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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM101Aug20
In the matter between:
Ivlyn Consolidated Holdings (Pty) Ltd Acquiring Firm
and
Fairy Tales Boutiques (Pty) Ltd and Somerset Baby
Hyper (Pty) Ltd t/a ‘Baby City’
Target Firms
Global Toys (Pty) Ltd t/a ‘ToyZone’
Approval
[1] On 20 November 2020 , the Competition Tribunal (“Tribunal”) unconditionally
approved the proposed large merger whereby Ivlyn Consolidated Holdings (Pty)
Ltd (“Ivlyn”) intends to acquire control over Fairy Tales Boutiques (Pty) Ltd
(“Fairy Tales”), Somerset Baby Hyper (Pty) Ltd (“Somerset”) and Global Toys
(Pty) Ltd (“Global Toys”). Fairy Tales and Somerset operate collectively under
the brand name Baby City and Global Toys trades as ToyZone.
Panel: Andreas Wessels (Presiding Member)
Enver Daniels (Panel Member)
Yasmin Carrim (Panel Member)
Heard on: 20 November 2020
Order issued on: 20 November 2020
Reasons issued on: 26 January 2021
REASONS FOR DECISION
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[2] The reasons for the approval of the proposed transaction follow.
Parties to the proposed transaction and their activities
Primary acquiring firm
[3] Ivlyn is t he primary acquiring firm and is a holding company with no other
commercial activities. It is controlled by the Saltzman Family Trust. Through
Ivlyn Local Investment Holdings (Pty) Ltd (“Ivlyn LIH”), Ivlyn controls Dis-Chem
Pharmacies Limited (“Dis-Chem”).1 Dis-Chem is a public company listed on the
JSE Limited. Ivlyn also indirectly controls MSDS No 8 (Pty) Ltd (“MSDS”).2
MSDS is a special purpose vehicle specifically acquired for the purposes of this
transaction and does not have any commercial activities.
[4] Of relevance to the competition assessment of the proposed transaction are the
retail activities of Dis -Chem. Dis-Chem primarily operates a portfolio of
pharmacy stores in South Africa, Namibia and Botswana. Its activities include (i)
the wholesaling of sc heduled and unscheduled pharmaceutical drugs , which
portion of the business includes the operation of distribution centres that service
the Dis-Chem stores and independent pharmacies; (ii) the retailing of scheduled
and unscheduled pharmaceutical drugs; (iii) ancillary beauty services, including
hair salons, beauty salons and nail bars; as well as (iv) operating clinics that
provide preventative healthcare and early risk detection solutions through in -
store formats and corporate clinics.
Primary target firms
[5] The primary target firms are the companies operating the businesses that trade
as Baby City and ToyZone ; namely Fairy Tales, Somerset and Global Toys.
Currently all of these firms are family owned and controlled.
1 As to 52.57%.
2 As to 100%.
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[6] Baby City is a specialist s tore supplying a wide array of products catering for
moms-to-be, babies and toddlers. It operates 33 stores located throughout
South Africa.
[7] Global Toys which trades as ToyZone is a specialist toy store that retails a wide
range of toys, games and activities related products which cater for both children
and adults. In South Africa, ToyZone operates 14 retail outlets.
Proposed transaction and rationale
[8] The proposed transaction consists multiple inter -conditional share purchase
agreements that will result in Ivlyn (through Dis -Chem) acquiring sole control
over Baby City. In addition, Ivlyn (through MSDS) will acquire joint control over
ToyZone.3
[9] As rationale for the proposed transaction the merging parties indicated that Ivlyn
mainly operates through Dis-Chem and the baby category is seen as an area of
future investment.
[10] The sellers submitted that they are desirous to realise the return on their
investment and exit the retail market.
The hearing and third parties
[11] The merger was referred to the Tribunal by the Competition Commission
(“Commission”) on 16 November 2020 and the virtual hearing took place on
20 November 2020.
[12] No concerns were received from customers regarding the proposed transaction.
However, certain competitors of the merging parties raised concerns about the
proposed transaction with the Commission. These third parties were informed of
the Tribunal hearing but indicated that they did not wish to make further
submissions to the Tribunal.
3 The other controller will be Mr Isaac Aronoff; as to 50%.
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Relevant market(s) and impact on competition
[13] The Commission identified h orizontal overlap s between the merging parties ’
activities in relation to the retail sale of baby and mother care products, as well
as limited overlap in relation to the retail sale of toys.
[14] In relation to the retail sale of toys, ToyZone provides a wide variety of toys
including figurines, radio -controlled cars, Lego products, water guns, trucks,
cars, stuffed toys, toy boats, scooters, build -it-yourself products, doll’s houses,
dolls, toddler toys, prams, tea party equipment, puzzles, board games, arts and
crafts, gaming and construction toys and cards. The Commission however found
only a limited overlap between the merging parties’ activities given that Dis-
Chem’s retail sale of toys amount s to a de minimis percentage o f its total
revenue. The Commission therefore concluded that Dis-Chem is unlikely to be
a significant player in the retail toy market in South Africa and did not investigate
this market any further. We have no reason to disagree with this.
Retail sale of baby care and mother care products
[15] The Commission found that a pproximately % of Dis -Chem’s total revenue is
attributable to the retail sale of a l imited range of baby products, mainly
comprising, what the merging parties referred to as fast moving consumer goods
(“FMCG”) such as : (i) body care product s (baby toiletries and bathing); (ii)
nappies, wipes and nappy bags; (iii) feeding bottles and teats; and (iv) baby food
and formula. Baby City, on the other hand, as earlier stated, is a specialist baby
store with a full range of products for mothers, infants and toddlers including: (i)
car seats; (ii) camp cots; (iii) prams; (iv) accessories; (v) clothing including baby
and maternity wear; and (vi) nursery bedding and linen.
[16] The Commission assessed the competition effects of the proposed merger in
relation to the market for the retail supply of baby care and mother -to-be
relation to the market for the retail supply of baby care and mother -to-be
products. From a relevant geographic market perspective, it considered both a
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national market and narrower geographic markets focusing on the geographic
areas where the Baby City stores are located.
[17] Both Dis-Chem and Baby City operate stores across the country. Baby City has
approximately 33 stores located throughout South Africa and Dis-Chem has 165
stores across the country.
[18] From a national perspe ctive, using a total market size of R billion,4 the
Commission found that the merging parties will have a combined post -merger
national market share of less than 10% in the retail supply of baby care and
mother-to-be products.
[19] The Commission further found that post -merger many alternative retailers wh o
supply different brands of baby care and mother-to-be products will constrain
the merged entity. These include specialist stores such as Babies R Us and
Baby Boom, and mass retailers such as Shoprite Checkers, Game and Pick ‘n
Pay. Furthermore, t here are also online retailers such as Baby Fantasy and
Takealot, amongst others. These retailers stock a full range of baby products
and a variety of brands including Avent, Safeway and Tommee Tippee amongst
others and will compete with the merging parties post-merger.
[20] The Commission also considered certain narrower geographic markets focusing
on the shopping centres with Baby City stores and assessing whether any
competing firms (other than Dis-chem) are present in these malls.
[21] The Commission’s investigation revealed that a ll of the Baby City stores are in
malls where other specialised and non -specialised retailers are also present or
are present within the vicinity of the mall. It submitted that the Baby City stores
are generally located in big malls where more than three alternatives (excluding
Dis-Chem) are present or where competing stores are present in shopping
centres within close proximity to the Baby City stores.
[22] The Commission furthermore considered the effect of the proposed merger in
[22] The Commission furthermore considered the effect of the proposed merger in
remote areas/non metros wherein Baby City and Dis -Chem may be the only
4 Based on Euromonitor and McKinsey & Company estimates.
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options in a city or in a mall. The Commission’s investigation showed that Baby
City and Dis -Chem are currently located in the same shoppin g centre in one
non-metro province, North West. In the other provinces the Dis-Chem stores are
between 4 and 6 kilometres from the Baby City store locations. The Commission
further found that Baby Boom and Babies R Us , which are specialised baby
stores, are present in all the provinces where Baby City is also active, in certain
instances in the same town and in other instances in a different town.
[23] The Commission ultimately concluded that the proposed transaction is unlikely
to lead to a substantial prevent ion or lessening of competition in the market for
the retail supply of baby care and mother -to-be products in South Africa or in
narrower geographic markets since the merged entity will continue to face
competition from numerous players active in the market for the supply of baby
and mother care products.
Third party concerns
[24] As indicated above, the Commission received no concerns from cu stomers
regarding the proposed transaction.
[25] The Commission however received two broad concerns from competitors
relating to the proposed merger. First, that the merging parties will have
bargaining power to negotiate better pricing with suppliers that will give them a
competitive advantage in the market for baby care and mother care products .
Second, that Baby City b ecause of its “dominance” in the market has the power to
squeeze suppliers and force suppliers to not deal with its competitors.
[26] The Commission, after investigating these concerns, concluded that they were
not substantiated . The Commission’s investigation found that the merging
parties will face competition from various retailers, some of which are large
players with a larger number of retail stores across the country. Furthermore,
Dis-Chem’s current retail offering in the mother and baby care market mainly
Dis-Chem’s current retail offering in the mother and baby care market mainly
relates to consumables such as nappies, formula, baby food, and personal care
products. These products are generally stocked by all mass retailers and even
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pharmaceutical retailers such as Clicks. It is thus unlikely , according to the
Commission, that Dis-Chem could have more buyer power than retailers such
as Shoprite Checkers and indeed similar players such as Clicks. The
Commission said that it is plausible that the merger may assist the merged entity
to negotiate better discounts or get b etter deals, but it is unlikely that it can do
so at the expense of competition in the market.
[27] In relation to alleged exclusivity, the Commission found that Baby City has
with third -party suppliers and that the relevant
supply agreements appear to be It stated that it is
self-evident from the supply agreements considered that
to Baby City.
[28] In relation to Baby City’s alleged dominance, the Commission found that there
is no factual basis to suggest that Baby City is dominant in respect of the retail
sale of baby and mother care products. As explained above, Baby City face s
competition from numerous competitors in relation to its retail products.
[29] The Tribunal informed the third parties i.e. competitors that raised concerns
regarding the proposed transaction of the Tribunal’s hearing date. They however
indicated that they did not wish to make fu rther submissions to the Tribunal.
Nevertheless, during the hearing, the panel canvassed the concerns raised by
the competitors with both the Commission and the merging parties. The Tribunal
is satisfied with the information and explanations provided5 and conclude that
the competitors’ concerns are not substantiated from a competition perspective.
[30] In light of the above, w e conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition in the retail sale of baby and mother
care products.
5 Transcript, pages 7 to 37.
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Public interest
Employment
[31] The merging parties confirmed that the proposed transaction will not have any
adverse effects on employment and specifically that there will be no
retrenchments as a result of the proposed transaction.6 In relation to Baby City,
the merged firms’ expansion plans in relation to the number of stores will, in all
likelihood, result in a significant number of additional employment opportunities.
Spread of ownership
[32] The Commission noted that currently Baby City does not have any Historically
Disadvantaged Persons (HDP) or previously disadvantaged shareholders. The
proposed transaction will change this, in that, 6.5% of Dis-Chem’s voting rights
are exercised by HDPs.
[33] The proposed transaction further raises no other public interest concerns.
Conclusion
[34] In light of the above, we conclude that the proposed transaction is unlikely to
substantially prevent or lesse n competition in any relevant market. In addition,
the proposed transaction does not raise any public interest concerns. On the
contrary, it appears that there may be net public interest benefits as a result of
the proposed transaction. Accordingly, we app rove the proposed transaction
unconditionally.
26 January 2021
Mr Andreas Wessels
Date
Mrs Yasmin Carrim and Mr Enver Daniels concurring
6 Merger Record, pages 8, 57, 76 and 77.
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Tribunal case manager:
Mpumelelo Tshabalala
For the merging parties:
Anthony Norton of Nortons Inc.
For the Commission:
Busisiwe Ntshingila and Themba Mahlangu