competition tribunal
••••6- •f,I~•
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM173Nov16
In the matter between
Boundlesstrade 154 Proprietary Limited Primary Acquiring Firm
And
AA Group Primary Target Firm
Panel : Mr Norman Manoim (Presiding Member)
: Ms Yasmin Carrim (Tribunal Member)
: Ms Andiswa Ndoni (Tribunal Member)
Heard on : 22 February 2017
Order Issued on : 22 February 2017
Reasons Issued on : 6 March 2017
REASONS FOR DECISION
Approval
[1] On 22 February 2017, the Competition Tribunal ("the Tribunal") unconditionally
approved the large merger between Boundlesstrade 154 Proprietary Limited
("Boundlesstrade") and the AA Group ("AA Group"), herein referred to as the
merging parties.
[2] The reasons are as follows.
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Parties to the transaction
Primary Acquiring Firm
[3] Boundlesstrade is an investment holding company incorporated in accordance
with the laws of the Republic of South Africa. Boundlesstrade is a wholly owned
subsidiary of Imperial Holdings Limited ("Imperial"). Imperial is a public
company listed on the Johannesburg Stock Exchange ("JSE") and controls a
number of firms1 ("the Imperial Group") but is not controlled by any firm.
[4] Imperial has more than 50 dealerships located in the Limpopo Province, North
West Province, Mpumalanga Province, Free State Province and the Western
Cape Province.
[5] The Imperial Group provides a diverse range of products and services which
include logistics, transportation and distribution services, aviation leasing, car
rental, insurance, motor dealerships and auto parts retail. These are provided
through various divisions such as Logistics Africa, Logistics international,
amongst others.
[6] Of relevance to the proposed transaction is its vehicle import distribution and
dealerships divisions.
Primary Target Firm .
[7] AA Group is jointly controlled by Boundlesstrade (and thus Imperial) and
Bidvest Group Limited (°Bidvest"), each with a 50% shareholding. Bidvest is a
large industrial holding group. Included amongst its subsidiaries and relevant
to this transaction is its ownership of the motor dealership group McCarthy
Holdings ("McCarthy").
1 Imperial also controls other firms including Associated Motor Holdings ("AMH").
2
[8] The AA Group2 is principally engaged in the sale of new motor vehicles. One
division imports and distributes a Chinese manufactured light passenger
vehicle, the Chery. The other division also distributes a Chinese manufactured
vehicle, the Foton, a light commercial vehicle. Both businesses also entail the
sale of the parts and accessories that relate to these two brands.
Proposed transaction and rationale
[9] The proposed transaction consists of a change from joint control to sole control.
Bidvest wishes to exit the joint venture and realise a return on its investment,
while the Imperial Group wishes to acquire the remaining 50% shareholding in
the AA Group from Bidvest.3
[1 O] From the beginning of the joint venture, Bidvest, through its McCarthy
subsidiary possessed the technical skill relating to the distribution and retail of
the Chery and Foton brands which Imperial did not possess. This is now no
longer the position as AMH has gained the technical skills to manage the
distribution and retail of the abovementioned car brands. Bidvest is of the view
that it makes commercial sense for AMH to acquire the exclusive distribution
rights of the brands and for Bidvest to exit the joint venture.
Relevant market and impact on competition
[11] The relevant product market is the market for the sale of new passenger
vehicles and new light commercial vehicles within a narrow market of 80km
radius in the Gauteng province and a broader market of 100km radius for
Limpopo, Mpumalanga, Kwa-Zulu Natal and Western Cape.
[12] At the conclusion of its investigation, the Commission found that the proposed
transaction presents overlaps in the market for the sale of new passenger
2 AA Group comprises the following three companies: Amalgamated Automobile Holdings (Pty) Ltd ("AAH"),
Amalgamated Automobile Distributors (Pty) Ltd ("AAD") and Future Automobile related financial services, vehicle
import distribution and dealership divisions Distributors ("FAD").
3 Page 1 and 2 of the Transcript.
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vehicles and new light commercial vehicles only within the vehicle import,
distribution and dealership division in the abovementioned Provinces.
[13] When determining the geographic scope of the market, the Commission
considered the distance between the dealerships of the merging parties in
Limpopo, Gauteng, Kwa-Zulu Natal, Mpumalanga and Western Cape. Where
the dealerships of the merging parties overlap within a radius of 80km (in the
narrow market) and 100km (in the broad market) respectively, they would fall
within the relevant geographical market.
[14] In respect of the Gauteng Province, the effects of the proposed transaction
were measured within a narrow radius of 80km as a result of the density and
concentration of dealerships therein. The Gauteng Province was further
subdivided into three narrower markets (Pretoria and surrounding areas;4
Johannesburg and surrounding areas5 and Germiston and surrounding areas6)
in order to accurately assess the impact of the proposed transaction.7
[15] In respect of the Limpopo,8 Kwa-Zulu Natal,9 Mpumalanga and Western Cape
provinces, 10 the Commission adopted a broad market approach of 100km
radius (for each province) as a result of the scarcity of dealerships therein.
New passenger vehicles market
[16] In the Gauteng Province, the Commission found that the merging parties will
have a market share ranging between 12% and 24%, with an accretion
between 5% and 8.5%.
[17] In the Limpopo Province, the Commission found that the merged entity will
have a market share of 13.4% with an accretion of 6.2%.
4 Encompassing Centurion, Menlyn, Pretoria central and Zambezi.
5 Encompassing Midrand, Krugersdorp, Randburg, Sandton and Strijdom Park.
~ Encompassing Alberton, Edenvale, Boksburg, Kempton Park and Vereeniglng.
7 Page 2 of the Transcript.
e Encompassing Duiwelskloof, Lours Trichardt, Mokopane and Tzaneen.
' Encompassing Durban central, EThekwinl, Gateway, Harbour View, Umhlanga and Pinetown.
' Encompassing Durban central, EThekwinl, Gateway, Harbour View, Umhlanga and Pinetown.
10 Encompassing Cape Town, Diep Rivier, Kenilworth, Milnerton, Paarden Eiland (Air Port Park), Tygerberg and
Worcester.
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[18] In the Kwa-Zulu Natal Province, the Commission found that the merged entity
will have a market share of 15.5% with an accretion of 7.4%.
In the Western Cape Province, the Commission found that the merged entity
will have a market share of 17.4% with an accretion of 6.4%.
New light commercial vehicles market
[19] In the Gauteng Province, the market share of the merged entity will be between
9.9% and 25.2% with an accretion between 2.7% and 3.7%.
[20] In Limpopo Province, the merged entity will have a market share of 24.3% with
an accretion of 10.2%. The merging parties will continue to face competition
from other dealerships such as BB Motors, Westvaal Motors, Mercurius Motors,
MGM Motors, Toyota and Volkswagen.
[21] In the Western Cape province, the Commission found that the merged entity
will have a market share of 13.4% with an accretion of 3.5%.
[22) In the KwaZulu Natal province, the Commission found that the merged entity
will have a market share of 9.4% with an accretion of 3.1 %.
[23] In view of the insignificant accretion of market share in each of the relevant
markets, the Commission concluded that the proposed transaction is unlikely
to substantially prevent or lessen competition ("SLC") in the identified product
markets.
Tribunal analysis
[24) We agree with the Commission that the transaction will not lead to an SLC.
However we would place more emphasis on the fact that the merger leads to
the termination of a joint venture between two rival groups in the broader market
for motor vehicle distribution. Viewed from this point, the merger is pro
competitive as it reduces an opportunity for rivals to meet in a joint venture. We
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emphasise however that there is no evidence in the record that such activity
took place. The point is that the opportunity is reduced.
[25] The emphasis on market share accretion is also not significant in this case as
pre-merger the record shows that the Imperial partners in the joint venture were,
pre-merger, largely responsible for managing the joint venture including the
determination of pricing decisions. 11
Public interest
[26] The merging parties submit that the proposed transaction will not result in job
losses or have any negative effects on employment in South Africa. Given that
the AA Group will continue to conduct its business as it did pre-merger, the
Commission is of the view that proposed transaction will not have a negative
effect on employment and does not raise any other public interest concems.12
Conclusion
[27] 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 other public interest issues arise from the proposed transaction . Accordingly,
we approve the proposed transaction unconditionally.
6 March 2017
MrNo Date
Ms Yasmin Carrim and Ms Andiswa Ndoni concurring
Tribunal Researcher:
For the merging parties:
For the Commission
11 Page 7 and 8 ofTranscript.
12 Page 4 of the Transcript.
Ndumiso Ndlovu
Kevin Minofu for ENSafrica
Boitumelo Makgabo and Xolela Nokele
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