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COMPETITION TRIBUNAL OF SOUTH AFRICA
In the matter between
MIH ECOMMERCE HOLDINGS (PTY) LTD
And
TAKEALOT ONLINE (RF) (PTY) LTD
Panel : Mr N Manoim (Presiding Member)
: Ms M Mazwai (Tribunal Member)
: Mr AW Wessels (Tribunal Member)
Heard on : 02 August 2017
Order Issued on : 02 August 2017
Reasons Issued on : 25 August 2017
REASONS FOR DECISION
Approval
Case No: LM038May17
Acquiring Firm
Target Firms
[1] On 02 August 2017, the Competition Tribunal unconditionally approved the
large merger between MIH eCommerce Holdings (Pty) Ltd {"MIHE"} and
Takealot Online (RF} (Pty) Ltd {"Takealot").
[2] The reasons for the approval follow.
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Parties to the transaction and their activities
Primary Acquiring Firm
[3] The primary acquiring firm is MIHE, a subsidiary of Naspers Limited
("Naspers").
[4] Naspers is a holding company which operates through _~ _number of
subsidiaries. Two of these subsidiaries, namely MIH Holdings (Pty) Ltd {"MIH
Holdings") and Media24 Holdings ("Media24 Holdings"), are relevant to the
transaction at hand.
[5] MIH Holdings wholly controls the primary acquiring firm, MIHE.
[6] At present MIHE owns a 47.08% stake in the target firm Takealot. In terms of
this transaction it will increase its stake in Takealot to 58.26 %.1
[7] Media24 Holdings controls Media24 (Pty) Ltd ("Media24"). Media24 has two
divisions relevant to the transaction, "On the Dot" and "Spree".
[8] Spree is an online retailer of footwear, apparel and accessories to consumers
through its website www.spree.co.za. Spree sells local and international
footwear, apparel and accessories for men, women, and children. Spree does
not sell any other consumer goods other than footwear, apparel and
accessories.
[9] On the Dot is a multichannel media logistics company that offers print
distribution and, relevant to the current transaction, ecommerce services.
These ecommerce services include warehousing, pick and pack, courier,
clearing and forwarding, customer case and returns co-ordination services. In
addition, On the Dot provides certain technology bases systems to its clients,
1 Joint Compet itiveness Report submitted by the Merging Parties, page 47 of the Merger Record.
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including warehouse management systems, courier management systems and
last mile delivery SQlutions.
Primary Target Finn
[1 O] Takealot's primary shareholders pre-transaction are Tiger Global Six T2
Holding ("Tiger") and MIHE, each controlling 47.08% of the company
respectively. The remaining 5.84% of the shares in Takealot are held by
minority shareholders.
[11] Takealot is an online retailer of a wide variety of consumer goods through its
website www.takealot.com. Takealot offers an extensive range of consumer
products.2
[12] It also controls Superbalist is an online retailer of footwear, apparel and
accessories, as well as homeware, decor and novelty products through its
website www .suoerblist.com.
[13] In addition, Takealot, through its subsidiary, Mr Delivery Pty Ltd ("MrD"), is
active in the provision of (i) rapid delivery and courier services (known as MrD
courier) and (ii) a food delivery business which has evolved to include a mobile
online market place allowing restaurants to list their offerings and customers to
purchase online and have it collected and delivered (known as MrD Food).
Proposed transaction and rationale
[14] In terms of the proposed transaction, MIHE will subscribe for a number of A
class ordinary shares in Takealot. The Merging parties submit that these new
A-class ordinary shares, when combined with the shares already controlled by
MIHE will result in MIHE beneficially owning more than half of issued share
2 The products are categorised as follows: liquor, computers and tables; cellphones & GPS; TV, audio
and video; cameras; office & stationary; books, including e-books; gaming; movies and TV; music;
home& kitchen, DIY & auto; garden, pool &patio; toys; fashion & accessories (i.e. footwear, apparel and
accessories); sport camping & outdoors; baby and toddler; health & beauty; pets; and luggage & travel.
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capital in Takealot (58.26%}, but will not automatically afford MIHE additional
voting rights. MIHE will however have the discretion to exercise control over
Takealot in the form of (i} electing to convert its a-class shares to voting shares
in proportion to its shareholding; and/or (ii} exercising a right to veto the
business plan of Takealot.
[15] In terms of rationale, Naspers submits that it perceives that there is potential
for further growth within the ecommerce market in South Africa and that
Takealot, as a leader in the sector, possesses an exceptional management
team capable of great success. It submits that Takealot does however have a
current (and possibly future} need for additional funding to enable its business
to grow and reach a level of profitability. Naspers wishes to enter into the
proposed transaction to provide funding to Takealot to place it in a position
where it no longer needs to concern itself with raising funds in the future.
[16] Takealot submits that it requires funding and it is efficacious to obtain funding
from an existing shareholder, which obviates the need to pay th~ cost of finance
that would be charged by third party lenders, or to introduce new shareholders
to Takealot.
Relevant market and impact on competition
Horizontal assessment
[17) The proposed transaction presents two horizontal overlaps. The first is in
respect of the retail of consumer goods as the Naspers group's subsidiary,
Spree, operates in this market as does Takealot (including Superbalist}.
[18] The Commission considered various approaches to defining the market. The
narrowest market definition was that of the online national market for the retail
of footwear and clothing. If the market was so defined then the merging parties
would have a market share of 88.15% with an accretion of 43.15%.
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[19] However this market definition is unlikely to be correct. First, as the merging
parties pointed out, online retailers are still constrained by bricks and mortar
retailers. If the market consists of the latter as well, then the merged entity would
not account for more than 1 %. Second, even the on line footwear and clothing
market shares are vastly overstated, as the Commission was unable to obtain
sales data for other online rivals. Thus the Commission's market shares for
instance did not include a well-known on line retailer called Zando. It is therefore
more likely that the 1 % figure reflects an accurate market assessment than
does the 88.15% figure.
[20] Third, it needs to be borne in mind that Naspers through MIHE already holds a
substantial stake in Takealot pre-merger. The increment of approximately 7%
is unlikely to alter pre-merger incentives.
[21] In respect of the second market for courier services where Naspers' On the Dot
provides courier services whilst Takealot does this in-house whilst provided
some to third parties, the market shares were - too low - below 1 % - to merit
concern.
Vertical assessment
[22] The Commission assessed two vertical relationships (i) Naspers Group
supplies Takealot with books and ebooks and (ii) Naspers provides courier
services to online retailers that compete with Takealot.
[23] In respect of books and ebooks, the Commission submitted that Takealot
accounted for less than 3% of the total revenue generated by the Naspers
Group for the sale of books and ebooks, with the remaining 90% of the revenue
generated by other customers. The Commission concluded that it is unlikely
that the merged entity would be incentivized to adopt any input foreclosure
strategy against its other customers.
[24] In terms of the provision of courier services to online retailers that compete
with Takealot, the Commission submitted that On the Dot as a relatively small
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player within the courier services market does not have the market power for
an input foreclosure strategy to be effective. In addition, the Commission found
that online retailers' source courier services from multiple courier services at a
time and do not rely on any one company. The proposed transaction thus does
not raise foreclosure concerns relating to courier services.
Public interest
[25] The merging parties submitted, which was confirmed by the Commission that
the proposed transaction will not have a negative effect on employment
because the target firms will continue to operate as is post-merger.
[26] The proposed transaction further raised no other public interest concerns.
Conclusion
[27] In light of the above, we conclude that the proposed transaction is unlikely to
substantially prevent or Jessen competition in any relevant market. In addition ,
no public interest issues arise from the proposed transaction. Accordingly, we
approve the proposed transaction unconditionally.
Ms ondo Mazwai and Mr AW Wessels concurring
Tribunal Researcher: Alistair Dey-van Heerden
Nick Altini of Baker McKenzie
25 August 2017
Date
For the merging parties
For the Commission: Reabetswe Molotsi and Thabelo Masithulela
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