Rationale for the transaction
5. The parties stated that the sole controller of G. Fox, Mr David Rubenstein, (who seems to have no successor), intends to retire.
Bidvest (already active in similar markets as G. Fox) sees the target firm as an attractive opportunity which will be supported by
Bidvest’s superior management skills and growth opportunities.
The activities of the merging parties
The primary acquiring firm
6. Bidvest is a diversified industrial group operating in the fields of Services, Distribution and Trading. All of its activities
fall under 3 umbrella divisions: Services,
Commercial Products and Food Services.
7. Bidserve is the operating unit within the Services Division of Bidvest. It operates in the markets of supplying, cleaning, laundry,
hygiene, security and staff facilitation services as well as janitorial products and industrial workwear. It operates through several
divisions such as Steiner Hygiene involved in washroom hygiene and Prestige Group which is involved in cleaning and specialised services.
The business activities of Commercial Sundries Supplies (Pty) Ltd (“Commercial Sundries”) and Clockwork Clothing (incorporating
Admiral Sportswear) (Pty) Ltd (“Clockwork Clothing”) seem relevant for purposes of evaluating the present transaction.
The primary target firm
8. G. Fox is a commodity based wholesale and retail business selling the following category of products to corporations and industrial
re-sellers and to individuals and a limited amount to retailers like Pick ‘n Pay.
Rags: - these include the sale of various grades of cleaning and wiper rags which include cotton waste, coloured rags, white rags and
mutton cloth.
Industrial Protective Clothing: - these covers the sale of a variety of industrial clothing such as overalls, contisuits, dustcoats, office jackets and chefs clothing;
and safety shoes, gumboots and safety equipment such as head protection, hearing protection, eye and face protection and respiration
protection and industrial gloves including chrome leatherwork gloves and PVC acid resistant gloves.
Disposable Tissue and Paper Products: - includes the sale of towel and tissue dispensers.
Industrial Chemical and Cleaning Products: - these embrace the sale of hand cleaners, degreasers, detergents, disinfectants, deodorants, polish and industrial soap.
Miscellaneous Products: - includes the sale of janitorial products such as industrial brushware, feather dusters, paintbrushes and rollers, cleaning solvents,
packs of tea/coffee.
Relevant market
Product market
9. There exists an overlap in the merging parties’ products because both parties are engaged in the sale of the following broad
product categories to industrial customers:
¬
Disposable tissue and paper products;
¬
Industrial chemical and cleaning products;
¬
Industrial protective clothing: overalls;
¬
Safety shoes, gloves and safety equipment; and
¬
Janitorial products.
Geographic market
10. The parties indicated that all the products listed above are sold to the industrial market and not through retail channels. It
appears that merging parties sell their products nationally, but a large portion of G. Fox’s business is derived in Gauteng.
As a result, the Commission considered the impact of the merger in Gauteng, but did not conclude on the relevant product and geographic
market definition.
Impact on competition
Horizontal analysis
11. The parties have submitted an estimate of market shares in respect of each broad category for the Gauteng and national geographic
markets as well as that of their competitors. Below is a table, which depicts an estimated combined post-merger market shares of
the merging parties at these two levels.
| Product Categories |
National Market Shares |
Market Shares in Gauteng |
| Disposable tissue and paper products |
5.44% |
6.79% |
| Industrial chemical and cleaning products |
3.90% |
4.87% |
| Industrial protective clothing: overalls |
7.96% |
13.19% |
| Safety shoes, gloves and safety equipment |
0.03% |
4.71% |
| Janitorial products |
5.69% |
7.5% |
12. It is the Commission’s contention that the above market shares are low and unlikely to raise competition concerns in the
relevant markets. In the first product category, the largest competitors are Kimberley Clarke and Nampak with more than 30% each at both levels. In addition, there are other players in this market such as Green Tissue, Coral Tissue and
Highveld Tissue.
13. Diversey Lever is perceived as a large competitor in the industrial chemical cleaning market. There are also several other smaller players operating
in this market.
14. There are a number of firms competing with the merging parties in the industrial clothing market. This market appears to be very
competitive with certain customers having indicated to the Commission that they have switched between the suppliers and could continue
doing so post-merger.
15. The Commission’s investigation in the safety shoes, gloves and equipment category revealed that the merging parties are very small players and could not obtain any market power with their combined post-merger market
shares. There also appears to be a number of players competing with the merged entity. It was found that in the janitorial products category too there are a number of players who can constrain the merged entity should it behave anti-competitively.
Vertical analysis
16. The parties appear to be vertically integrated as they source certain goods from each other. This is, however, a pre-existing
customer-supplier relationship. The parties pointed out that Bidvest purchases bathroom fresheners, masking and packaging tape, wire
ties and cutting machines and accessories from G. Fox. G. Fox purchases various grades of rags, different categories of overalls
and detergents from Bidvest. The Commission considered the level of purchases made between the parties.
17. The Commission examined these relationships and found that neither party is a significant customer of the other.
18. In light of the facts set out above, it is unlikely for the merged entity to self-deal to exclude other customers post-transaction.
Public Interest Concerns
19. SACTWU raised concerns with regard to the impact of the merger on the continued employment of G. Fox’s employees subsequent
to the merger. This trade union’s concerns emanated from the absence of a firm commitment from the merging parties with regard
to possible retrenchments arising from the merger. The union indicated that in the absence of a firm commitment, the merged entity
would be free to retrench employees after the competition authorities’ approval of this transaction. Pursuant to this, the
Commission sought some commitment from the parties with regard to the employment issues raised. Consequently the merging parties
gave an undertaking that no unionised employees would be retrenched for a period of 18 months from the effective date as a result of the merger. Bid Industrial, however, emphasised that should unforeseen circumstances outside its control and unrelated
to the merger occur (such as an unexpected downturn in the market in which G. Fox operates), then Bid Industrial will be required
to take such action (including retrenchments if required), as are in the best interests of the business so as to ensure the future
viability and sustainability of the business. It is the Commission’s view that the commitments given by the parties would alleviate the union’s concerns in this regard.
20. On a day prior to the hearing of this matter, the trade union wrote us a letter requesting that this Tribunal approve the proposed
merger only on condition that no retrenchments take place for a period of at least 24 months. The trade union did not make any oral
submissions but merely asserts that its letter constitutes a formal submission to the hearing. From the face of it, there was nothing
indicative of the fact that the merger itself would result in retrenchments of certain individuals. SACTWU too failed to at least show that the merger would lead to retrenchment of employees. In addition, the merging parties made an undertaking in good faith that they would not retrench unionised employees for a period of eighteen (18) months from the date of approval of this merger by
the Competition Tribunal. We are of the view that this undertaking provides adequate protection especially since there is no evidence
that any retrenchments will arise out of the merger.
Conclusion
21. We agree with the Commission’s submission that this transaction is unlikely to result in the substantial lessening or prevention
of competition. We accordingly approve this merger unconditionally.
___________ 13 October 2004
David Lewis Date
Concurring: Norman Manoim and Thandi Orleyn
For the merging parties:
Vani Chetty (Edward Nathan & Friedland Corporate Law Advisers)
For the Commission:
Martin van Hooven (Mergers & Acquisitions)
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