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[2019] ZACT 62
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RO Metrics Trading (Pty) Ltd v The passenger vehicle dealership business and related assets of Auto Motorsport (Pty) Ltd trading as Leo Haese Centurion (LM008Apr19) [2019] ZACT 62 (2 October 2019)
COMPETITION TRIBUNAL OF
SOUTH AFRICA
Case
No: LM008Apr19
In the matter between:
RO
Metrics Trading (Pty)
Ltd
Primary
Acquiring Firm
and
The
passenger vehicle dealership business
and
related assets of Auto Motorsport (Pty) Ltd
trading
as Leo Haese
Centurion
Primary
Target Firm
Panel
: Mondo Mazwai (Presiding Member)
: Yasmin Carrim (Tribunal
Member)
: Enver Daniels (Tribunal
Member)
Heard
on
: 04 September 2019
Order
Issued on
: 04 September 2019
Reasons
Issued on
: 02 October 2019
Reasons for Decision
Approval
[1]
On 04 September 2019, the Competition Tribunal ("Tribunal")
approved a proposed transaction between RO Metrics Trading
(Pty) Ltd
and the passenger vehicle dealership business and related assets of
Auto Motorsport (Pty) Ltd, trading as Leo Haese Centurion.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is RO Metrics Trading (Pty) Ltd
("RO Metrics"). RO Metrics is controlled by Barloworld
Motor
Retail South Africa ("Barloworld Motor Retail"), a
division of Barloworld SA (Pty) Ltd ("Barloworld SA"),
which
itself is a wholly owned subsidiary within Barloworld Ltd
("Barloworld").
[4]
Barloworld is a public company with its primary listing on the
Johannesburg Securities Exchange Ltd and secondary listings on the
London and Namibian stock exchanges. As such, Barloworld is not
controlled by any single firm.
[5]
In addition to Barloworld Motor Retail, Barloworld SA controls
multiple firms/divisions in the automotive space in South Africa,
including Avis Rent a Car South Africa, Zeda Car Leasing (Pty) Ltd,
and used vehicles and disposal solutions. Further, Barloworld
Motor
Retail does not control any other firms besides RO Metrics.
[6]
Relevant to the proposed transaction is that RO Metrics
already owns a BMW dealership in the Pretoria (Fountains) area.
Primary
target firm
[7]
The primary target firm is the BMW/Mini passenger vehicle
dealership business and related assets of Auto Motorsport (Pty) Ltd
("Auto
Motorsport") trading as Leo Haese Centurion (the
"Target Dealership"). The Target Dealership is owned and
controlled
by Auto Motorsport, which in turn, is controlled by the
Leo Haese Family Trust.
Proposed
transaction and rationale
Primary
acquiring firm
[8]
Barloworld viewed the proposed transaction as an opportunity
for it to grow its dealer network. Further, the proposed transaction
shall allow Barloworld Automotive to offer customers a wider service
offering and a better range of products from which to choose.
Primary
target firm
[9]
Auto Motorsport provided that the proposed transaction is an
opportunity for the interest holders to recoup their investment in
the business. The transaction allows the interest holders to unlock
the value of the investment and ensure that the business operations
are kept intact and that employment levels are not affected.
[10]
RO Metrics intends to acquire the Target Dealership from Auto
Motorsport as a going concern. Upon competition of the proposed
transaction
RO Metrics will own and control the Target Dealership.
Impact on competition
[11]
The Commission found that the proposed transaction results in
a horizontal overlap between the activities of the merging parties
in
that they are both active in the retail of new passenger vehicles
(under the BMW/Mini brands), the retail of used passenger
vehicles,
the sale of aftermarket parts, and the provision of aftersales
service and maintenance work.
[12]
The Commission proceeded to assess the impact of the proposed
transaction in the following markets:
a. Sale of new
passenger vehicles within the Tshwane Metropolitan area;
b. Passenger
vehicles in mid-tier to luxury level vehicles within the Tshwane
Metropolitan area;
c.
Sale
of new passenger vehicles within an 80km radius of the Target
Dealership
[1]
;
d. Sale of new
passenger vehicles in the Gauteng Province;
e. Sale of
used passenger vehicles within the Tshwane Metropolitan area;
f. Sale of
used passenger vehicles in the Gauteng Province;
g. Sale of
used passenger vehicles within South Africa;
h. Provision
of aftersales BMW/Mini spare parts within the Tshwane area; and
maintenance of vehicles with service plans
and still under warranty;
and
i. Provision
of aftersales servicing and maintenance of vehicles for
BMW/Mini vehicles within
the Tshwane area.
[13]
We now turn to discuss the Commission's findings in each of
the relevant markets it assessed.
The market for the
sale of new passenger vehicles in Tshwane
[14]
The Commission found that post-merger, the Acquiring Group
will have a market share of [10%-15%] with an accretion of [<5%].
[15]
In light of the low accretion in market share, the Commission
was of the view that the proposed transaction was unlikely to
significantly
change the structure of the market. Further, the
Commission found that there were alternative players in the
geographic market
that will continue to constrain the merged entity
post-merger.
Passenger
vehicles in mid-tier to luxury level vehicles within the Tshwane
Metropolitan area
[16]
The Commission had no data available to assess this market as
the competitors indicated they do not measure passenger vehicles into
submarkets such as this.
[17]
The Commission found that the merged entity would continue to
face competition from other groups such as Bidvest McCarthy and
Hatfield
Motor Group.
[18]
The Commission did, however, calculate the market shares at a
brand level and found that BMW has a market share of [10%-20%] with
an accretion of [<5%]. and will continue to face competition from
other brands such as Audi, Toyota, VW, Ford, Mazda and Land
Rover.
[19]
In light of the above, the Commission was of the view that the
proposed merger was unlikely to substantially prevent or lessen
competition
in the market for the retailing of middle level to luxury
level passenger vehicles. The merged entity will continue to face
competition
from reputable groups selling reputable brands in this
segment of the market.
Sale
of new passenger vehicles within an 80km radius of the Target
Dealership
[20]
The Commission found that post-merger, the Acquiring Group
will have an estimated market share of [10%-20%] with an accretion of
[<5%].
[21]
In light of the low accretion in market share, the Commission
was of the view that the proposed transaction was unlikely to
significantly
change the structure of the market. Further, the
Commission found that there were alternative players in the
geographic market
that will continue to constrain the merged entity
post-merger.
[22]
Further, with regard to intra-brand competition the Commission
found that the merged entity will own 2 of the 4 BMW dealerships in
Tshwane. Within an 80km radius of the Target Dealership there are
approximately 18 BMW dealerships, of which the merged entity
will own
2. The broader Gauteng market for BMW's contains the same 18
dealerships within an 80km radius.
[23]
In light of the above, the Commission was of the view that the
proposed merger was unlikely to substantially prevent or lessen
competition
in this market.
Sale
of used passenger vehicles within the Tshwane Metropolitan area
[24]
The Commission found that the Acquiring Group will have a
post-market merger share of [30%-40%] with an accretion of between
[5%-10%].
Further the merged entity will continue to face competition
from other groups such as CMH, Matus, Hatfield Group, Unitrans and
Super Group.
Sale
of used passenger vehicles in the Gauteng Province
[25]
The Commission found that the Acquiring Group will have a
post-market merger share of [10%-15%] with an accretion of [<5%].
[26]
In light of the low accretion in market share, the Commission
was of the view that the proposed transaction is unlikely to
significantly
change the structure of the market.
Sale
of used passenger vehicles within South Africa
[27]
The Commission found that the Acquiring Group will have a
post-market merger share of [10%-15%] with an accretion of [<5%].
[28]
In light of the low accretion in market share, the Commission
was of the view that the proposed transaction was unlikely to
significantly
change the structure of the market.
Provision
of aftersales BMW/Mini spare parts within the Tshwane area; and
maintenance of vehicles with seNice plans and still under
warranty
[29]
The merging parties supply BMW/Mini aftermarket parts. The
Commission is also aware that customers who own vehicles that are
still
under warranty or service plans are required to use Original
Equipment Manufacturer ("OEM") branded parts for their
cars.
[30]
However, the Commission found that post-merger the merged
entity will continue to face competition from other BMW dealerships
that
supply OEM branded spare parts.
Provision
of aftersales servicing and maintenance of vehicles for BMW/Mini
vehicles within the Tshwane area
[31]
With respect to BMW/Mini cars, every dealership that sells
these brands can also do aftersales services of the cars. Therefore,
in this market the Commission found that post-merger the merged
entity will continue to face competition from other BMW dealerships.
[32]
With respect to those cars that are out of warranty or that do
not have a service plan, the Commission found that there were a
number
of other independent workshops in close proximity to the
merging parties that offer aftersales servicing.
[33]
Based on the above findings from its investigation, the
Commission concluded that the proposed transaction was unlikely to
substantially
prevent or lessen competition in any market.
Public interest
[34]
The Commission noted that the Target Dealership sources
various products and services from more than 85 suppliers, including
small
businesses and firms owned by historically disadvantaged
individuals (HDls).
[35]
Barloworld
was unable to provide an undertaking that it will maintain the HDI or
other supplier contracts held by Leo Haese Centurion
because the
proposed transaction does not include the existing supplier
contracts. However, in an effort to alleviate this concern
the
merging parties did submit that they would undertake to apply
Barloworld's existing localisation and empowerment programmes
and
where feasible it would appoint firms owned by HDls as supplies to
service the Leo Haese business.
[2]
[36]
Further the parties submitted that only two of the small
suppliers are owned by HDls, namely Mabidi Traders and Ultimate
Valets.
Mabidi submitted that the Target dealership is one of the two
clients it currently has, thus it would be negatively affected should
their services be no longer required. Mabidi employs 4 people.
However, Mabidi provides services that are not dealer specific and
can be provided to any other business. In addition, there was no
contract between Mabidi and the Target Dealership. Further,
Barloworld
will consider using Mabidi as a service provider post
merger.
[37]
The other firm is Ultimate Valets, of which the Target
Dealership provides only 2% of its revenue. Ultimate Valets provides
numerous
other dealerships with its services.
[38]
Given that Leo Haese is only one dealership, the Commission
concluded that it was unlikely that the proposed transaction would
have
a negative effect on these suppliers.
[39]
In addition, the proposed transaction does not raise any other
public interest concerns.
Conclusion
[40]
In light of the above, we also concluded that the proposed
transaction was 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.
Ms
Mondo Mazwai
02 October 2019 DATE
Ms
Yasmin Carrim and Mr Enver Daniels concurring
Case
Manager:
Kameel Pancham
For
the merging parties: Maryanne Angumuthoo of Bowmans
For
the Commission: Billy
Mabatamela and Themba Mahlangu
[1]
In the
McCarthy
and Cargen merger
the
Tribunal had previously accepted the geographic market to be an area
withing 80km of the Target Dealership. This is also in
line with the
position adopted in the
Hallmark
Motor Group (Pty) Ltd and Mekor Motors Sandton (Pty) Ltd and Mekor
Motors Umhlanga (Pty) Ltd merger.
[2]
This was confirmed before the Tribunal, see Transcript
page 10, lines 4-20.