[5]
The transaction is effected through a series of inter-conditional and interrelated steps which result in ListCo, a newly incorporated
company, acquiring control of the primary target firms. ListCo will then be listed on the JSE Securities Exchange. The transaction
steps can be summarised as follows:
[5.1]
ListCo, a newly incorporated company with identical shareholders
and shareholdings to BLI, will acquire the entire issued share capital of BLI from its current shareholders in exchange for shareholding
in itself. Pursuant to the implementation of this step, BLI will be a wholly owned subsidiary of ListCo.
[5.2]
BLI will unbundle all its shares held in all the companies that it holds more than 50% to ListCo by way of
distribution in specie. These subsidiaries include TPC (69.4%), GLI (75%), Prepaid TV (51%), BLO ((75%), and Friedshelf (100%).
[5.3]
ListCo will then acquire shares in House of Business Solutions (“HOBS”). HOBS houses two non controlled
entities of BLI namely Gold Label (20%), and Datacel (67%).
[5.4]
ListCo will acquire the remaining shares in TPC from the current shareholders of TPC, in exchange for shares in itself. As a result, TPC will become a wholly owned subsidiary of ListCo. TPC will then acquire all the
shares in the controlled and non-controlled entities such that it holds 50% plus one share in each of the following entities –
Cellfind, Africa Prepaid, Polsa, Oxigen, Virtual Voucher, Budding Trade, Matragon, Premet and the Hub. Pursuant to this step TPC
will hold more than 50% of the issued share capital in all its investments and will thereafter unbundle all the shares in its subsidiaries
to ListCo.
The parties’ activities
Primary acquiring firm
[6]
ListCo is a newly established company, and does not provide any products or services.BLI, however, is involved in the distribution and trading business focusing on the supply of prepaid secure electronic tokens of value
to wholesalers, financial service providers, corporate and independent retailers and petroleum. They also provide technology direction
and leadership for BLI and they currently hold technology for the enablement of prepaid television management and distribution. Prepaid
TV is also planning to enter the market for the sale of prepaid electricity.
Primary target firms
[7]
For our purposes, the only relevant transaction for competition evaluation is that between TPC and Virtual Voucher. In terms of the
transaction steps, TPC will acquire sole control in Virtual Voucher and TPC will later unbundle its shareholding to ListCo. Currently
TPC owns 15% of Virtual Voucher and does not control it. The activities of TPC and Virtual Voucher overlap in the distribution of airtime in South Africa. There is also vertical integration
between these two companies in that Virtual Voucher purchases airtime from TPC.
[8]
The activities of TPC and Virtual Voucher are discussed below. No competition concerns arise in respect of the other target firms.
TPC
[9]
Through its various subsidiaries, TPC is involved in the distribution and trading business focusing on the supply of prepaid secure
electronic tokens of value to wholesalers, financial services providers, corporate and independent retailers and petroleum outlets.TPC operates through the following three divisions:
[9.1]
TPC Virtual distributes electronic prepaid products utilizing various technology mechanisms to ensure accurate, efficient and auditable end to
end consumer delivery transactions. These include bulk database warehousing and delivery solutions, pin generation solutions, merchant
bulk printing solutions, value redemption platforms and electronic competition solutions for various prepaid product applications.
[9.2]
TPC Starter Pack Division distributes cellular starter packs to major retailers, wholesalers and individuals.
[9.3]
TPC Retail Division provides cellular telephony solutions and value added services to major retailers and smaller merchants.
Virtual Voucher
[10]
Virtual Voucher is focused on supplying electronic vouchers mainly to Engen sites. Its technologies are integrated directly into the
Engen till systems. Virtual Voucher also provides terminals where required.
Competition analysis
Horizontal analysis
[11]
The activities of the merging parties overlap in the market for the distribution of airtime including pre-paid, post paid, subscription,
starter packs, fixed line and mobile. The parties compete nationally and their customers are spread throughout South Africa. Hence,
the relevant horizontal market is the market for the distribution of airtime in South Africa.
[12]
The tables below show the estimated market shares of the market players as determined by the volume and the value of the airtime that
is sold.
Table 1 Market share figures for the national market for the distribution of airtime based on volume of airtime sold
| Company |
Market share based on volume of airtime sold (%) |
Source: Merging parties
Table 2 Market share figures for the national market for the distribution of airtime based on value of airtime sold
| Company |
Market share based on value of airtime sold (%) |
| Vodacom |
27.17 |
| Telkom |
20.14 |
| MTN |
19.98 |
| Autopage Cellular |
8.05 |
| Nashua Mobile |
7.79 |
| TPC Group |
6.21 |
| Cell C |
4.8 |
| Smartcall |
4.8 |
| Virgin Mobile |
<1 |
| Virtual Voucher |
<1 |
| Total |
100 |
Source: Merging parties
[13]
As can be seen from the tables above, the merging parties’ combined market share is estimated to be approximately 13% based
on value of airtime sold and approximately 7% based on volume of airtime sold. These market shares are low and do not raise competition
concerns. In addition, the merged entity will face competition from prominent market players such as Vodacom, MTN, Telkom, Cell C,
Smart Call, Virgin Mobile and Autopage Cellular.
Vertical Analysis
Virtual Voucher and TPC
[14]
The Commission identified three relevant vertical product markets implicated by this transaction. The first of these is the market
for the supply of airtime in which TPC operates. Virtual Voucher purchases its airtime from TPC. The second of these is the market
for software solutions in which ITEX operates. ITEX, a subsidiary of BLI, provides software solutions and it is anticipated that
post merger Africa Prepaid will use ITEX technology. Finally, the Commission identified the market for software solutions where Matragon
operate. Polsa currently uses Matragon software in exchange for a licence fee.
[15]
The market for software solutions where ITEX operates and the market for software solutions in which Matragon operates do not raise
competition concerns as Africa Prepaid and Polsa do not have business activities in South Africa.
[16]
The only vertical market that may raise competition concerns is the market for the supply of airtime in which Virtual Voucher purchases
airtime from TPC. Pre-merger TPC held 15% of the shareholding of Virtual Voucher, and BLI held 69% of the shareholding of TPC. Currently,
Virtual Voucher purchases approximately 99% of its airtime requirements from TPC. Virtual Voucher’s purchases from TPC constitute
approximately 0.6% of TPC’s total supply of airtime. The pre-merger vertical relationship between TPC and Virtual Voucher will
continue post-merger. Customer foreclosure concerns do not arise because Virtual Voucher is not a major customer of TPC. Its airtime purchases from TPC
account for less than 1% of TPC’s total sales. TPC’s major customers include large stores with strong purchasing power
such as Pick and Pay, Shoprite, Metcash, Spar and Pep Stores. Furthermore, TPC faces competition from all the major suppliers or
airtime such as Vodacom, Telkom, MTN, Cell C, Smart Call, Nashua Mobile and Virgin Mobile
[17]
Accordingly the transaction is unlikely to substantially lessen or prevent competition.
Public Interest
[18]
There are no public interest issues.
Conclusion
[19]
The merger is approved unconditionally.
________________
30 October 2007
Y Carrim
DATE
Tribunal Member
D Lewis and N Manoim concur in the judgment of Y Carrim
Tribunal Researcher:
R Kariga
For the merging parties:
Edward Nathan Sonnenbergs Attorneys
For the Commission
:
M Mohlala and M Matsimela (Mergers
and Acquisitions)
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