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[2020] ZACT 74
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Spar Group Ltd v Monteagle Africa Ltd (LM139Dec19) [2020] ZACT 74 (31 March 2020)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM139Dec19
In
the matter between
SPAR
GROUP LTD Primary
Acquiring Firm
And
MONTEAGLE
AFRICA LTD Primary
Target Firm
Panel:
Mr
E Daniels (Presiding Member), Ms Y Carrim (Tribunal Member), Mr A
Wessels (Tribunal Member)
Heard
on: 4
March 2020
Order
Issued on: 4
March 2020
Reasons
Issued on: 31 March 2020
REASONS
FOR DECISION
APPROVAL
[1]
On 4 March 2020, the Competition Tribunal ("Tribunal")
unconditionally approved a large
merger between The SPAR Group Ltd
and Monteagle Africa Ltd.
[2]
The reasons for the approval of the proposed transaction follow.
PARTIES
TO THE PROPOSED TRANSACTION
Primary
acquiring firm
[3]
The primary acquiring firm is the SPAR Group Ltd ("SPAR Group"),
a public company incorporated
in South Africa and listed on the
Johannesburg Stock Exchange. The SPAR Group is not controlled by any
single shareholder.
[4]
The SPAR Group controls several entities including SPAR South Africa
(Pty) Ltd, SPAR Retail Stores
(Pty) Ltd and SPAR Namibia (Pty) Ltd.
[5]
The SPAR Group conducts wholesaling and retailing operations
throughout South Africa. The SPAR
Group acquires goods,
[1]
then sells and distributes these goods to the members of the SPAR
Guild of Southern Africa NPC ("SPAR Guild")
[2]
utilising seven distribution centres across South Africa.
[6]
For the purposes of this transaction, the goods that the SPAR Group
acquires and sells to the
SPAR Guild will be classified as
non-private label products (e.g. Coca-Cola, Nestle, Clover) and
private label products (offerings
branded as SPAR, Savemor etc.).
Primary
target firm
[7]
The primary target firm is Monteagle Africa Ltd ("Monteagle"),
a public company incorporated
in RSA. It is jointly controlled by
Bruce Kilby Hughes and Monteagle Consumer Group Ltd.
[8]
Monteagle sources and distributes general merchandise items for SPAR
Group's private label. It
targets small suppliers that would
otherwise be unable to directly supply SPAR Group as SPAR Group
requires that its suppliers
have the capacity to supply all of its
national distribution centres. Monteagle assists these small
suppliers with the necessary
logistical support (transportation,
warehousing & packaging of the products).
PROPOSED
TRANSACTION AND RATIONALE
[9]
The SPAR Group intends to acquire 50% of the issued share capital of
Monteagle from Monteagle
Consumer Group Ltd. Post-merger, SPAR Group
will exercise joint control over Monteagle.
[10]
The Competition Commission ("Commission") found that the
rationale for the proposed transaction
is that Monteagle Consumer
Group Ltd wants to realise its investment in Monteagle
. SPAR Group wants to maintain and deal directly with the small
private label suppliers managed by Monteagle. This will ensure
consistency and quality of the private label product supply, as well
as a larger supplier base. SPAR Group will not consolidate
its
private label procurement under Monteagle as Monteagle dealt with
very small suppliers.
RELEVANT
MARKET AND IMPACT ON COMPETITION
[11]
The Commission considered the activities of the merging parties and
found that the proposed transaction would
not result in horizontal
overlaps because no firm within the SPAR Group provides services or
has an interest in businesses considered
substitutable or to be
competing with Monteagle. The firms operate at different levels of
the general merchandise value chain -
SPAR Group, as a wholesaler and
retailer, and Monteagle as a provider of logistics and distribution
services to small suppliers.
The Commission concluded that the
relevant market is the market for the provision of logistical support
services to the SPAR Group.
[12]
The Commission found that the proposed transaction is unlikely to
result in foreclosure concerns as SPAR
Group has been Monteagle's
sole customer in South Africa for the past eight years, and
Monteagle's services does not form part
of any contestable relevant
market. The Commission also found that SPAR Group allows SPAR
franchisees to procure general merchandise
externally.
[13]
The Commission found that the foreclosure of SPAR Group's other
private label suppliers was unlikely, as
these suppliers provided
over 65% of the total value of SPAR Group's private label. SPAR Group
procures its private label products
directly from these other
suppliers. The Commission, therefore, found that the SPAR Group
relied on these suppliers and would have
no incentive to stop
procuring private label products from them. Additionally, the other
private label suppliers contacted by the
Commission raised no
concerns with the proposed transaction.
[14]
he Commission found that the foreclosure of SPAR Group's suppliers of
non private label products was
also unlikely, as non-private
label products constituted more than 70% of SPAR Group's consumer
product sales. The Commission found
that SPAR Group would have no
incentive to stop procuring non-private label products from these
manufacturers.
[15]
Due to the above, the Commission concluded that the proposed
transaction is unlikely to substantially lessen
or prevent
competition in any market. We found no reason to disagree.
PUBLIC
INTEREST
[16]
The merging parties stated unequivocally that the merger will not
result in any job losses or retrenchments.
No concerns were received
from SACCAWU (representing SPAR Group's employees). Monteagle's
employee representative raised no employment
concerns.
[17]
The Commission found that job duplication was unlikely due to there
being no horizontal overlaps between
the merging parties. During the
hearing, the Tribunal queried whether the merged entity may encounter
duplications in its wholesaling
and IT divisions that could possibly
lead to retrenchments. The merging parties confirmed that no job
losses would occur as a result
of the proposed transaction.
[3]
The Tribunal accepted the assurance given.
[18]
In view of the above, the Commission concluded that the merger is
unlikely to raise any employment concerns.
In addition, the proposed
transaction raises. no other public interest concerns.
CONCLUSION
[19]
In light of the above, the Tribunal concludes that the proposed
transaction is unlikely to substantially
prevent or lessen
competition in any relevant market. In addition, we believe that all
public interest concerns were addressed
satisfactorily.
[20]
Accordingly, the Tribunal approved the transaction without
conditions.
Date:
31 March 2020
Ms
Y Carrim and Mr A Wessels concurring
Tribunal
Case Manager: P Kumbirai
For
the Merging Parties: H Stephenson of Garlicke &
Bousfield Inc
For
the Commission: Z Hadebe
and W Gumbie
[1]
Such as dry and perishable goods, liquor, general merchandise and
personal care products.
[2]
The SPAR Guild is a voluntary trading group whose retail members
include SuperSPAR, KwikSPAR, Tops at SPAR, Pharmacy at SPAR
and
Build It.
[3]
Page 18 of the Transcript.