH
i
mplements
enterprise solutions
a
n
d
has
a
wide
ra
n
ge
of
i
n
formation
technology
services,
software,
i
ndustrial
technologies
and
business outsou
r
cing
solutions, providing these services across a number of sectors of the
economy
.
Primary
Target Firms
[5]
The
primary
target
firm
i
s
Cornastone,
a
company
i
ncorporated
i
n
accordance
with the
l
aws
of
the
Republic
of
South
Africa
controlled
by
three
primary
shareholders.
[1]
Cornastone
wholly
owns
and
controls
four
subsidiaries,
Cornastone
Enterprise
Management
Systems
(Pty)
Ltd,
Cornastone
Enterprise
Services
(Pty)
Ltd,
Cornastone
Managed
Services
(Pty)
Ltd
Cornastone
Telecommu
n
i
cations
(Pty)
Ltd
.
[6]
Cornastone
and
i
ts
subs
i
d
i
aries
provide
a
ra
n
ge
of
services
and
products
to
the IT market,
mostly on a specialised
basis to,
pr
i
marily,
teleco
m
mu
n
i
cations
n
etwork
operators.
Proposed
transaction
and rationale
[7]
In
terms of
the proposed transaction,
EOH
will purchase a 100%
of
the shares of Cornastone
.
Post-transaction
EOH will
exercise sole control over the firm.
[8]
I
n
terms of
the rat
i
onale,
EOH
submits
that Cornastone
presents
a
solid business
i
nvestment,
provid
i
n
g
ad
d
i
tional
product
and
service offerings with a strong
ma
n
agement
team to
i
ts
existing
p
ortfolio
.
[9]
Cornastone
submits
that
the
transaction
represents
an
opportunity
for
Cornastone's
i
nvestors
to recoup
their
i
nvestments
and
that
the transaction will prov
i
de
Cornastone a
n
d
i
ts
employees with better growth opportu
n
ities
through access to
r
esources,
customer base and the shared services of a
l
arger
listed group
.
Relevant
market and impact on competition
[
10
]
The
Commission
found
that
the
proposed
transaction
wou
l
d
resu
l
t
i
n
h
orizontal
overlaps
i
n
the
broad
n
ational
market
for
I
T
services,
the nat
i
onal
market
for
I
T project
i
mplementation
services,
I
T
operational
outsourcing
services,
IT consulting services,
I
T
hardware solutions and
the
I
T
market for
software solutions
.
Pre-merger,
both
parties
are
active
i
n
the
above-l
i
sted
markets
.
[11]
I
n
its
re
p
ort,
the
Commission,
using
a
combination
of
data
submitted
by
the merging parties and the BMl-T report, found that
EOH
would not, in any of the
markets
assessed,
have
a
pos
t
-merger
m
arket
share
of
greater than [10
%
],
[2]
nor wou
l
d
market share accretion exceed [
1
%]
.
[3]
The Commission submits that
i
n
all the relevant
markets,
there
are
at
l
east
50 competitors able to constrain EOH's actions.
[
1
2]
The Commis
s
i
on,
n
oting
that
E
OH
has r
e
ce
n
tly
been
i
nvolved
i
n a n
u
mber
of
i
ntermediate
and
l
arge
merger applications,
i
nvestigated
the
i
mpl
i
cations
of these mergers on EOH's market power
.
I
t found
that there are currently over
50
competitors in the industry able to constrain EOH's actions and that
EOH is unlikely to be acquiring a unique position that cannot
be
mimicked by rivals. The Commission thus concluded that the 'creeping
mergers' by EOH are unlikely to raise any competition concerns
in the
present transaction.
[13]
Owing
to
the low post-transaction market share and market share accretion as
well as the constraints
on EOH's behavior post-transaction
presented by
strong
competition
i
n the
market, the
proposed
transaction
i
s
unlikely to
substantially
prevent or
l
essen
competition
i
n
the relevant markets
i
n
South Africa.
Public
interest
[14]
The
merging parties submitted, which was
confirmed
by
the Commission, that
the
proposed
transaction
will
n
ot
have
a
negative effect on
employment
because there was
no
rationalisation planned.
[4]
[1
5
]
The proposed transaction further
raised
no other public
i
nterest
concern
s
.
Conclusion
[
1
6]
I
n
l
i
ght
of the above, we conclude that the proposed transaction
i
s
unlikely to substantially
prevent
or
l
essen
competition
i
n
any
relevant
market.
I
n
addition
1
no
public
i
nterest
issues
arise
from
the
proposed
transaction.
Accord
i
ngly,
we approve the
proposed transaction u
n
conditionally.
22
February
2017
Date
__________________________
Ms
Andiswa Ndoni
Mr
Enver Daniels and Prof lmraan Valodia concurring
Tribunal
Researcher:
Alistair Dey-van
Heerden
For the
merging parties:
Lee Christie of EOH
For the
Commission:
Grashum Mutizwa
[1]
The
three
primary
shareholders
of
Cornastone
pre
-
merger
are
Mr
Lufuno
Nevhatalu
,
Mr
Manuel
Te
i
xeira
and
M
r
Mark Jones
.
[2]
The
M
e
r
g
i
n
g
parties
have
claimed
the
market
share
and
accretion
figures
as
confidential
and
such
have
thus
been
rounded
off
to
differi
n
g
factors
i
n
the
public
r
easons
.
[3]
The
Commission
presented
the
following
analysis:
Broad
National Market
for
IT
Services-
total
market share [(5
%
)]
,
accretion
[(1%)]
;
Nationa
l
Market
for
I
T
Project
I
mplementation
Services -
total
market share [(
1
0
%
)],
accretion
((1%)]
;
National
Market
for
I
T
Operational Outsourcing Services- total market share [(5%)],
accretion
[(1%)]
;
Na
t
i
onal
Market for
IT
Consulting
Services-
total market share 1(5%)],
accretion
((
1
%)];
Nat
i
onal
Market
for
IT Hardware
Solutio
n
s-
total market share [(
1
0%)]
,
accretion
[(1%)]
;
and
I
T
Market for Software Sol
u
tions
- total
market
share
(
(
1
0%)]
,
accretion
[(
1
%)]
.
[4]
Page
61 o
f
the
Merger record and page 17
of
the Tribunal's Transcrip
t.