3.
The primary target firm is Manrotrade Four (Pty) Ltd (“Manrotrade”). Manrotrade is jointly controlled by the following
shareholders in the percentages indicated:
•
MGMT Group
11.6%
•
Cecil Norman Smith
(“Smith”)
21.3%
•
Maria D Liete Reis
Moreira
23.4%
•
Melvin Alfred Fiford
20.2%
•
Deon van der Wath
23.4%
Manrotrade controls the following two firms:
•
Formatix Ten (Pty) Ltd
100%
•
Metrotoy (Pty) Ltd
100%
Metrotoy in turn controls two firms namely:
•
John Craig Retail Business
100%
•
John Craig Group (Pty) Ltd
100%
The Merger Transaction
4.
The transaction is embodied in two inter-related agreements. The first agreement is a sale of shares agreement entered into between
Smith, Manrotrade and Pepkor (“the Smith Agreement”). The second agreement is a sale of shares agreement entered into between various individuals (“the other sellers”) including Pepkor, Manrotrade, Formatix, and Metrotoy (“the other agreement”).
5.
In terms of the Smith Agreement, Pepkor will acquire Smith’s 21.277% in the issued share capital of Manrotrade, as well as Smith’s
claims against Manrotrade, Formatix and Metrotoy with effect from 1 July 2005.
6.
In terms of the other agreement, Pepkor will acquire a total of 78.725% of the issued share capital of Manrotrade from the other sellers
as well as the claims of each of the other sellers against Manrotrade, Formatix and Metrotoy, with effect from 1 July 2005.
7.
The effect of the Smith Agreement and the other agreement is that Pepkor will acquire 100% of the issued shares in Manrotrade, and
will thus be the sole controller of John Craig.
Rationale for the Transaction
8.
The acquiring firm has submitted that it views the acquisition of John Craig as part of the further development of the multi-brand
speciality retail subgroup within Pepkor with expansion to the premium price branded segment of the clothing retail market. In addition,
the expertise and technology of John Craig can be used to bolster Pepkor’s “Dunns” stores with credit sales and expertise and allow Pepkor to increase the profitability of John Craig through increased purchases and the use of Pepkor’s
distribution structure (instead of outsourcing).
9.
The executives of John Craig, who are also its shareholders, are keen to sell their investment. They will continue to manage the business
as an independent entity within Pepkor and have rights to preference shares in one of the entities controlling John Craig.
The parties’ activities
10.
Pepkor, through its various subsidiaries (collectively “the Pepkor group”) is one of the largest clothing retailers in
South Africa and also operates in eight African countries as well as in Australia and Poland. The parties submitted that Pepkor operates
five retail-clothing businesses namely “Pep” (846 outlets), “Ackermans” (245 outlets), Dunns (215 outlets), Shoe City (70 outlets) and “Hang Ten” stores (10 outlets).
11.
Through these subsidiaries Pepkor sells clothing, footwear and household textiles and telecommunication products.
12.
John Craig has thirty-seven stores located mainly in Gauteng and KwaZulu Natal. It predominantly sells men’s clothing and shoes
but also has a limited offering of ladies’ footwear. John Craig is also involved in cellular telephone products.
The relevant markets
13.
The Competition Commission (“the Commission”) identified the relevant markets in which the parties compete as the sale of:
•
menswear
•
ladies’ footwear
•
mens footwear
•
Cellular telephone products
•
Insurance products
sold through groups of chains within a national market.
14.
The Commission’s conclusion in this regard was informed by two previous decisions made by the Tribunal in the cases of Pepkor Limited and Fashaf (Pty) Ltd Competition Tribunal Case No 02/LM/Jan03 (“Fashaf” case) and the case of Edgars Consolidated Stores (Pty) Ltd and Rapid Dawn 123 (Pty) Ltd Competition Tribunal Case No 21/LM/Mar05 (“Edcon” case). In the latter case the Tribunal considered the markets in which the parties competed as ladies wear,
ladies footwear and cellular products. In this matter no distinction was made to segmenting the market into separate target markets.
For the purposes of this transaction, we accept the Commission’s description of the product markets as set out above.
15.
We further agree with the Commission’s finding that the market in which the parties compete is “national”. The Commission’s
conclusion is based on the Tribunal’s previous decision in the case of Fashaf in which the Tribunal indicated that one of the practical ways to define a geographic market is to look at the pricing strategy of
the parties. If the pricing strategy is national then the market will be regarded as national. The parties have submitted that their
pricing strategies are national. The geographic market in this transaction is therefore “national”.
Effect on competition
16.
In its analysis of the market share in the ladieswear and ladies footwear markets, the Commission relied on figures which it used
in the Edcon case. In paragraph 18 of the Edcon case the Tribunal stated that these figures are “clearly incomplete and unreliable”. In the Edcon case the Commission calculated the market share figures for ladieswear and ladies footwear markets using RLC data which the parties provided as well as 2004 annual reports of competitors. However, what appears from these figures, as shown
below, is that there is a slight increase in the market share which does not raise any serious competition concerns.
17.
The market shares for the menswear, ladieswear, ladies’ footwear, mens footwear, cellular telephone products, and insurance
are reflected below. In the menswear market, the market share of the merged entity will increase by 1.1%. Thus it will have a market
share of 17.9%. We agree with the Commission that this does not raise competition concerns.
The table below depicts market shares of the merging parties and their competitors in the retailing of menswear excluding independents
Market Participant |
Estimated Market Share%
|
| Edgars |
38.8 |
| Woolworths |
26.7 |
| Pepkor |
16.8 |
| United Retail |
12.2 |
| Mr Price |
5.1 |
| John Craig |
1.1 |
| Total |
100 |
18.
In the market for ladies’ footwear market Pepkor will increase its market share by approximately 0.3% to 19.6%. This is considered
a small percentage and does not raise competition concerns.
The table below depicts the market shares of the merging parties and their competitors in the retailing of ladies’ footwear
Market Participant
|
Estimated market share |
| Edcon |
31.1% |
| Woolworths Holdings |
22.5 |
| Pepkor Group (including Shoprite) |
19.3 |
| Foschini Stores |
11.0 |
| Topics |
2.9 |
| Shoe City |
2.1 |
| Speciality Stores |
1.6 |
| John Craig |
0.3 |
| Others |
10.4 |
| Total |
100 |
19.
The parties and the Commission did not provide accurate market shares of the other market participants in the mens footwear category.
However, based on the parties’ representations that John Craig holds 2.0%, and the case of Dunns Stores (Pty) Ltd in which the Pepkor group was said to hold 23.8% of the market share in the mens footwear category, the Commission estimated that
the merged entity will hold a market share of 25.8%. This would represent an increase of 2% in the market share. Such an increase
is small and does not lead to a substantial lessening or prevention of competition.
20.
In the market for cellular phone products, the Commission concludes that the market share of the merging parties will be less than
5%. This market is highly competitive and the small market share held by the parties post merger does not substantially prevent or
lessen competition.
The table below shows the estimated market shares of the major participants in the cellular telephone products
Market Participant
|
Estimated Market Share % |
Vodacom |
25 |
MTN |
15 |
Furniture Stores collectively |
10 |
Pick n Pay |
|
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