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[2018] ZACT 42
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RMB Ventures Seven (Pty) Ltd v Gemeli (Pty) Ltd (LM279Feb18) [2018] ZACT 42 (8 May 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM279Feb18
In
the matter between
RMB
Ventures Seven (Pty)
Ltd
Primary Acquiring Firm
And
Gemelli
(Pty)
Ltd
Primary Target Firms
Panel
: Norman Manoim (Presiding Member)
:
Enver Daniels (Tribunal Member)
:
Andreas Wessels (Tribunal Member)
Heard
on
: 23 April 2018
Order
Issued on
: 24 April
2018
Reasons
Issued on
: 8 May 2018
REASONS
FOR DECISION
Approval
[1] On
23 April 2018, the Competition Tribunal ("Tribunal")
unconditionally
approved the proposed transaction involving RMB
Ventures Seven (Pty) Ltd ("RMBV") and Gemelli (Pty) Ltd
("Gemelli"),
hereinafter collectively referred to as the
merging parties.
[2] The
reasons for approval of the proposed transaction follow.
Parties
to the transaction
Primary
Acquiring Firm
[3] RMBV
is a subsidiary of RMB Private Equity (Pty) Ltd and is ultimately
controlled
by FirstRand Ltd ("FirstRand"). FirstRand
directly and indirectly controls a number of entities in Africa
including RMB
Ventures Six (Pty) Ltd ("RMBV Six"), First
National Bank Private Equity (Pty) Ltd ("FNB Private Equity"),
and
RMB Corvest (Pty) Ltd ("RMB Corvest"). RMBV directly
and indirectly controls five firms in Africa. FirstRand and its
subsidiaries are hereinafter collectively referred to as the
'FirstRand Group'.
[4] The
FirstRand Group is an integrated financial services group that offers
a range
of products and services through a portfolio of business that
includes RMBV. RMBV is a private equity investment firm that invests
in unlisted companies. RMBV is managed by RMB, the investment banking
arm of FirstRand. Of relevance to the competition assessment
of the
current transaction are the activities of RMBV's sister companies.
[5] RMBV
Six holds an interest in Blue Falcon 188 Trading (Pty) Ltd trading as
the
Studio 88 Group. The Studio 88 Group offers a wide variety of
branded fashion clothing and high fashion footwear. RMB Corvest and
FNB Private Equity jointly own shares in Rexview Investments (Pty)
Ltd ("Rexview"'), a footwear manufacturer.
Primary
Target Firm
[6] Gemelli
forms part of the broader Gemelli group of companies. The Gemelli
group
of companies comprises of Sea Green (Pty) Ltd, Springstein
Trading (Pty) Ltd, Avonside Trading (Pty) Ltd and Export Unlimited
(Pty)
Ltd, hereinafter collectively referred to as the 'Gemelli
Group'. The Gemelli Group is ultimately controlled by Mr Nino Chidoni
and Mr Mike Celine. Gemelli only controls two firms.
[7] The
Gemelli Group is a vertically integrated clothing manufacturer and
retailer.
[1]
The group's operational activities include in-house design,
development and pattern making, an in-house knitting mill,
warehousing,
import/export facilities as well as partnerships with
suppliers and retail outlets.
Proposed transaction
[8] In
terms of the
Shareholders Agreement
entered into between the merging
parties, RMBV will acquire a controlling interest in Gemelli.
Post-merger, RMBV will exercise joint
control over Gemelli. RMBV
seeks to acquire an interest in all the firms making up the Gemelli
Group hence, the proposed transaction
will take place in two stages.
First, the Gemelli Group will be restructured to simplify and
rationalise the corporate structure.
To this end, Gemelli will
control the group and its constituent firms. Secondly, RMBV will
acquire a minority of the issued share
capital in Gemelli from its
current shareholders.
Impact
on competition
[9] The
merger raises two potential horizontal overlaps, given the First Rand
Group's
interest in clothing retail, through Studio 88, and in the
manufacturing of shoes, through Rexview. The Competition Commission
("Commission") nevertheless found this raised no horizontal
competition concerns as the respective overlapping firms were
sufficiently differentiated from one another.
[10] In the case
of clothing retail, it considered that Studio 88 did not compete with
the target
firm's retail clothing chains, the Clothing Junction and
Senqu. This is because Studio 88 sells branded clothing, whilst
Clothing
Junction offers non branded casual clothing. There are
also significant price differences between the two offerings, with
Studio 88 targeted at higher LSM's than Clothing Junction.
[2]
According to the merging parties the closest competitors to the
Clothing Junction are retailers which sell non-branded clothes
to the
same LSM group as it, such as Jet and Pep stores.
[11] Senqu
specialises in outdoor leisure apparel and so is also differentiated
from Studio 88
which does not.
[12] The
same goes for Rexview. The footwear manufactured and supplied by
Rexview is completely
different to those supplied by the Gemelli
Group. Rexview is predominantly focused on school shoes and sport
sandals. These shoes
are sold to consumers at higher LSM's. The
Gemelli Group supplies a wider range of shoes, but they are sold to
stores whose customer
base is predominantly targeted at lower LSM
consumers than those of Rexview. Therefore, Rexview and the Gemelli
Group are not direct
competitors because the shoes offered
differentiate in functionality and target customers.
[13] The
Commission therefore concluded that the proposed transaction is
unlikely to substantially
prevent or lessen competition in any
relevant market. We find no reason to differ with the Commission's
findings.
Public
interest
[14] When
considering the public interest issues, the Commission was of the
view that the proposed
transaction will not result in any adverse
effects on employment. In the same vein, the merging parties
emphasised that there would
be no retrenchments as a result of the
proposed transaction.
[15] Initially the
trade union, South African Clothing and Textile Workers Union
(SACTWU), through
its Durban office had expressed its concerns
regarding employment conditions at the Gemelli Group.
[3]
The Commission took the view that these concerns were not merger
specific, but rather labour law issues. Subsequently a procedural
issue arose as the merging parties had notified the merger only to
the trade union's local office and not its head office.
[16] The
Commission and the merging parties agreed to have the matter taken
off the roll to allow
SACTWU's head office to make further
submissions. When the head office of SACTWU reverted to the
Commission it did not pursue the
initial concerns raised by its
Durban office. Instead, it raised new concerns around possible job
losses in the manufacturing operations
of the Gemelli Group because
it believed, post-merger, the group would focus on retail at the
expense of manufacturing, which is
where SACTWU's members are
employed.
[17] The
merging parties provided a written response to SACTWU's concerns and
indicated that
they had no intention to reduce their manufacturing
interests post merger. They also pointed to internal strategy
documents
which were consistent with this submission. There was
further confirmation of this at the hearing from both Mr Chidoni and
Mr Celine.
Indeed, the merging parties went so far as to state that
there would be no impact on employment on workers in their Lesotho
factories.
[18] Although
no further correspondence was received from SACTWU, it would seem
that it was content
with the response. It did not request a condition
prohibiting the merged entity from undertaking any merger specific
retrenchments;
nor was it present at the merger hearing.
[19] Based
on the above, the Commission argued that the proposed transaction is
unlikely to result
in any job losses obviating the need for any
condition to be imposed. The Commission concluded that the proposed
transaction is
unlikely to raise any other employment concerns or
other public interest concerns.
Conclusion
[20] 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.
Mr
Norman Manoim
Mr
Enver Daniels and Mr Andreas Wessels concurring.
8 May 2018
Tribunal
Researcher:
Hlumelo Vazi
For
the Merging parties: M Garden and S Madlala of ENS
Africa.
For
the Commission:
Hlumani Mandia
[1]
The Gemelli Group manufactures clothing, footwear and accessories
for women, men and children which are supplied to a range of
retailers and brands.
[2]
The Living Standards Measure (LSM) Is a market segmentation tool
that assists retailers ln directing their marketing activities.
The
LSM Is based on a set of marketing differentiators which groups
people according to their living standards and expenditure
rather
than Income. There are 10 LSM groups- 10 (highest) to 1 (lowest).
[3]
SACTWU submitted that the Gemelli Group undermines employees and has
ridiculously high targets that tend to result in employees
working
overtime (Saturdays) without compensation. In addition, the
companies in the clothing industry tend to formulate cooperatives
that undermine employees.