COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM133Oct22
In the matter between:
The SPAR Group Ltd Primary Acquiring Firm
and
SPAR Encore Ltd Primary Target Firm
[1] On 31 January 2023, the Competition Tribunal (“Tribunal”) conditionally
approved the large merger between The Spar Group Ltd (“Spar Group”) and
Spar Encore Limited (“Spar Encore”) (“proposed transaction”). In terms of the
proposed transaction, The Spar Group intends to acquire 50% of the issued
share capital in Spar Encore from Bruce Hughes (“Mr Hughes”). Post-merger,
The Spar Group will exercise 100% control over Spar Encore.1
The Parties
[2] The Spar Group is a public company listed on the Johannesburg Securities
Exchange (“JSE”), as such it is not controlled by any single shareholder. 2 While
1 The Spar Group acquired its existing 50% shareholding in Spar Encore (previously called
Monteagle Africa Ltd) from Monteagle Consumer Group Ltd.
2 Shareholders holding more than 3% of the issued share capital in The Spar Group are
Government Employees Pension Fund (19.40%), Coronation Fund Managers (7.67%) and
Vanguard (3.83%).
Panel : L Mncube (Presiding Member)
: M Mazwai (Tribunal Member)
: I Valodia (Tribunal Member)
Heard on : 31 January 2023
Order issued on : 31 January 2023
Reasons issued on : 27 February 2023
REASONS FOR DECISION
it controls in excess of 7 firms across the Southern Region, of relevance to the
proposed transaction is its shareholding in Spar Encore (i.e the target firm)
(50%) and Spar Engage (Pty) Ltd (“Spar Engage”) (50%).
[3] The Spar Group is active as a wholesaler and retailer throughout South Africa.
Its wholesaling activities include the acquisition and distribution of its branded
and private label goods for its Spar outlets and for Spar Guild members.3 The
distribution of the said goods takes place through 7 distribution centres located
in Johannesburg (Jet Park), Midrand, Durban, Pinetown, Cape Town, Port
Elizabeth and Mbombela. Its retail activities are conducted through grocery
stores, liquor stores, building material stores, and pharmacy stores across
South Africa. Through Spar Engage, it provides merchandising and sales
services to principals selling products in Spar branded stores. The
merchandising and sales services include ordering, planning, stock rotation,
ranging, promotional activity work, brand awareness building and shelf
management.4
[4] Spar Encore is an end-to-end private label supplier, jointly controlled by The
Spar Group and Mr Hughes in the ratio 50% each. It is active in the sourcing,
packing warehousing and supply of private label products to The Spar Group.5
Competition Assessment
Overlaps
[5] The Tribunal considered the activities of the merger parties and found that there
exists a vertical overlap, as a result of Spar Encore being active in sourcing,
packing, warehousing and supplying of private label products to The Spar
Group.
3The SPAR Guild is a voluntary trading group controlled by a board of directors to which ten
directors are appointed by SPAR SA and ten directors are appointed by the Independent
Retailers through the National Council of the Guild. Stores owned by Spar Guild members
include SPAR, SuperSPAR, KwikSPAR, Tops at SPAR, Pharmacy at SPAR, Build It and
Savemore stores.
4 Merger Record p 53 para [2.2].
5 Merger Record p 54 para [2.1].
Market definition
[6] The merger parties submitted that the supply of private label products to the
main grocery retailers6 is carried out internally by such grocery retailers. The
only distinguishing factor in the proposed transaction is that The Spar Group
has outsourced part of its private supply chain to Spar Encore, but for this there
would be no separate business carried by Spar Encore. Accordingly, the
merger parties submitted that there is no separate market for the end-to-end
supply of private label products. 7
[7] In defining the relevant market, the Commission considered and relied upon
Tribunal precedence in the merger between The Spar Group and Monteagle8
(“Spar Group / Monteagle”), where The Spar Group acquired its existing 50%
shareholding in Spar Encore (previously known Monteagle Africa Ltd9) from
Monteagle Consumer Group Ltd.
[8] On the basis of the available evidence, the Tribunal found that Monteagle (i.e.,
the Target Firm) was active in the upstream market for the sourcing, packaging
and distribution of private label products. Further, that The Spar Group was
active as a wholesaler of branded and private label products for its Spar
branded stores. 10
[9] On account of the evidence before it, the Tribunal assessed the impact of the
proposed transaction on the upstream market for the supply of private label
products and the downstream market for the wholesale of private label
products.
[10] In defining the geographic market, the Tribunal considered that the supply of
private label products to The Spar Group was supplied nationally to the 7
distribution facilities in order for The Spar Group’s wholesaling business to
6 i.e., Pick n Pay, Woolworths, Shoprite-Checkers.
7 Merger Record, p65 para [6].
8 Spar Group and Monteagle, Tribunal Case No: LM139Dec19.
9 Monteagle has since changed its trading name to “Spar Encore”.
10 Merger Recommendation, p15 of 25, para [13].
service the various Spar retail stores. Accordingly, the Tribunal assessed the
effects of the merger nationally.11
Vertical Assessment
[11] The Commission is of the view that the proposed transaction is unlikely to result
in any input foreclosure concerns as Spar Encore only supplies private label
products to The Spar Group.
[12] The Tribunal considered whether Spar Encore will, post-merger, have the ability
and incentive to foreclose downstream competitors in the supply of private label
products. As set out above, Spar Encore has historically only supplied The Spar
Group with private label products. In the circumstances, the Tribunal does not
believe that Spar Encore will have the ability or incentive to foreclose
downstream competitors.
[13] In respect of customer foreclosure, the Tribunal found that there are more than
of private label manufacturers supplying private label products to The Spar
Group. These manufacturers supply of the private label products sold by
The Spar Group and the balance ( ) is procured from Spar Encore. 12
[14] The Commission engaged some private label suppliers of The Spar Group, and
no concerns were raised in respect of the proposed transaction. 13In the
circumstances, the Commission formed the view that the proposed transaction
is unlikely to result in customer foreclosure.
[15] On the evidence before it, the Tribunal agrees with the Commission’s findings.
11 Merger Recommendation, p15 of 25, para [16].
12 Merger Recommendation p 12 of 21 para [26] read with Merger Record p 16 para [14].
13 The Commission engaged and
Public Interest
Effect on employment
[16] The merger parties submitted that the proposed transaction will not result in
any retrenchments. Further, that post-merger, the terms and conditions of Spar
Encore’s employees will remain unchanged.14
[17] The Commission contacted The Spar Group’s employee representative,
namely, the South African Commercial Catering and Allied Workers Union
(“SACCAWU”) and Spar Encore’s employee representative, a certain Kirsty
Rowley and informed them of the proposed transaction. The Commission
received no concerns from the merger parties’ employees.
[18] Accordingly, the Tribunal concluded that the proposed transaction is unlikely to
raise significant employment concerns.
Effect on the spread of ownership
[19] The merger parties submitted that the seller, Mr Hughes is not an HDP. As
such, the proposed transaction will result in Spar Encore being wholly owned
by The Spar Group and as a result of The Spar Group having 36.54%
shareholding by HDPs, the transaction will promote a greater spread of
ownership and increase levels of ownership by HDPs.15
[20] The Commission found that The Spar Group is a level 7 B-BBEE Contributor
and has 36.54% shareholding by HDPs, 17.56% of which is held by black
women.16 Furthermore, as Mr Hughes is not an HDP shareholder, the proposed
transaction will result in Spar Encore being solely controlled by a level 7 B-
BBEE Contributor which is 36.54% held by HDPs.
14 Merger Record p 291 para [7.7.1].
15 IBID para [7.7.4]
16 Merger Recommendation, p17 of 25, para [32].
Effect on the ability of small and medium business, or firms controlled or owned by
HDPs, to effectively enter into, participate in or expand within the market.
[21] On 2 November 2022, the Department of Trade Industry and Competition
(“DTIC”) made submissions to the Commission, noting that the exit of the seller
(Mr Hughes) as a shareholder in Spar Encore will narrow the participation of
independent operators in the logistics and supply chain sectors in South Africa,
while also presenting an opportunity for The Spar Group to promote the entry
of new independent Historically Disadvantaged Persons (“HDP”) and small and
medium businesses into the supply chain of Spar Encore. The DTIC called
upon the Commission to engage the merger parties and recommend that the
acquiring firm avail at least 25% of its shareholding in Spar Encore to a suitable
HDP owned and/or small and medium sized business.17
[22] This notwithstanding, while the merger Conditions agreed to by the
Commission and Merger parties made provision for the merged entity to
localise goods currently procured from foreign manufacturers and in future
procure those goods from South African manufacturers, the Conditions did not
expressly provide for the procurement of such localised goods from HDPs
and/or small and medium sized businesses.18
[23] Accordingly, on 22 December 2022, the Tribunal wrote to the parties, noting
that while the agreed Conditions make provision for the localisation of goods,
the Conditions do not expressly provide for the procurement of such localised
goods from HDPs and/or small and medium businesses. It requested that the
parties clarify whether this was an omission, alternatively explain why the
procurement of localised goods from HDPs and/or small and medium
businesses was not included in the agreed Conditions.19
[24] On 9 January 2023, the merger parties responded to the Tribunal, advising,
inter alia, that there is no need to include a specific Condition of this nature as
17 Merger Record p 286 – 287.
17 Merger Record p 286 – 287.
18 Merger Recommendation p 18 of 21.
19 Tribunal email to the Merging Parties and Commission dated 22 December 2022.
the entering, participation or expanding of HDPs and small and medium
businesses will be achieved through the approval of the proposed transaction.
[25] On 13 January 2023, the Commission responded, advising that while it initially
sought to impose a procurement Condition which would facilitate the entry and
participation of HDPs and/or small and medium suppliers, it was advised by the
merger parties, during the negotiation stage of the Conditions that as a result
of their supply requirements,20 it would be risky to make a firm commitment
to procure localised goods from HDPs and/or small and medium businesses.
This notwithstanding, the merger parties indicated that they would endeavour
to procure private label products from HDPs and small and medium businesses.
In light of this, the Commission accepted the merging parties’ proposal for the
Conditions to not expressly provide for the procurement of localised goods from
HDPs and/or small and medium business.21
[26] The Tribunal considered that the DTIC’s submissions were intended to promote
the entry, participation and/or expansion of HDPs and/or small and medium
businesses into the supply chain of Spar Encore. Accordingly, the Tribunal
imposed a Condition that when localising the procurement of goods, the
merged entity shall use its best endeavours to procure such localised goods
from small and medium businesses or firms controlled or owned by Historically
Disadvantaged Persons. The Tribunal further made provision, for the merger
parties, as part of their monitoring and compliance obligations, to provide the
Commission with details of its endeavours to procure localised goods from
small and medium businesses or firms controlled or owned by Historically
Disadvantaged Persons.22
20 The private label suppliers should be able to supply at a national level; required volumes;
required quality.
21 Commission’s email to the Tribunal dated Friday, 13 January 2023.
22 Paragraphs 2.3 and 3.2 to Annexure A.
Conclusion
[27] We conclude that the proposed transaction is unlikely to significantly lessen or
prevent competition in any relevant market. Furthermore, the public interest
concerns that have been raised in relation to the proposed transaction, have
been addressed by the Conditions annexed hereto as Annexure A.
27 February 2023
Presiding Member
Professor Liberty Mncube
Date
Concurring: Ms Mondo Mazwai and Professor Imraan Valodia
Tribunal Case Managers: Matshidiso Tseki And Sinethemba Mbeki
For the Merging Parties: Howard Stephenson of Garlicke & Bousfield Inc
For the Competition: Tumiso Loate And Themba Mahlangu