About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Tribunal
SAFLII
>>
Databases
>>
South Africa: Competition Tribunal
>>
2018
>>
[2018] ZACT 28
|
|
The Beverage Company Bidco (Pty) Ltd v SoftBev (Pty) Ltd (LM033APR18) [2018] ZACT 28 (24 July 2018)
COMPETITION TRIBUNAL OF SOUTH
AFRICA
Case
No: LM033APR18
In
the matter between:
The
Beverage Company Bidco (Pty)
Ltd
Primary
Acquiring Firm
And
SoftBev
(Pty)
Ltd
Primary Target
Firm
Panel
: Mr. Enver Daniels
: Ms. Yasmin Carrim
: Prof. Fiona Tregenna
Heard
on
: 11 July 2018
Order
Issued on : 11 July 2018
Reasons
Issued on : 24 July 2018
REASONS
FOR DECISION
APPROVAL
[1]
On
11 July 2018 the Competition Tribunal ("Tribunal")
unconditionally approved the transaction involving The Beverage
Company Bidco (Pty) Ltd
("BevCo")
and SoftBev (Pty) Ltd
("SoftBev").
[2]
The
reasons for approving the transaction are as follows.
Parties to the Proposed
Transaction
Primary Acquiring Firm
[3]
The
primary acquiring firm is BevCo, which is ultimately controlled by
Ethos Private Equity Fund VI ("Ethos Fund VI").
Ethos Fund
VI is a private equity investment fund that is advised by Ethos
Private Equity (Pty) Ltd ("Ethos"). Ethos
is not directly
or indirectly controlled by any single shareholder.
[4]
BevCo
controls a number of firms. Of particular focus to this transaction
is Little Green Beverages (Pty) Ltd ("Little Green
Beverages").
Little Green Beverages is involved in the production, packaging and
distribution of branded and private label
non-alcoholic beverages in
Southern Africa. In addition to manufacturing its own brand,
'Refreshhh', BevCo also manufactures brands
on behalf of third
parties and house brands.
[5]
BevCo
is also involved in the packaging of non-alcoholic beverages which
includes bottling, shrink wrapping and palletising. BevCo
only
bottles the beverages it manufactures and does not provide
bottling/canning services to third parties.
Primary Target Firms
[6]
The
primary target firm is SoftBev. SoftBev is jointly controlled by MIF
Holdings (Pty) Ltd and Bowler Metcalf Limited. SoftBev
controls a
number of wholly owned subsidiaries.
[7]
SoftBev
is involved in the manufacturing, selling and distribution of non
alcoholic drinks, including carbonated non-alcoholic
or 'soft' drinks
and energy drinks, throughout South Africa and certain neighbouring
countries. SoftBev's carbonated soft drinks
brands include 'Jive' and
'Coo-ee'. SoftBev also produces, markets and distributes carbonated
soft drinks for third party brand
owners, such as PepsiCo Inc,
Seven-Up International and Capri-Sun. In addition, SoftBev produces
private label brands for Shoprite
Checkers, Pick 'n Pay and Boxer. In
respect of the energy drinks category, SoftBev manufactures and
distributes its own brands,
'Reboost' and 'Punch'.
Proposed Transaction and
Rationale
[8]
BevCo
intends on acquiring 100% of the equity and shareholder loans of
SoftBev. Upon implementation of the proposed transaction,
BevCo will
control SoftBev. SoftBev will, thereafter, be consolidated into
BevCo's wholly owned subsidiary, Little Green Beverages.
[9]
The
proposed transaction is viewed as an attractive investment
opportunity which will complement BevCo's current operations and
product range. It will further enable BevCo to better serve the South
African beverages market and customers as a whole. The transaction
also makes it possible for Bowler Metcalf, a substantial shareholder
of SoftBev, to exit the soft drinks market.
Relevant Market and Impact on
Competition
[10] BevCo
and SoftBev are both involved in the manufacture, distribution and
sale of non-alcoholic beverages
(NAB's). NABs can be broadly divided
into carbonated soft drinks ("CSDS") and non-carbonated
soft drinks ("NCSDS").
The Competition Commission
("Commission") found that a horizontal overlap exists in
CSDS. However, the Commission delineated
narrower markets for the
merging parties' NAB activities, namely (i) the national market for
the manufacture, distribution and
sale of carbonated soft drinks
(excluding energy drinks) and (ii) the national market for the
manufacture, distribution and sale
of energy drinks.
[11]
The Commission considered the estimated
market shares and share accretions of the narrow markets for the
manufacture, distribution
and sale of carbonated soft drinks
(excluding energy drinks) as well as the manufacture, distribution
and sale of energy drinks
and found that the merged entity would have
post merger market shares and share accretions of 10.2% and 5.3%
respectively
and 7.7% and 6.8% respectively. The Commission also
found that the merged entity would continue to face competition from
numerous
competitors, including Coca-cola, Chillbev, Kingsley,
Redbull and Twizza.
[12]
For completeness sake, the Commission
also assessed the broader market for the manufacture, distribution
and sale of NABs, which
includes carbonated soft drinks and energy
drinks, juice, bottled water and ice tea. The Commission found that
the merged entity
will have a market share and share accretion of
approximately 9.2% and 5.1% respectively. Post-merger, the merged
entity will continue
to face competition from other players such as
Coca-cola, Chillbev, Kingsley, and Twizza. It was further established
by the Tribunal
during the hearing that the market specifically
related to that of flavoured carbonated soft drinks as opposed to
that of "cola".
[13]
The Commission did receive a concern
from Twizza, a competitor of the merging parties in the market for
the manufacture, distribution
and sale of NAB's. The concern was
centred on the possibility that, post-merger, the merged entity will
have the incentive and
ability to engage in a predatory pricing
strategy to the detriment of competition in the market for
non-alcoholic beverages in
the Western Cape.
[14]
However, the Commission reiterated that
the merged entity will have a market share of less than 10% in the
market for the manufacture,
distribution and sale of NAB's. The
Commission is therefore of the view that the merged entity is
unlikely to command market power
and accordingly, it is unlikely that
the merged entity would have the ability and incentive to engage in
any predatory pricing
strategy as alleged. The merging parties
further reiterated that they would not be able to recover the losses
suffered from the
implementation of a predatory pricing strategy as
they would still face competition from dominant market players, such
as Coca-cola.
[15]
In light of the aforementioned, the
Commission is of the view that the proposed transaction is unlikely
to prevent or lessen competition
in any of the abovementioned
markets.
[16]
We concur with the Commission's finding
that the proposed transaction is unlikely to substantially prevent or
lessen competition
in the relevant market.
Public
Interest
[17]
The merging parties have submitted that
the proposed transaction will not result in any job losses or
negative impact on employment.
The merging entity further submitted
that the rationalisation of the plants was not a foreseeable event as
each plant is equipped
with their own specialised machinery and is
responsible for the manufacturing, distribution and sale of different
kinds of non-alcoholic
beverages. The merger will therefore not
result in any kind of restructuring which could potentially result in
any job losses.
[18]
In
spite of the aforementioned assertion, a number of concerns were
raised by the representatives of the unionised employees of
both
BevCo and SoftBev.
[19]
The employees of BevCo, the acquiring
firm, are represented by Target Orientated Trade Union of South
Africa ('TOTRUSA"), and
the non-unionised employees are
represented by employee representatives. The employee representatives
did not raise any concerns
in respect of the transaction. TOTRUSA, on
the other hand, raised a number of concerns which, according to the
Commission, fell
outside of the scope of the Competition Act and were
not merger specific. None of their concerns constituted objections to
the
merging parties' unequivocal statement that the merger would not
result in any job losses or negative impact on employment. TOTRUSA
raised no further concerns.
[20]
The employees of SoftBev are represented
by Food & Allied Workers Union ("FAWU"), Federal
Council of Retail and Allied
Workers ("FEDCRAW") and
Professional Transport & Allied Workers Union ('PTAWU").
[21]
FAWU sought confirmation that the merger
would not result in any job losses but was ultimately satisfied by
the party's commitment
that no employees will lose their positions.
[22]
FEDCRAW raised a number of concerns
relating to seasonal workers, employee working terms and conditions
and provident fund. The
merging parties responded to and satisfied
their concerns by reiterating that the transaction would occur under
section 197 of
the LRA, thereby ensuring that the employee working
conditions would remain unchanged after the merger. The arrangements
pertaining
to seasonal workers, wage negotiations and shifts would
also remain unaltered. FEDCRAW raised no further concerns.
[23]
PTAWU also indicated to the Commission
that they do not have a problem with the merger as long as employees
were continued to be
employed on the same terms and conditions
[24]
All concerns raised by the trade unions
have been resolved. The Commission is of the view that the proposed
transaction is unlikely
to have negative effects on employment given
that the merging parties have submitted that there will be no
retrenchments as a result
of the proposed transaction.
CONCLUSION
[25]
In light of the above, we conclude that
the proposed transaction is unlikely to substantially prevent or
lessen competition in any
relevant market or raise any adverse public
interest issues. Accordingly, we approve the proposed transaction
unconditionally.
Mr
Enver Daniels
Ms
Yasmin Carrim and Prof. Fiona Tregenna concurring
24 July 2018
Tribunal
Case Managers
: Ms Aneesa Ravat
For
the Merging Parties
: Shawn
van der Meulen and Alice Vertue of
Webber Wentzel.
For
the Commission
: Zintle Siyo and Wiri Gumbie.