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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM066JUL22
In the matter between:
ZA ONLINE STORE PROPRIETARY LIMITED Acquiring Firm
and
SHOCK PROOF INVESTMENT 202 PROPRIETARY
LIMITED
Target Firm
[1] On 21 September 2022, the Competition Tribunal (“Tribunal”) considered the large
merger where ZA Online store (Pty) Ltd (“ZA online”) intends to acquire an additional
0.2% of the issued shares in Shock Proof Investment 202 (Pty) Ltd (“Shock Proof”).
[2] The reasons for unconditional approval follow.
Parties to the Transaction and their activities
[3] The primary acquiring firm is ZA Online, a private company. Its shares are owned by
and
and jointly1 own and control various entities that form part of the
Core Group of companies in South Africa. and also jointly control2
Core Computer Group (Pty) Ltd which is a holding company for Core Computer
1 50:50% shareholding.
2 50:50% shareholding.
Panel : Yasmin Carrim (Presiding Member)
: Andiswa Ndoni (Tribunal Member)
: Imraan Valodia (Tribunal Member)
Heard on : 21 September 2022
Order issued on : 28 September 2022
Reasons issued on : 29 September 2022
REASONS FOR DECISION
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Business (Pty) Ltd (“Core”) and Core Peripherals (Pty) Ltd (“Core Peripherals”).
[4] ZA Online does not directly or indirectly control any firm.
[5] The primary target firm is Shook Proof a private company which is not controlled by a
single shareholder, the shareholding in Shock Proof are held by ZA Online (49.9%),
and Mark Parsons (0.2%)3.
Activities of the parties
[6] The activities of ZA Online and the Core group generally include the distribution of
information, communication and entertainment technology products and services in
South Africa through a network of resellers and its own retail outlets. Core and Core
Peripherals are the two entities of relevance to the assessment.
[7] Core is an authorised distributor of Apple products and accessories to Apple
Authorised Resellers, including ZA Online, Digicape, Takealot, Incredible Connection,
Mobile Network Operators (“MNOs”) such as MTN, Vodacom and Telkom. The MNOs
also have a direct supply relationship with Apple for the procurement of Apple products.
[8] Core Peripherals supplies Apple products and technology solutions to medium and
large B2B customers.
[9] Core is also an Apple Authorised Training Provider, offering a variety of Apple certified
and in-house training courses specialising in Apple technologies.
[10] Through its group of companies, Core offers various business solutions, including
business consulting; mobile device management; financing solutions; extended
warranties; professional deployment assistance; business mobility solutions; and
cellular business contracts and education solutions.
[11] ZA Online operates in South Africa through the iStore, it supplies information,
communication and education technology, specifically cellular phones, IT hardware
and related IT products and services. More specifically, in relation to cellular phones,
ZA Online sells mobile handsets (Apple iPhone), accessories and cellular contracts
and in relation to IT hardware, it sells computers (Apple Mac) and tablets (Apple iPad).4
and in relation to IT hardware, it sells computers (Apple Mac) and tablets (Apple iPad).4
[12] Shock Proof is the holding company for Digicape. Digicape’s activities include selling:
12.1 information, communication and entertainment technology, specifically cellular
phones and IT hardware and related IT products and services.
12.2 mobile handsets (iPhone), accessories and cellular contracts (with Vodacom). 5
12.3 IT Hardware such as computers (Mac) and tablets (iPad).
3 Mark Parsons is the seller in the Proposed Transaction (“Seller”).
4 ZA Online also sells accessories including Apple Watch, Apple TV, AirPods and AirTag as well as
other brands of accessories. A full list of accessory brands can be accessed at
https://www.istore.co.za/accessories.
5 Digicape also sells accessories including Apple Watch, Apple TV, Apple accessories, Beat
accessories and other brands of accessories.
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[13] Digicape customers are predominantly B2B customers, particularly in the creative
sector in relation to computers (Mac) and in the education sector in relation to tablet
(iPad), and the majority of its business is in the Western Cape Province of South Africa.
Proposed Transaction
[14] The proposed transaction involves the acquisition by ZA Online of an additional 0.2%
of the issued share capital of Shock Proof (being 20 ordinary shares) from the Seller.
[15] Following implementation of the Proposed Transaction, ZA Online will hold 50.1% of
shares in Shock Proof and will exercise sole control over Shock Proof in terms of the
Competition Act, 1998 (“the Act”).
Competition Assessment
[16] The Competition Commission (“Commission”) considered the activities of the merging
parties and found that the proposed transaction presents a horizontal and vertical
overlap.
[17] The horizontal overlaps arise in:
17.1 The sale of cellular phones, including mobile handsets, accessories, cellular
contracts; and
17.2 IT hardware, including computers (Mac), laptops, tablets (IPad) and
accessories and related IT products and services.
[18] The vertical overlap arises because Core supplies Digicape with Apple products6,
iCare, service and support, and third-party accessory products for resale.
[19] Diagram 1 below shows the relationship between the merger parties and where they
are placed on the value chain, particularly with respect to Apple products.
6 The Apple products include mobile phones (iPhone), IT hardware (including Mac and iPad) and
various Apple accessories.
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Diagram of the value chain depicting the relationship between the merger parties
Source: The Commission
Market definition and product Market
[20] The Commission looked at previous cases and found that in the matter between Cell
C Service Provider Company (Pty) Ltd and Altech Autopage, a division of Altron TMT
(Pty) Ltd (Cell C and Altech Autopage) the Competition Tribunal (the “Tribunal”)
considered a distinct market of cellular hardware (such as mobile handsets) and
accessories.7 In the instant transaction, both ZA Online and Digicape sell cellular
phone products and accessories to their customers.
[21] In the EOH Holdings Limited and Aptronics Proprietary Limited matter8, the Tribunal
considered the broad IT hardware market, which can be segmented into (i) IT
hardware; (ii) servers, personal computers, storage, and network equipment; and (iii)
IT services. ZA Online and Digicape both supply personal computers (i.e., laptops and
computers).
[22] The Commission accordingly assessed the proposed transaction in the following
product markets (i)The market for the sale of cellular phones, including mobile
handsets, accessories, and (ii)The market for IT hardware, including personal
computers, laptops and tablets.
[23] The Commission found that the Tribunal had previously defined the relevant
geographic market as national.
7 Tribunal Case: 81/LM/Nov02, 02/LM/Jan05, 48/LM/Jun06, and LM117Aug15.
8 Tribunal Case: LM024May16.
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Market Analysis
[24] The Commission found that there is no publicly available source that has the data
required for market share calculation and in determining the merging parties’ size
within the relevant markets. Therefore, the Commission relied on the estimates by
market participants.
Horizontal overlap
The national market for the sale of cellular hardware (such as mobile handsets) and
accessories
[25] The Commission obtained views from customers and found that the largest retailers of
cellular hardware (e.g., mobile handsets) and accessories, include Dimension Data,
Digicape, MTN / Vodacom, First Technology, Incredible Connection, and iStore.
Similarly, the largest suppliers of cellular hardware (such as mobile handsets) and
accessories included the same retailers, as well as Mustek. The customers further
submitted that there are various other alternative suppliers.
[26] Competitors of the merging parties estimated that the largest resellers of hardware
(such as mobile handsets) and accessories are MNOs. These include Vodacom, MTN,
Cell C and Telkom.9
[27] None of the customers and competitors of the merging parties raised concerns with
the proposed transaction.
[28] In light of the above the Commission found that there are alternative resellers active in
the market for the sale of cellular hardware (such as mobile handsets) and accessories
who will continue to constrain the merged entity post-merger. More specifically in
relation to Apple products, there are other Apple Authorised Resellers that will continue
to constrain the merged entity post-merger.
The national market for the sale of IT hardware which includes personal computers
(i.e., laptops and computers)
[29] The Commission obtained views from customers and found that the largest suppliers
of hardware such as personal computers (i.e., laptops and computers), included
Dimension Data, Digicape, MTN/Vodacom, First Technology, incredible connection
and IStore and Mustek.
and IStore and Mustek.
[30] Competitors of the merger parties estimated the largest suppliers in the resale of (IT
hardware including laptops and computers) to include Mustek, Core, Pinnacle, Tarsus,
Axiz, Drive Control, Esquire, Incredible Connection, Makro, Game, Evertech and
Woodware.
9 Other players in the market include Incredible Connection, Computer Mania, Vodacom, Icomputing
Solutions, Digital Experience, FNB, DG Store, Shop and Ship
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[31] In light of the above the Commission found that there are alternative resellers 10 active
within the market for resale of (IT hardware including laptops and computers) that will
continue to constrain the merged entity post-merger. More specifically in relation to
Apple products and there are other Apple Authorised Resellers that will continue to
constrain the merged entity post-merger. Importantly, none of the customers and
competitors of the merging parties raised concerns with the proposed transaction.
Vertical overlap
[32] The vertical overlap arises because Core supplies Digicape with Apple products,
ICare, services and support Apple accessories and other brands of hardware products
for resale. Therefore, the Commission considered the upstream market for the
wholesale/distribution of Apple products, iCare, service and support, third party
accessory products and the downstream market for the resale of Apple products. Core
is active in the upstream market and Digicape is active in the downstream market.
[33] Core is an authorised distributor/wholesaler of Apple products in South Africa. It
supplies all South African “Apple Authorised Resellers” with Apple products iCare,
services and support.
[34] Looking at input foreclosure the Commission assessed whether Core would have the
ability and incentive to deal exclusively with Digicape such that other customers are
denied access to Core as a supplier of Apple products. The Commission found that
Apple Inc identifies and enters into commercial agreements with Apple Authorised
Resellers. Core, as the Authorised Distributor, fulfils the supply requirements of the
Apple Authorised Resellers on behalf of Apple Inc. Core does not have any input into
the identification of Apple Authorised Resellers, or the terms and conditions under
which Apple Authorised Resellers on-sell Apple products. In addition, Apple Inc also
supplies the MNOs with Apple products directly as they are all Apple Authorised
supplies the MNOs with Apple products directly as they are all Apple Authorised
Resellers, and they have direct supply agreements with Apple.
[35] In relation to third-party accessory products, the Commission found that Core
competes with several distributors who supply third-party accessories. These include
amongst others. Given the availability of alternative distributors, the Commission is of
the view that the Core is unlikely to exercise market power in the distribution of third-
party accessory products.
[36] Regardless of the findings on the levels of market power upstream, the Commission
also notes that Core is unlikely to have the incentive to foreclose.
Importantly, Core will continue
to supply Digicape on an arms' length basis in the same way as it currently supplies
10These include MTN, Telkom, Vodacom, Computer Mania, Metro Home Centre, Digital Experience,
FNB, Shop and Ship, DG Store,
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ZA Online and all its other customers. As such, the status quo will therefore remain
post implementation of the proposed transaction.
[37] In relation to customer foreclosure, Digicape is an important customer of Core, the
Commission assessed whether Digicape will stop procuring the relevant products from
those competitors.
Therefore, the proposed transaction is unlikely to raise
customer foreclosure concerns in relation to Apple products and iCare, services and
support service
[38] In light of the submissions made by market participants, the Commission found that
there are numerous alternative customers/ resellers of third-party accessory products
therefore Digicape is unlikely to exercise market power in the downstream market for
the retail of third-party accessory products.
[39] In addition, the Commission found that in terms of third-party accessory products
sourced from Digicape, approximately of the total purchases of
Digicape’s were from other suppliers. This indicates that of Digicape’s
business is derived from other upstream suppliers of third-party accessories.
was from Core.
[40] As a retailer/reseller Digicape’s operations benefit from having a diverse offering of
products and brands, any customer foreclosure strategy by the merging parties is likely
to be detriment to their operations and futile for Digicape’s business. Given the
of Digicape on third-party suppliers, customer foreclosure is
unlikely in this instance. Even if the merged entity were to attempt to foreclose these
upstream suppliers’ post-merger, there are various other alternative retailers active in
the market.
[41] The Commission concluded that the proposed transaction does not substantially
prevent or lessen competition in any of the relevant markets and the Tribunal Concurs.
The Hearing
[42] The Tribunal identified some inconsistencies in the submissions made by the
merging parties and the Commission regarding the procurement and supply of Apple
merging parties and the Commission regarding the procurement and supply of Apple
products to MNOs. The Tribunal requested the Commission to provide submissions
on whether the MNOs procure their supply of Apple products from Core or directly
from Apple Inc.
[43] The MNOs confirmed that they procure their Apple products directly from Apple Inc
and they also procure certain products from Core.
Public Interest Assessment
Effect on Employment
[44] The merging parties submitted that the proposed transaction will not result in any
merger specific retrenchments. The employees of ZA Online and Shock Proof are
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represented by employee representatives and the Commission engaged with the
respective representatives of the merging parties’ employees, none of them raised any
employment concerns.
Effect on Spread of Ownership
[45] The Commission also assessed the effects of the merger on greater spread of
ownership and found that
[46] On the other hand,
as such, the proposed transaction will not result in a
reduction in shareholding by HDP.
[47]
[48] In light of this, the Commission is of the view that the proposed transaction is unlikely
to have a negative effect on the promotion of a greater spread of ownership in the
market and the Tribunal concurs.
Conclusion
[49] The Tribunal concluded that the proposed transaction is unlikely to prevent or lessen
competition in any of the relevant markets and it does not raise public interest
concerns. Therefore, the Tribunal approved the proposed transaction without
conditions.
29 September 2022
Ms Yasmin Carrim Date
Ms A Ndoni and Prof. I Valodia concurring.
Tribunal case manager : Makati Seekane.
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For the merging parties : Sandhya Foster, Jean Meijer and Natasha Rachwal
of Herbert Smith Freehills South Africa.
For the Commission : Reabetswe Molotsi and Ratshidaho Maphwanya.