Impact on competition
10.
Notwithstanding the lack of overlap between the activities of the merging parties, we set out below
the competitive position of each, relative to their competitors in the upstream and downstream market, respectively.
Upstream Market
Wholesale distribution of scheduled pharmaceutical products
| Firm |
Market share |
| NUPD Group |
8% |
| International Healthcare Distributors |
35.28% |
| Kinesis Logistics |
25.33% |
| Adcock Ingram |
13.15% |
| Pharmaceutical Healthcare Distributors |
7.4% |
| Free State Buying Association |
3.56% |
| Transfarm |
1.83% |
| Natal Wholesale Chemists |
1.64% |
| Pharmed |
.71% |
| Létangs |
.69% |
| Resepkor |
.05% |
11.
The barriers in this market are relatively high on account of specific regulatory requirements with
respect to specialised delivery systems for fine distribution as well as sophisticated, capital-intensive batch tracking processes.
Nevertheless NUPD has a market share of approximately 8%. IHD is the dominant competitor in this market and there are 9 other competent
competitors.
Wholesale distribution of unscheduled pharmaceutical products
12.
The estimated market share of NUPD is less than 10%. The parties were not able to provide market
shares, but indicated that their competitors included:
♣
Tibbett and Britten
♣
Specialised Consumer Services
♣
Interhold Limited (Metro Cash and Carry)
♣
Massmart Holdings (Makro)
♣
Free State Buying Association (Alpha Pharm Bloemfonteing)
♣
Natal Wholesale Chemists
♣
Adcock Ingram
♣
Free State Buying Association (Alpha Pharm Eastern Cape)
13.
The parties gave an estimate of NUPD’s market share being well below 10% when one has regard
to the number and variety of alternative suppliers of such products. The non-scheduled pharmaceutical market has low barriers to
entry because there is no need for fine distribution but firms can distribute in bulk. Pharmacies can, in addition to the various
other avenues, source these products from large retailers such as Pick and Pay. NUPD is not dominant in the upstream market.
Downstream market
14.
In this market the market position of Clicks is analysed, insofar as they sell lifestyle, beauty
and health products to the final consumer. The parties were unable to furnish market shares in respect of each discrete category.
Some reliance was made on a market report by AC Nielsen, which comprised statistics from Clicks, Pick ‘n Pay Family Stores
and Woolworths in respect of various product categories, including inter alia, household, toiletry and health products. However, to the extent that other alternative suppliers of the same products in each category
were omitted from this evaluation, we accept that Clicks market share figures may be inflated.
♣
Lifestyle products
15.
Nielsen estimated this at approximately 15% but did not account for some products being sold by
retailers such as furniture stores. The parties in their Competitiveness Report estimated market share in this category to be 10%
or less. Certain specialised grocery and discount chains were also excluded. The Commission indicated that, on investigation, Clicks’
share was probably less than 1% of the broader lifestyle market.
♣
Beauty products
16.
AC Nielsen estimated Clicks’ market share at 14%. The management of New Clicks estimated it
at between 8 and 10%. Once again, there are a proliferation of competitors in the market, including the large and smaller grocery
retail chains which were not taken into consideration.
♣
Health products
17.
Nielsen estimated this to be around 22%, since it excluded health products sold by retail pharmacies.
Management of Clicks estimated this at between 8 and 12%. Once again, there are a variety of competitors in this market, including
grocery chains and independent health shops.
18.
There are no barriers to entry in the non-scheduled and patent product market since no regulatory requirements or stipulations exist with regard
to how products are stored. Countervailing power exists in the form of large buying groups, retail and wholesale chains, informal
traders, pharmacies and health shops. For instance, significant competitors of New Clicks in the retail of lifestyle, beauty and
health products include Pick ‘n Pay, Shoprite Checkers, Superstar, numerous pharmacies and health stores, Woolworths, Stuttafords,
Edgars, Truworths, Foschini, @ Home, Mr Price Home, Game, Makro. There are no exclusive supply agreements between either of the parties.
19.
From this analysis we can conclude that there are no dominance concerns in the downstream market either.
20.
Further, there are numerous other pro-competitive aspects identified from the parties’ papers:
♣
The proposed merger will allow NUPD, through access to Clicks’ range of multinational suppliers and enhanced bargaining power,
to increase its product range, (as it states, become a “full-line wholesaler” again) affording customers access to a
wider variety of products;
♣
Further, the parties view the merger as necessary in a market where manufacturers are exerting their collective muscle against wholesalers
and wholesalers having to in consequence consolidate amongst themselves alternatively form alliances with retail pharmaceutical chains,
an essentially proactive strategy.
Pharmacies
21.
Click’s elaborated on its relationship with PMA and LIT, which it frankly described as facilitating its corporate participation
in the retail pharmaceutical sector. It has an interest in the LIT, a franchisor for the Link Group of pharmacies, a group of pharmacists
and other members who operate 307 Link-branded pharmacies across South Africa. Clicks reassured that it merely owns the Link brand
but does not presently control the Link branded pharmacies which are independent. It further provides arm’s length short-term
services to the Link pharmacies. The relationship with Purchase Milton & Associates (“PMA”) is a commercial one.
The PMA is described as a flagship pharmacy company of Clicks and operates 76 pharmacies within South Africa. Clicks provided loan
finance to the company to facilitate the purchase by PMA of various pharmacies.
22.
The merged firm will not however have the ability post –merger to influence the distribution strategies of either the Link or
PMA pharmacies because it lacks the legal or commercial ability to control them. For this reason foreclosure strategies that vertical
mergers can sometimes give rise to, are unlikely here.
23.
Nevertheless these relationships caused various pharmacies to voice concern about potentially anticompetitive
practices arising in the event that Clicks enters the retail pharmaceutical sector.
24.
Currently, the Pharmacy Act No. 53 of 1974 governs the licensing and owning of pharmacies. There
are steps afoot to change this and allow corporates to own pharmacies. In the event of pharmacy ownership being deregulated, Clicks
would open up dispensaries in its Clicks and Discom branded stores. If this occurred, Clicks would compete with pharmacies at retail
level and simultaneously, through its joining with NUPD, would supply them with pharmaceuticals at the wholesale level. While this
is not relevant to this merger, it is likely that Clicks will want to use this transaction to facilitate its entry into the pharmaceutical
market, so that when it starts retailing scheduled pharmaceuticals, it has its own distribution network to source them. The likelihood
of this occurring is uncertain and has no impact on this merger assessment. If and when deregulation of the industry occurs and Clicks
acquires any pharmacies in which it presently has an interest, this will form the subject of a separately notifiable transaction/s
and will be dealt with accordingly.
Conclusion
No deregulation has occurred as yet and we cannot speculate into the future. As to when this might happen. It suffices for the purposes
of this merger, that we conclude that the merger will not lead to a substantial lessening of competition. The Tribunal therefore
is justified in approving the transaction unconditionally. There are no public interest concerns which would alter this conclusion
since the NUPD business is being acquired as a going concern.
_____________
13 December 2002
N. Manoim
Date
Concurring: D.Lewis, U. Bhoola
For the merging parties:
Sonnenbergs Attorneys
For the Commission:
M. Sebothoma, I. Dhladhla, Competition Commission
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