[14]
Apart from retail activities, Ellerines offers the following products to middle and lower market segments:
[14.1]
Furniture credit which consists of instalment credit provision and micro-loans which are ancillary to and inextricably
linked to the sale of furniture and household goods and appliances;
[14.2]
Personal loans which are small, short-term, unsecured personal loans through its “Rainbow loans” division;
[14.3]
Home loans which are offered in partnership with a bond originator company to customers and which are coupled with
a discounted furniture credit facility;
[14.4]
Insurance is offered for funeral cover and credit life cover to third parties and customers of its Rainbow loans
division. It offers short-term credit and all risk insurance, legal assistance and extended warranty policies to its retail customer
base and to other third parties’ retail customers through the Relyant Insurance Company and Customer Protection Insurance Company;
and
[15]
Ellerines’ Early Bird outlets provide repair services for a wide range of home appliances.
Relevant product market
Unsecured credit market
[16]
The parties have submitted that the relevant market is the market for the provision of unsecured credit. They submitted that in the
past the market could have been segmented further. However the advent of the National Credit Act has removed the statutory barriers that used to separate the consumer credit market
into a number of distinct markets. The merging parties stated that to the extent that credit is granted there is an overlap in the activities of the merging firms in
respect of the provision of unsecured credit. Moreover while the furniture bought by Ellerines’ customers could be attached or recovered in the event of non-payment of the
loan, used furniture was not considered sufficient security for the provision of credit by Ellerines.
[17]
The Commission argued that a broader market of unsecured credit is more appropriate in this case. However, it acknowledges the possibility
of a defining a narrower market for credit provision for the purchase of furniture. If that narrow approach is adopted then there
would be no product overlap between the parties
[18]
In the course of its investigation, the Commission also procured the views of the National Credit Regulator (“NCR”). The
NCR was of the view that both ABIL and Ellerines were players in the micro-lending market. The NCR estimated that the market shares
of the merging parties in the micro-lending market will be 34% based on the loan book value, and 17% based on branches. However,
as submitted by the NCR, the micro-lending market focuses on the low income credit market which is a subcomponent of the broader
unsecured credit market. The NCR also indicated that it had provided the market share estimates on limited information available to it. Hence, having regard to all of the above, we find that for purposes of this transaction, the relevant market is the market for the
provision of unsecured credit.
Credit life insurance
[19]
ABIL offers credit life insurance to borrowers who are required to insure their debt for the term of their loan against contingencies
such as death, disability and retrenchment. Ellerines offers funeral cover and credit life cover to third parties and customers of
its rainbow loans division. It offers short-term credit and all risk insurance, legal assistance and extended warranty policies to
its retail customer base and to other third parties’ retail customers through the Relyant t Insurance Company and Customer
Insurance Company. However, the overlapping activities of the merging parties are limited to the provision of credit life insurance
as ancillary to the provision of unsecured credit and not in the broader market for life insurance as such. Hence we do not consider this as a relevant market for purposes of competition evaluation.
Relevant geographic market
[20]
The relevant geographical market is national. Both Ellerines and ABIL have a national footprint and operate from a number of outlets
spread throughout the country.
Competition analysis
[21]
The major participants in the market for unsecured loans may include the major banks, furniture and clothing retailers and a host
of other players that are not necessarily registered with the NCR due to the fact that they are exempted from the provisions of the
NCA.
Table 1: Market shares of the competitors in the provision of unsecured loans during 2006/2007
Entity |
| Standard |
20 |
| ABSA |
19 |
| FNB |
15 |
| Nedbank |
11 |
| Other Banks |
4 |
| ABIL |
6 |
| Ellerines |
4 |
| Merged entity combined |
10 |
Source: Merging Parties
[22]
The combined post merger market share of the merging parties will be 10%. The market share in comparison to other players in the market
is relatively low. The merged entity will continue to face competition from at least four larger players and several other players.
In our view the transaction is unlikely to substantially prevent or lessen competition.
Foreclosure concerns
[23]
Given that the acquiring firm saw this acquisition as an opportunity to grow its credit business theTribunal requested the parties and the Commission to address it on the vertical effects, if any, of this merger and in particular
to address us on whether this transaction was likely to result in the foreclosure of ABIL’s competitors from the Ellerines
customer base or foreclosure of Ellerines’ competitors from ABIL’s credit provision services. Both the Commission and
the merging parties addressed the Tribunal in this regard.
Foreclosure of ABIL’s competitors
[24]
The merging parties submitted that it is not possible to isolate Ellerines’ customer base from the credit granting activities
of competitors in the unsecured credit environment. This is so because the NCA has blurred distinctions between the traditional types
of credit and has made it more difficult to lock-in customers with a single credit provider. Ellerines’ customer base would
therefore be accessible to other credit providers. In addition, in order to effectively foreclose against other credit providers,
Ellerines would have to refuse to accept cash sales from its customers who had obtained credit from credit providers other than ABIL,
an eventuality which is highly unlikely.
Foreclosure of Ellerines’ competitors
[25]
The merging parties submitted that Ellerines’ competitors would not be foreclosed from ABIL’s credit provision services
because the very nature of unsecured credit implies that a credit provider such as ABIL could not control where its customers spend
their money. Thus attempting to foreclose Ellerines’ competitors from the credit provision facilities of ABIL was not practically
feasible. In addition, ’s market research has shown that only a small percentage of the loans granted to its customers are spent on buying furniture
or appliances. The research shows that approximately 30% of ABIL’s customers spend their money on education, 30% on home improvements,
and the remainder ABIL on ad hocemergency expenses such as funerals, with very little credit being used for furniture or appliance purchases. It would thus not be
a viable option to foreclose Ellerines’ competitors.
[26]
In light of the above we are persuaded that this transaction does not give rise to any competition foreclosure concerns.
Public interest
[27]
There are no public interest issues.
.RTF of original document