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competitiontribunal
SOUTH AFRICA
COMPETITION TRIBUNAL OF SOUTH AFRICA
In the matter between
Unitrans Automotive (Pty) Ltd
And
Whitehouse (Pty) Ltd in respect of its business CMH
Toyota Melrose
Panel
Heard on
Order Issued on
Reasons Issued on
Approval
: E Daniels (Presiding Member)
: F Tregenna (Tribunal Member)
: H Cheadle (Tribunal Member)
: 8 April 2020
: 8 April 2020
: 9 April 2020
REASONS FOR DECISION
Case No: LM150Feb20
Primary Acquiring Firm
Primary Target Firm
[1] On 8 April 2020, the Tribunal unconditionally approved the proposed
transaction in terms of which Unitrans Automotive (Pty) Ltd (Unitrans) is
acquiring control over the car dealership owned by Whitehouse (Pty) Ltd
(Whitehouse), CMH Toyota Melrose.
[2] The reasons for the approval of the proposed transaction follow.
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Parties to the transaction
[3] The primary acquiring firm, Unitrans is wholly owned by Unitrans Motor
Holdings (Pty) Ltd (Unitrans Motor Holdings), which is in turn controlled by
CFAO South Africa Group (CFAO South Africa) with a majority shareholding.
The remaining non-controlling interest is held by Kapela Investments, a South
African black-owned investment group. CFAO South Africa is controlled by
CFAO SAS, which is a wholly owned subsidiary of Toyota Tsusho Corporation
(TTC Group). TTC Group is listed on the Tokyo and Nagoya stock exchanges,
and is therefore not controlled by any single shareholder. However, Toyota
Motor Corporation has a 35.4% interest in TTC, which is of relevance for
competition assessment in this transaction.
[4] Unitrans, its controllers and the firms they control will be collectively referred to
as the Acquiring group. In SA, the Acquiring group operates through CFAO
Holdings SA, Subaru SA and Unitrans and is involved in, inter alia, importing
and exporting of vehicles and assembling wheels and tyres for Toyota SA. Of
relevance for competition assessment in this merger is the Acquiring group's
activities in the motor dealership industry through Subaru SA and Unitrans.
Subaru SA
[5] Subaru SA has a distribution arrangement with Subaru Corporation in terms of
which Subaru SA is required to appoint Subaru dealers and maintain an
efficient sales network within SA. Subaru SA has itself established one Subaru
dealership in Edenvale, which sells both new and pre-owned vehicles. It has
appointed third parties to run the other 13 Subaru dealerships in SA, one of
which is operated by Unitrans.
Unitrans
[6] Unitrans operates one of the biggest automotive dealer networks in South
Africa (SA), with approximately 100 franchised dealerships across the country.
Its dealerships include vehicle brands such as Toyota, BMW and Ford among
others. The main product and service offerings of Unitrans' dealerships include
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the sale of new and pre-owned vehicles, parts and accessories and after
market services. In addition to the above services, Unitrans' dealerships also
assist customers with acquiring consumer credit, insurance products, fleet
management services and car rental. It is important to note that the Acquiring
group is active in the upstream and downstream value chain of Toyota
products.
[7] The target business is CMH Toyota Melrose, which is wholly owned and
controlled by Whitehouse. Whitehouse is wholly owned by CMH Holdings (Pty)
Ltd (CMH Holdings), which is in turn ultimately controlled by Combined Motor
Holdings Ltd and indirectly controlled by Thebe Investment, a black-owned
investment firm.
[8] CMH Toyota Melrose sells Toyota motor vehicles. These encompass new
passenger and light commercial vehicles (LCVs), and pre-owned motor
vehicles. Further, CMH Toyota Melrose provides Toyota branded parts and
accessories, tyres, services and repairs of Toyota branded vehicles. CMH
Toyota Melrose also acts as an intermediary in the provision of finance and
insurance services.
Proposed transaction
[9] Unitrans intends to acquire the CMH Toyota Melrose dealership from
Whitehouse as a going concern. Post-merger, CMH Toyota Melmse will be
wholly owned and controlled by Unitrans.
Impact on competition
[10] The Competition Commission (Commission) identified a horizontal overlap
between the activities of the merging parties. The horizontal overlap is in
relation to the retail sale of new and used passenger vehicles; new and used
LCVs; and aftermarket parts and scheduled services in relation to Toyota
vehicles. Regarding the horizontal overlaps presented by the proposed
transaction, the Commission defined the following relevant markets: (i) The
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market for the retail sale of new passenger vehicles within 80km of CMH Toyota
Melrose in Gauteng (GP); (ii) The market for the retail sale of LCVs within 80km
of CMH Toyota Melrose in GP; (iii) The market for the retail sale of used and
pre-owned passenger vehicles and LCVs in GP; and (iv) The market for the
retail sale of Original Equipment Manufacturer's (OEM) spare parts and the
provision of scheduled servicing for Toyota Vehicles in GP and within 35km of
CMH Toyota Melrose.
Market for the retail sale of new passenger vehicles within 80km of the target
dealership in GP (also includes inter-brand competition1)
[11] The Commission found that the merged entity will likely hold [<7%] of the
market share in this market in GP, with an accretion of [<1 %]. The Commission
also found that the merged entity will face competition from various industry
players such as McCarthy, Imperial and Super Group. This market includes
other alternative dealerships that sell competing brands, inter a/ia, BMW, VW
and Toyota. Due to the insignificant market share accretion and the post
merger constraints from alternative dealerships, the Commission concluded
that the proposed transaction is unlikely to substantially lessen or prevent inter
brand competition, and competition as a whole in this market.
Market for the retail sale of new LC Vs within 80km of the target dealership in GP
[12] In this market the Commission found that the merged entity will enjoy a market
share of approximately [<14%], with an accretion of [<1 %]. Given the
insignificant market share accretion, the Commission concluded that the
proposed transaction will unlikely result in a substantial lessening or prevention
of competition in the market for the sale of new LCVs in the relevant market.
Markets for the retail sale of pre-owned passenger vehicles and LCVs in GP
[13] The Commission found that these markets are highly fragmented and subject
to high levels of competitions effected by approximately 792 dealerships that
to high levels of competitions effected by approximately 792 dealerships that
1 This includes competition in the sale of different brand of vehicles i.e. Toyota, BMW, Ford and Subaru among
others.
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sell pre-owned cars. Further, the geographic market can be broader than 80km
because pre-owned cars can be sold online, on auctions and through private
dealers. This bolsters the finding by the Commission of high competition levels
in this market.
Market for the retail sale of OEM spare part.s and the provision of scheduling services
for Toyota vehicles in GP within a 35km of the target dealership
[14] In assessing the market for the sale of OEM parts and scheduled services for
Toyota vehicles within 35km from the target dealership, the Commission used
the sale of new passenger vehicles as a proxy for market shares. To that effect,
the Commission found that the merged entity will likely hold a market share of
approximately [<15%] in the market for the sale of spare OEM parts and
scheduled services for Toyota vehicles, with an accretion of [<2%]. The
Commission further found that the merged entity will be constrained by, inter
alia, McCarthy, Imperial and Halfway.
[15] The Commission also considered an 80km radius in which it found that the
merged entity will hold a market share of approximately [<13%] market share
with an accretion of [<2%]. Further, the Commission found that the merged
entity will continue to face competition from other Toyota independent
dealerships such as McCarthy, Imperial and Super Group. In light of the above,
the Commission found that the proposed transaction will not result in a
substantial lessening or prevention of competition in the market for the sale of
OEM spare parts and the provision of scheduled services for Toyota vehicles.
The Commission also found that the low market shares in Toyota sales, and
the availability of alternatives implies that there is an unlikely negative effect on
intra-brand competition (between Toyota products).
Vert.ical assessment
[16] The Commission found a potential vertical link through Toyota Motor Corp's
35.4% shareholding in TTC (the Acquiring group). This is because the Acquiring
35.4% shareholding in TTC (the Acquiring group). This is because the Acquiring
group is notionally connected (through Toyota Motor Corp) to the upstream
markets of the manufacture and supply of vehicles and components, whereas
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the target firm through CMH Toyota Melrose is active in the downstream
markets of the retail of Toyota brands. The Commission considered whether
post-merger the Acquiring group may have the ability to influence the
sale/allocation of new Toyota passenger vehicles to CMH Toyota Melrose due
Toyota Motor Carp's interest in TTC. This would raise foreclosure concerns.
[17] The Commission found that although there is an ability to foreclose, there is no
incentive to effect foreclosure strategies due to the fact that the Acquiring group
would risk profit loss because third party dealerships still account for a
significant stake of its vehicle sales. Further, the Commission found that Toyota
dealerships enjoy countervailing power and that the Acquiring group does not
enjoy market power in the downstream to enable it to foreclose its upstream
rivals.
Creeping mergers
[18) The Commission also considered whether historical acquisitions as well as the
current acquisitions by the Acquiring group (through Unitrans) are likely to raise
concerns in the relevant markets. The Commission found that even though
there have been numerous transactions by the Acquiring group, the
transactions result in minimal market share accretions by th~ Acquiring group
in the relevant markets. The Commission concluded that the historical
transactions by the Acquiring group will not raise concerns. Lastly, the
Commission submitted that it will continue to closely monitor acquisitions by the
Acquiring group, especially those involving Toyota branded products.
Public interest
[19) The proposed transaction will not result in job losses because the employees
of CMH Toyota Melrose will be transferred in terms of section 197 of the Labour
Relations Act 66 of 1995. Further, the merging parties submitted that the
employment conditions of the employees will not be negatively impacted by the
proposed transaction.
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[20] The merging parties further submitted that the proposed transaction will have
positive effects on Broad-Based Black Economic Empowerment (B-BBEE).
This is because, through its shareholding in Unitrans Motor Holdings, Kapela
Holdings will acquire an indirect interest in CMH Toyota Melrose as a result of
this transaction. Essentially, Kapela Holdings will be in a position akin to Thebe
Investment's pre-merger position.2 This transaction will therefore have a
positive effect on the levels of ownership by firms controlled by historically
disadvantaged individuals in the relevant market markets.3 The Commission
further found that CMH Toyota Melrose utilises SMMEs service providers in the
provision of related services. The merging parties submitted that ongoing
business with these SMMEs will not be negatively impacted by the proposed
transaction.
[21] In view of the above, the Commission concluded that the proposed transaction
does not raise any competition or public interest concerns. We find no reason
to disagree with the Commission.
Conclusion
[22] In view of the above, we concluded 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
approved the proposed transaction unconditionally.
9 April 2020
Mr Enver Daniels Date
Prof. Fiona Tregenna and Prof. Halton Cheadle concurring.
Tribunal Case Manager : Kgothatso Kgobe
2 Merger Record, page 237.
3 Merger Record, par 8.2 page 57.
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For the Merging Parties
For the Commission
: L Cleland and M Jali of Shepstone & Wylie
: H Mandia and M Aphane
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