The parties
Castellina Investments (Pty) Ltd is a newly formed company, established specifically for this transaction.
The parties could not, at the hearing, confirm who the controlling shareholder in Castellina would be but anticipated that the largest
shareholder would be Dr Wiese himself, who is currently also the largest shareholder in the target firm, Pepkor. It is expected that
Dr Wiese would hold 39.2%. The underwriters, Old Mutual Plc and Brait SA, would take up at least 15% equity each, totalling 30%. It is also envisaged that 10% of Castellina’s equity would be issued
to the management group. This totals 79.2%.
Reinvesting shareholders would then be able to take up the remaining 20.8%. If none of the shareholders reinvest it is anticipated
that the shareholding would be as follows:
•
Dr Wiese 32.9%
•
Brait 25.4%
•
Management 10%
•
Old Mutual Private Equity 25.4%
According to the shareholders agreement a quorum of 85% is required for any directors’ meeting while the quorum required for
a shareholders’ meeting would be 75%. The shareholders agreement, therefore, ensures that no one person effectively controls
the business.
The target firm is Pepkor Ltd (“Pepkor”), a public company listed on the JSE. The Wiese Group controls Titan Nominees
(Pty) Ltd and Fincom (Pty) Ltd which are currently de facto able to vote 44.3% of the votes exercisable at a shareholders meeting of Pepkor. Other shareholders are OMLACSA, Public Investment
Commissioner, Management and Public shareholders.
The rationale for the merger
According to Pepkor it has produced real growth in operational earnings and cash flow but this has not been matched by corresponding
improvement in Pepkor’s headline earnings per share. Pepkor’s Ordinary Share price performance on the JSE has been characterised
by a relatively low rating and low levels of liquidity, whilst Pepkor Ordinary Shares trade at a discount to those of its peers listed
on the JSE. The scheme will allow Pepkor to:
1.
restructure its capital base so that it is more efficient and enhances shareholder value;
2.
allow Pepkor to eliminate the current control structure; and
3.
afford Pepkor Ordinary shareholders an opportunity to receive the Cash Consideration or to remain invested in Pepkor.
Impact on competition
The only potential market in which overlap occurs is in the retail footwear market. Both Pepkor and Brait own shares in companies
that sell shoes.
Brait through its private equity fund SAGEF, one of the shareholders, is invested in Shoe City in which it holds 58.3% of the total
issued share capital. Shoe City has a market share of approximately 1% in the total footwear market.
Pepkor operates four brands of retail outlets in South Africa namely Pep, Ackermans, Dunns and Millers. These stores primarily sell
clothing and footwear merchandise. Pepkor’s combined total market share in the footwear sector is approximately 15.7%.
Pepkor and Shoe City compete with well-known retail groups such as Edgars, Foschini, Woolworths and various other independents.
Based on the information supplied to the Tribunal on the anticipated shareholding in Castellina and in light of the above analysis
we find that the transaction would not prevent or lessen competition in the footwear market.
Public interest
According to the merging parties the transaction will have no effect on employment, as the Pepkor business will continue as prior
to the transaction.
____________
11 February 2004
N. Manoim
Date
Concurring: D. Lewis, P Maponya
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