Barloworld Logistics Africa (Pty) Ltd v KLL Group (Pty) Ltd (LM146Oct15) [2016] ZACT 1 (20 January 2016)
- Citation
- [2016] ZACT 1
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, Mondo Mazwai, Fiona Tregenna
- Case number
- LM146Oct15
More details
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, Mondo Mazwai, Fiona Tregenna
- Case number
- LM146Oct15
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that there was no horizontal overlap between the merging parties, as Barloworld Logistics Africa was not engaged in temperature-controlled warehousing and distribution services in South Africa prior to the transaction. The vertical relationship between the parties was limited, with Barloworld Logistics Africa subcontracting less than 1% of KLL's annual turnover. The Commission investigated concerns about market dominance in pie distribution and found that KLL's relationship with Foodcorp was not exclusive, and other competitors were present in the market. The Tribunal concluded that the merger would not substantially prevent or lessen competition and that there were no adverse public interest effects, including on employment. Accordingly, the transaction was approved unconditionally.
Court disposition
The proposed transaction is approved unconditionally.
Orders
- The acquisition by Barloworld Logistics Africa (Pty) Ltd of KLL Group (Pty) Ltd is approved without conditions.
02
Material facts
Parties
Barloworld Logistics Africa (Pty) Ltd
Applicant Counsel: Shakti WoodKLL Group (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Approval / Decision on Unconditional Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed acquisition will substantially prevent or lessen competition in any market.
- 02
Whether the transaction raises any public interest concerns, including adverse effects on employment.
- 03
Whether there is a horizontal or vertical overlap between the activities of the merging parties.
Party arguments
- Applicant
- Barloworld Logistics Africa (Pty) Ltd argued that the acquisition of KLL Group (Pty) Ltd would allow it to enter the temperature-controlled distribution market, thereby increasing competition. The applicant asserted that the transaction would not result in any adverse effects on employment or public interest and that there was no horizontal overlap in the parties' activities.
- Respondent
- A competitor raised concerns that KLL controlled at least 80% of the pie distribution market to forecourt and convenience channels through its relationship with Foodcorp (Pty) Ltd. The competitor argued that the merger would increase dominance and make competition more difficult, potentially harming consumers.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may not be approved if it is likely to substantially prevent or lessen competition in any market.
- 02
Competition Act, No. 89 of 1998
Public interest considerations, including effects on employment, must be assessed in merger proceedings.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that there was no horizontal overlap between the merging parties, as Barloworld Logistics Africa was not engaged in temperature-controlled warehousing and distribution services in South Africa prior to the transaction. The vertical relationship between the parties was limited, with Barloworld Logistics Africa subcontracting less than 1% of KLL's annual turnover. The Commission investigated concerns about market dominance in pie distribution and found that KLL's relationship with Foodcorp was not exclusive, and other competitors were present in the market. The Tribunal concluded that the merger would not substantially prevent or lessen competition and that there were no adverse public interest effects, including on employment. Accordingly, the transaction was approved unconditionally.
Obiter and limits
- The Tribunal noted that the presence of other competitors such as Vector Logistics, Digistics, Imperial Cold Logistics, and Rhodes Foods mitigates concerns about market dominance.
- The merging parties confirmed that no retrenchments would result from the transaction, and no other public interest concerns were raised.
Court disposition
The proposed transaction is approved unconditionally.
- The acquisition by Barloworld Logistics Africa (Pty) Ltd of KLL Group (Pty) Ltd is approved without conditions.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM1460ct15
In the matter between:
Barloworld Logistics Africa (Pty) Ltd
Acquiring Firm
and
KLL Group (Pty) Ltd
Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: Mondo Mazwai (Tribunal Member)
: Fiona Tregenna (Tribunal Member)
Heard on : 18 November 2015
Order issued on : 18 November 2015
Reasons issued on : 20 January 2016
Reasons for Decision
Approval
1. On 18 November 2015 the Competition Tribunal (the ''Tribunal") unconditionally approved an acquisition by Barloworld Logistics
Africa (Pty) Ltd ("BWLA") of KLL Group Proprietary Ltd ("KLL").
2. The reasons for the approval of the proposed transaction follow.
The Parties and their activities
3. The primary acqu1nng firm is BWLA. BWLA is controlled by Barloworld Logistics (Pty) Ltd ("Barloworld Logistics"). Barloworld
Logistics is controlled by Barloworld Investments (Pty) Ltd ("Barloworld Investments"). Barloworld Investments is a wholly-owned subsidiary of Barloworld Ltd ("Barloworld Ltd"). Barloworld Ltd maintains a primary listing on the JSE Ltd and has secondary listings on the London and Namibian stock exchanges. The shares of Barloworld Ltd are widely held and the firm is not controlled by any one entity.
4. Barloworld Ltd controls a number of subsidiaries which include the following: Barloworld Capital (Pty) Ltd, Barloworld Equipment
Properties (Pty) Ltd, Barloworld Equipment Africa (Pty) Ltd, Barloworld Equipment (Pty) Ltd and Barloworld Global Services (Pty)
Ltd. BWLA's subsidiaries include the following firms: ZA Trans Logistics (Pty) Ltd, Volumax (Pty) Ltd, Green Dream
Projects 12 (Pty) Ltd, Barloworld Optimus Holdings (Pty) Ltd and Barloworld Transport.
5. The companies in the BWLA group of companies conduct a wide range of activities relating to the design, implementation, management and operation of supply chain solutions, which enable BWLA's clients to become more competitive, leaner and more effective organizations.
BWLA's activities relevant for this transaction are the following logistics activities:
(i) Warehousing and distribution - clients' warehousing and distribution solutions are designed, implemented, managed and operated by BWLA. These customised solutions include cross-docking, racking, shelving, pick and pack, and track and trace capabilities; and
(ii) Transport Management Services - BWLA has developed software and methodologies which combine route optimisation, supplier procurement,
transport expertise and business intelligence with dedicated management.
6. The primary target firm is KLL. The firms falling within the KLL group of companies include KLL Distributors CC, KLL Management CC, KLL Trading CC, KLL Distributors Polokwane CC, KLL Distributors PE CC, Just a Wish 49 CC and KLL Ice Cream CC.
7. KLL conducts business as a multi-temperature food distributor in South Africa, utilising small to medium temperature controlled
delivery vehicles and leased or owned temperature controlled warehousing facilities. KLL delivers dry, perishable and frozen food
products nationally. KLL provides its distribution services to various suppliers (importers and local food manufacturers) as well as to customers operating convenience retail, franchise and general trade outlets.
Proposed transaction and rationale
8. In terms of the proposed transaction, BWLA, intends- to acquire 100% of the issued share capital of KLL. On completion of the proposed transaction, BWLA will have sole control over KLL.
9. BWLA sees this transaction as an opportunity to enter into temperature controlled distribution of food products. BWLA believes
that this entry will inter alia increase competition in temperature-controlled distribution services.
10. KLL shareholders wish to realise their investment in cash and have sufficient access to capital, which BWLA will supply, in order to grow KLL into a meaningful market player.
Competition Analysis
11. Although BWLA is involved in warehousing and distribution services, the Commission found that BWLA is currently not engaged in the supply of temperature controlled warehousing and distribution services in South Africa. This was also confirmed by competitors of the merging parties contacted by the Commission. The Commission therefore concluded that there is no horizontal overlap in the activities of the merging parties.
12. The Commission however found that there is a vertical relationship between the merging parties as BWLA subcontracted warehousing and distribution of food products services to KLL on an arms-length basis. The Commission is of the view that this relationship is unlikely to lead to any foreclosure concerns as the contract currently amounts to less than 1% of the gross annual turnover of KLL.
13. The Commission received a concern from a certain competitor of the merging parties. The competitor alleges that KLL controls at least 80% of the pie distribution market to forecourt and convenience channels through its distribution relationship with the manufacturer of Piemans Pies, namely, Foodcorp (Pty) Ltd ("Foodcorp"). The competitor further submits it that its efforts to compete in the pie clistribution market have been unsuccessful because of the dominant position held by the Pieman's pies product. The competitor is concerned that post-merger the merging parties will become more dominant, making- competition in this regard even more difficult, ultimately to the detriment of consumers.
14. The Commission investigated this complaint and found that: (i) KLL does not distribute pies on behalf of any other pie producer in South Africa, (ii) the relationship that KLL has with Foodcorp is not exclusive in nature and Foodcorp is not the sole supplier of pies in the market and (iii) there are other competitors in the market for the distribution and warehousing of temperature controlled products which have been able to compete with KLL regardless of the Foodcorp contract. These include Vector Logistics, Digistics, Imperial Cold Logistics and Rhodes Foods. Based on this, the Commission concluded that the proposed transaction will not substantially prevent or lessen competition in any market.
Public interest
15. The merging parties confirmed that the proposed transaction will have no adverse effect on employment and will not result in any retrenchments in South Africa. The proposed transaction raises no other public interest concerns.
Conclusion
16. In light of the above, we agree with the Commission that the proposed transaction is unlikely to substantially prevent or lessen
competition in any market. Further, we agree with the Commission that the proposed transaction is unlikely to result in any public interest concerns. We therefore approve the proposed transaction unconditionally.
20 January 2016
Date
______
Ms Yasmin Carrim
Ms Mondo Mazwai and Professor Fiona Tregenna concurring
Tribunal Researcher : lpeleng Selaledi
For the merging parties : Shakti Wood of Bowman Gilfillan
For the Commission : Nolubabalo Myoli
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