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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM100Aug20
In the matter between:
Retailability Proprietary Limited Primary Acquiring Firm
And
Parts of the Edg ars business conducted by Edcon
Limited in South Africa, as a going concern,
consisting of certain assets and liabilities
Primary Target Firm
Panel: Ms M Mazwai (Presiding Member)
Ms Y Carrim (Tribunal Member)
Mr E Daniels (Tribunal Member)
Last submission received on: 04 September 2020
Order Issued on: 04 September 2020
Reasons Issued on:
Revised Reasons Issued on
09 October 2020
11 November 2020
REASONS FOR DECISION
Approval
[1] On 4 September 2020, the Tribunal approved with conditions, the proposed
transaction in which Retailability Proprietary Limited (“Retailability”) is to
acquire parts of the Edgars business owned by Edcon Limited in South Africa,
as a going concern.
[2] The reasons for the conditional approval of the proposed transaction follow.
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Parties to the transaction
Primary acquiring firm
[3] The primary acquiring firm, Retailability is jointly controlled by Helvetia Finance
Limited t/a C.R. Lines & Associates, and Metier Investment and
Advisory Services (Pty) Ltd
[4] C.R. Lines is u ltimately controlled by Clifford Raymond Lines (founder and
executive chairman of Retailability). C.R. Lines functions as a holding company
for Retailability and does not have any other activities. Metier is a private equity
firm with investments in a range of industries spanning healthcare, hospitality,
FMCG and telecommunications.
[5] In South Africa, Retailability is a clothing apparel retailer; owning 98 Beaver
Canoe stores that sell clothing apparel for men and boys ; 25 Style stores that
sell men and ladies ’ contemporary and formal fashion wear ; and 172 Legit
stores. Legit has a fashion store format which focuses on the retailing of
clothing, footwear and accessories aimed at young, budget constrained women
in the LSM 4-8 categories. In addition to women’s apparel, the Legit stores also
supply colour cosmetics and cellular products.
Primary target firm
[6] The primary target firm consists of 120 Edgars stores (out of a total of 181 in
South Africa) together with certain assets and identified liabilities including:
consignment stock, database information, the Edgars club benefit programme,
an e-commerce platform, and intellectual property (the “Edgars Business”).
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[7] These stores target middle -to-upper income consumers in the LSM 6 -10
categories and house private-label brands such as Free 2BU, Charter Club,
and Stone Harbour, and a wid e range of market label brands for clothing,
footwear, and cosmetics. They also include iconic Edgars Home and Edgars
Beauty stores as store -in-store formats , rounding out the department store
offering in South Africa.
[8] The Edgars Business also sells cellular products primarily on contract, in
collaboration with MTN, Vodacom and Cell -C. Cellular retail profit is derived
from both the margin on physical products as well as an ongoing rebate earned
through the activation and operation of SIM cards sourced through the Edgars
Business stores.
[9] Edgars account cardholders can also purchase i nsurance products, including
both short term and long-term insurance through the Edgars Business. Edcon
does not hold an insurance licence but instead facilitates the retailing of the
various insurance products on behalf of Hollard, which is the primary provider
and underwriter of the insurance products sold.
Proposed transaction and rationale
Transaction
[10] The Edcon Group’s financial difficulties have been public knowledge for a while.
In an effort to improve liquidity and reduce debt, the group has engaged in a
number of transactions since 2016, the most recent one being the sale of its
debtor’s book.1
[11] According to Edcon, the Covid-19 lockdown which commenced in March 2020,
affected its fragile financial position to such an extent that the directors resolved
1 See, as examples, IDC And Celrose case number: LM271Mar19 ; New Holdco and Edgars
Consolidated Stores Ltd case no: LM270Mar19; and RSC Cards (Pty) Ltd And Edcon Ltd in respect
only of certain cardholders book debt of Edcon Ltd case no LM129Nov19.
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to place Edcon Limited in business rescue in an effort to save jobs and any
viable divisions of the business.
[12] The voluntary business rescue process, 2 was initiated on 28 April 2020 . The
joint business rescue practitioners (“BRPs”) appointed by the Edcon Board are
Piers Marsden and Lance Schapiro. The business rescue plan entails an
accelerated sales process and the wind down process. The accelerated sales
process seeks to achieve the sale of Edcon’s divisions as going concerns.
Under the plan, they seek to realise those assets which remain unsold after the
completion of the accelerated sales process by way of a trade out process,
private treaty, auction or any other manner in which they, in their sole discretion,
deem appropriate given the circumstances prevailing at the time (i.e. the wind
down process). The wind down process would culminate in all the positions at
Edcon being declared redundant and the retrenchment of all remaining
employees.
[13] This transaction emanates from the accelerated sales process. In terms of the
proposed transaction, Retailability will acquire the Edgars Business as well as
several associated businesses located in neighbouring jurisdictions: Botswana,
Eswatini, Lesotho and Namibia, as going concerns.
Rationale
[14] Retailability considers the Edgars Business as a strategic and complementary
fit in its business model.
[15] Edcon is pursuing the proposed transaction in furtherance of its business
rescue process formulated and implemented by the BRPs.
2 In terms of section 129(1) of the Companies Act, No. 71 of 2008 (as amended).
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Participating Parties
SACCAWU
[16] The employees of Retailability are represented by the South African
Commercial, Catering and Allied Workers Union (“SACCAWU”). The
employees of the Edgars Business are also represented by SACCAWU. Non-
unionised employees were represented by Ms Josh Suknandan, Retailability’s
Head of Human Resources.
[17] During its investigation, the Commission received concerns from SACCAWU
on be half of the employees of the Edgars Business . SACCAWU raised
concerns about job retention, alleged that there was inadequate consultation in
the process of business rescue, and alleged that Retailability intended to
unilaterally change terms of employment upon implementation of the merger .
SACCAWU proposed a number of conditions.
The DTIC
[18] The D epartment of Trade, Industry and Competition ( “DTIC”) supported the
expedited consideration of the proposed transaction on the basis that Edcon’s
financial difficulties were well known and the transaction presented an
opportunity for the Edgars Business and for jobs to be saved.
Impact on competition
[19] The Competition Commission (“Commission”) found that there were horizontal
overlaps in the sale of apparel, cosmetics and cell phones. The Commission
thereafter considered the proposed transaction’s effect on the following
markets:
a. the national retail market of apparel as a whole; and
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b. segmented narrow markets for
i. clothing,
ii. footwear, and
iii. apparel accessories;
c. the national retail market of cell phone products; and
d. the national retail market of cosmetics.
Markets for retail of apparel, clothing, footwear and apparel accessories
[20] “[D]efining the relevant product market for antitrust purposes is not an easy
exercise, particularly in markets where there is a high degree of product
differentiation and the existence of non -price competition, such as in retail
markets”.3 It is for this reason that the Commission examined the broad market
for the retail of apparel as a whole, then the three narrow markets for clothing,
footwear and apparel accessories respectively on a national level. It then did
the same analysis in each market for the middle to upper consumer segment
(LSM 4-10).
[21] The Commission first assessed the broad national market for the retail of
apparel and found that the merged entity will have an estimated market share
of 8% after an accretion of 6.3% (representing the Edgars Business’s market
share). The Commission, in its assessment of the narrow markets for the retail
of clothing, footwear, and accessories found that in the narrow market for retail
of clothing, the merged entity would have an estimated market share of 10.6%
after an accretion of 8.5%. In the narrow m arket for retail of footwear, the
Commission found that the merged entity would have an estimated market
share of 7.9% after an accretion of 5.8%. The Commission also found that in
the narrow market for retail of accessories, the merged entity would have an
estimated market share of 6.9% after an accretion of 4.8%.
3 Recommendation pages 24-5 paras 59 and 60 citing Tribunal merger decision in Massmart Holdings
Limited and Moresport (62/LM/Jul05).
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[22] The Commission further found that the merged entity will continue to face
competition from Truworths, Woolworths, Pepkor Group (Ackermans and Pep),
Massmart, Mr Price, and many other independent apparel stores including
prominent international clothing retailers such as Zara and H&M.
[23] When assessing the broad national market for retail of apparel within the LSM
4-10 segment (middle to upper consumer segment), the Commission found that
the merged entity would have a n estimated market share of 12.2% after an
accretion of 9.6%. The Commission then assessed the narrow markets for the
retail of clothing, footwear and accessories within the LSM 4- 10, and found that
in the narrow market for the retail of clothing, the merged entity would have an
estimated market share of 17.9% after an accretion of 14.3%. The Commission
also found that in the narrow market for the retail of footwear, the merged entity
would have an estimated market share of 14.1% after an accretion of 10.4%.
The merged entity would further have an estimated market share of 12.3% after
an accretion of 8.6%, in the narrow market for the retail of accessories. The
Commission highlighted the fact that the Edgars Business predominantly
competes with Truworths and Woolworths, therefore, the survival of the Edgars
Business will ensure that Truworths and Woolworths will continue to face their
largest competitor.
Retail of cellphone products
[24] In its assessment of the market for the national retail of cell phone products, the
Commission found that the merged entity will have an estimated market share
of 6.49% after an accretion of 6.4%. The Commission ’s view was that the
proposed transaction is unlikely to substantially change the structure of the
market. Further, the Commission notes that cellular products are primarily sold
in collaboration with MTN, Vodacom and Cell -C, as the cellular providers in
South Africa. These mobile operators also have a number of their own retail
South Africa. These mobile operators also have a number of their own retail
stores that compete with the merging parties.
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Retail of cosmetics
[25] In its assessment of the market for the national retail of cosmetics, the
Commission found that the merged entity will have an estimated market share
of 46.1% after an accretion of 45.9%. The Commission is of the view that the
proposed transaction is unlikely to substantially change the structure of the
market. Further, the Commission notes that in South Africa there exist a
number of large retail chains that have focused their product offering and retail
experience around personal care and cosmetic products, combining these with
in-store concepts in pharmacies which fit the broad category (namely Clicks
and Dis-Chem).
[26] In light of the above, the Commission concluded that the proposed transaction
is unlikely to result in the substantial prevention or lessening of competition in
any of the above markets.
[27] We agree with the Commission’s assessment of the impact of the transaction,
and the conclusion that the proposed transaction is unlikely to adversely affect
competition in any of the identified markets.
Public Interest
[28] The merging parties submitted that if the proposed transaction fails, it will have
a negative impact on employment since the winding down alternative
contemplated by the BRP would result in all the positions at Edcon being
declared redundant and the retrenchment of all remaining emplo yees.
According to the parties, Edgars employs 7 595 employees. A major public
interest outcome of the proposed transaction is that 5200 of these jobs would
be saved due to the fact that the Edgars Business was being sold as a going
concern.
[29] The merging p arties also submitted that the relevant markets in which the
Edgars Business operates as well as related markets such as those in which
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suppliers (local and regional) and landlords operate will be negatively affected
if the transaction fails.
[30] The Edgars Business operates 120 stores across South Africa and occupies
significant gross lettable area (GLA) in a number of major shopping centres in
the market for rentable retail space in South Africa. Suppliers and service
providers to these stores would include not only suppliers of trading stock but
also suppliers of administration, facilities and logistic services. Hence a n
indirect positive impact on employment could flow from this transaction, which
seeks to ensure that the Edgars Business survives as a going concern, rather
than from it being wound up in a liquidation.
[31] Furthermore, the target firm’s suppliers include, amongst others, a number of
small and medium businesses, or firms controlled or owned by historically
disadvantaged persons. The closure of the Edgars B usiness’ stores would
negatively affect such small and medium businesses, or firms controlled or
owned by historically disadvantaged persons as well.
Proposed remedies
[32] SACCAWU expressed concerns with the transaction as indicated above.
[33] Each of the employee representatives, SACCAWU and the DTIC were informed
of the hearing and invited to make submissions before the Tribunal if they
wished. SACCAWU was the only party that elected to make written
submissions to the Tribunal. Its concerns were the same as those made to the
Commission during its investigation; namely that:
a. There be a moratorium on retrenchments for a period of five years;
b. A recall period of five years for retrenched employees;
c. No downward variation in the terms of employment of workers for five
years;
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d. Recognition of the union as a bargaining agent for a minimum period of
five years.
[34] The merging parties had already tendered remedies to SACCAWU’s concerns
during the Commission investigation. In our assessment the conditions
proposed by the merging parties and accepted by the Commission adequately
address the concerns raised by SACCAWU discussed in more detail below.
[35] Regarding the moratorium on retrenchments, the merging parties provided an
undertaking not to implement any merger-related retrenchments in the merged
entity (employees of both Retailability and the Edgars Business) for a period of
three years after the implementation of the merger. In our view the tender by
the merging parties is reasonable in the current economic climate, to secure
jobs while at the same time allowing the merged entity an opportunity to
turnaround the Edgars Business.
[36] Regarding the recall period, Retailability undertook to give preference to any
erstwhile Edcon employees should vacancies arise for a period of three years
from the implementation of the merger. In our view this is a reasonable period
and would synchronise with the period for the moratorium on retrenchments
thus enabling ease of compliance and monitoring.
[37] Both the merging parties and the Commission agreed on the principles that any
potential downward variation of the terms and conditions of employment as well
as the recognised status of the union are both directly regulated by the Labour
Relations Act.
[38] SACCAWU also levelled criticisms against the BRPs and took issue with a prior
voluntary retrenchment process and expressed dissatisfaction against the
business rescue process.4 In our view all these concerns fall outside the ambit
of the Competition Act and relate mostly to the administ ration of the business
4 See Recommendations page 42-43 para 118.
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rescue plan for which the unions, employees and creditors have remedies in
other fora.
Other public interest considerations
[39] On balance, in weighing up the likely effect on public interest , we find that the
merger will not have any negative effects on small and medium businesses, or
firms controlled or owned by historically disadvantaged persons and was
unlikely to have any negative effects on a particular industrial sector or region.
Conclusion
[40] In light of the above, we concluded that the proposed transaction is unlikely to
substantially prevent or lessen competition in the markets of horizontal overlap
between the merger parties. Further, the proposed transaction is likely to have
a positive effect on employment and suppliers and service providers of the
Edgars Business.
[41] As highlighted by the merging parties, the proposed transaction will save 5,200
jobs and 120 Edgars stores each of which in turn support further industries. In
this time of economic decline and Covid-19, the need to save this South African
business and jobs appears both dire and warranted.
[42] Accordingly, we approved the transaction on the basis of the conditions
attached to the order.
11 November 2020
Ms Yasmin Carrim Date
Ms Mondo Mazwai and Mr Enver Daniels concurring.
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Tribunal Case Managers:
C Mathonsi, L Jordaan and M Tshabalala
For the Merging Parties: M Garden of ENSAfrica instructed by Edcon Limited
and A Aukema of CDH instructed by Retailability
Proprietary Limited
For the Commission: B Mabatamela and R Maphwanya