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[2018] ZACT 51
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Dis-Chem Pharmarcies Ltd v Quenets Pharmaceutical Wholesalers (Pty) Ltd, Brandwacht Marketing (Pty) Ltd (LM115Jul18) [2018] ZACT 51 (15 November 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM115Jul18
In
the matter between
Dis-Chem
Pharmacies
Ltd
Primary
Acquiring Firm
And
Quenets
Pharmaceutical Wholesalers (Pty)
Ltd,
Primary Target
Firms
Brandwacht
Marketing (Pty) Ltd
Panel
: Enver Daniels (Presiding Member)
:
lmraan Valodia (Tribunal Member)
Heard
on
: 31 October 2018
Order
Issued on : 31 October 2018
Reasons
Issued on : 15 November 2018
REASONS
FOR DECISION
Approval
[1]
On
31 October 2018, the Competition Tribunal ("Tribunal")
unconditionally approved the proposed transaction involving
Dis-Chem
Pharmacies Ltd ("Dis-Chem") and Quenets Pharmaceutical
Wholesalers (Pty) Ltd ("Quenets"), Brandwacht
Marketing
(Ply) Ltd ("Brandwacht"), hereinafter collectively referred
to as the merging parties.
[2]
Prior
to the commencement of the hearing, Ms Andiswa Ndoni (Ms Ndoni) was
scheduled to sit on the panel alongside myself and Prof.
lmraan
Valodia. Unfortunately, Ms Ndoni received news that a family member
passed away and thus was not in a position to adjudicate
over the
proposed transaction. In terms of section 31(3)(a) of the Competition
Act 89 of 1998 (the "Act") I, Enver Daniels
as the Deputy
Chairperson of this Tribunal, in the absence of the Chairperson as he
was traveling abroad, assumed the position
of Chairperson and excused
Ms Ndoni. I decided to proceed with the hearing with only two
Tribunal Members sitting on the panel.
No objections were raised by
the Commission or the merging parties.
[3]
The
reasons for approval of the proposed transaction follow.
Parties
to the transaction
Primary
Acquiring Firm
[4]
Dis-Chem
is ultimately controlled by the Saltzman Family Trust. Dis-Chem
controls a total of 40 firms. Dis-Chem and its subsidiaries
are
hereinafter collectively referred to as the 'Dis-Chem Group'.
[5]
The
Dis-Chem Group is a corporate pharmacy group operating through two
divisions, retail and wholesale. In terms of the retail activities,
the Dis-Chem Group operates 129 retail pharmacies which offer a range
of scheduled and unscheduled pharmaceutical products; as
well as
'front-shop' items.
[1]
[6]
The
Dis-Chem Group's wholesale activities include logistics, warehousing,
fine distribution, supply chain management and in store
category
management. The Dis Chem Group supply their own retail
pharmacies and independent pharmacies. Their warehousing facilities
are located in Midrand and Cape Town.
Primary
Target Firms
[7]
The
primary target firms are Quenets and Brandwacht.
[8]
Quenets
is a pharmaceutical wholesaler located in the Western Cape. Quenets
wholesale activities include logistics, warehousing,
fine
distribution, supply chain management, in store category management,
marketing activities and bulk distribution. Quenets distributes
pharmaceutical products and front-shop items.
[9]
Brandwacht
is a market company and conducts all of marketing activities related
to the wholesale of the products by Quenets.
Proposed
transaction
[10] In
terms of the
Share Purchase Agreement,
Dis-Chem will acquire
Quenets and Brandwacht. Post-merger, Dis-Chem will own and control
the target firms.
Impact
on competition
[11]
The Competition Commission
("Commission") considered the activities of the merging
parties and identified a horizontal
overlap in the following markets:
(i) the national market for the wholesale distribution of
pharmaceutical products and (ii) the
Western Cape market for the
wholesale distribution of pharmaceutical products.
[12]
In the national market for the
wholesale distribution of pharmaceutical products, the Commission
found that the merging parties
will have a combined post-merger
market share of less than 20%, with a
de
minimis
share accretion.
[13] In
the Western Cape market for the wholesale distribution of
pharmaceutical products, the Commission
found that the merging
parties will have a combined post merger market share of less
than 15%, with an accretion of less than
5%.
[14]
The
Commission was of the view that the post-merger market shares are
relatively low and that the merged entity will continue to
face
competition from market participants such as Alpha Pharm,
Pharmaceutical Distributors and manufacturers who supply directly
to
the retailers.
[15]
The
Commission also identified a vertical relationship between the
merging parties as Quenets supplied pharmaceutical products to
17
Dis-Chem retail pharmacies on an
ad
hoc
basis in 2018. This prompted an
investigation into the effect of the proposed transaction on the
downstream market for the retail
of scheduled and unscheduled
pharmaceutical products in the Western Cape. The Commission found
that Dis-Chem has a market share
of less than 15%.
[16]
Given
that Dis-Chem has a low market share, the proposed transaction does
not change the structure of the retail market, and the
relationship
between the merging parties was very brief; the Commission was of the
view that the proposed transaction is unlikely
to raise foreclosure
concerns.
[17]
In
light of the above, the Commission concluded that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in any relevant market. We according agree with the
Commission's findings.
Public
interest
[18]
A competitor in the market for the
wholesale distribution of pharmaceutical products raised concerns
about the proposed transaction.
The competitor was of the view that
the proposed transaction would strengthen Dis-Chem's position as a
monopoly and eliminate the
independent pharmacy sector.
[19]
The Commission investigated the matter
and found that the concerns were unsubstantiated. First, Dis-Chem's
market shares in both
the upstream and downstream markets are
relatively low. Secondly, there is nothing to suggest that the
proposed transaction will
result in Dis-Chem acquiring market power.
Moreover, the retailers and wholesalers will have alternatives
post-merger.
[20]
The merging parties confirmed that the
proposed transaction will not result in any retrenchments or job
losses. The proposed transaction
does not raise any other public
interest concerns.
Conclusion
[21]
In light of the above, we conclude that
the proposed transaction is unlikely to substantially prevent or
lessen competition in any
relevant market. ln addition, no public
interest concerns arise from the proposed transaction. Accordingly,
we approve the proposed
transaction unconditionally.
Mr
Enver Daniels
Prof.
lmraan Valodia concurring.
15 November 2018
Date
Tribunal
Researcher
: Hlumelo Vazi
For
the merging parties : Adv Michelle Le
Roux instructed by Saltzman Attorneys
For
the Commission
N Msiza and G Mutizwa
[1]
Front shop items include personal care and beauty products;
healthcare and nutrition products; baby care items; food products;
shoes and electronics.