CA Sales Holdings (Pty) Ltd v SMC Brands SA (Pty) Ltd (017715) [2013] ZACT 105 (29 October 2013)
- Citation
- [2013] ZACT 105
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Norman Manoim, Yasmin Carrim, Andreas Wessels
- Case number
- 017715
More details
- Court
- Competition Tribunal
- Panel
- Norman Manoim, Yasmin Carrim, Andreas Wessels
- Case number
- 017715
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed acquisition would not result in any vertical or horizontal effects in the South African market, as neither party operates as an alcoholic beverage distributor in South Africa. The transaction does not raise any public interest concerns, including employment, as confirmed by the parties. The Tribunal agreed with the Commission that the initial acquisition and the call option for the remaining shares constitute a single interrelated transaction. To address the possibility of market changes if the call option is exercised after 31 October 2014, the Tribunal imposed a condition requiring re-notification in such circumstances. The transaction was approved subject to these conditions.
Court disposition
Conditional approval of the merger, subject to re-notification if the call option for the remaining shares is exercised after 31 October 2014.
Orders
- The acquisition of 49% of the total issued share capital of SMC Brands SA (Pty) Ltd by CA Sales Holdings (Pty) Ltd is approved unconditionally in terms of section 16(2)(a) of the Act.
- The acquisition of sole control is approved in terms of section 16(2)(b) of the Act, provided that CA Sales exercises its option to purchase the remaining issued share capital of SMC on or before 31 October 2014.
- Should CA Sales exercise its call option at a date later than 31 October 2014, the parties are required to obtain a new approval prior to implementation.
02
Material facts
Parties
CA Sales Holdings (Pty) Ltd
Applicant Counsel: Susan MeyerSMC Brands SA (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Application / Decision on Conditional Approval
04
Questions and positions
Legal issues
- 01
Whether the acquisition of SMC Brands SA (Pty) Ltd by CA Sales Holdings (Pty) Ltd is likely to substantially prevent or lessen competition in any relevant market.
- 02
Whether the transaction raises any public interest concerns under the Competition Act.
- 03
Whether the call option for the remaining shares requires re-notification if exercised after 31 October 2014.
Party arguments
- Applicant
- CA Sales Holdings (Pty) Ltd argued that the acquisition would not result in any anti-competitive effects in South Africa, as neither it nor SMC Brands SA (Pty) Ltd operates as an alcoholic beverage distributor in South Africa. The applicant further submitted that the transaction would not have any adverse impact on employment and no retrenchments would result. The applicant accepted the condition regarding re-notification if the call option is exercised after 31 October 2014.
- Respondent
- SMC Brands SA (Pty) Ltd concurred with the applicant's submissions, confirming that its business activities are limited to Botswana, Namibia, and Swaziland, and that it does not distribute alcoholic beverages in South Africa. The respondent agreed that the transaction would not affect competition or public interest in South Africa and accepted the proposed condition for re-notification.
05
Court’s reasoning
Legal principles
- 01
Competition Act, section 16(2)(a) and 16(2)(b)
A merger may be approved subject to conditions to ensure compliance with the Competition Act, particularly where future events may affect the competitive assessment.
- 02
Tribunal's conditional approval and Annexure A
Where a merger involves a call option for remaining shares, the exercise of that option after a specified date may require re-notification to the competition authorities.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed acquisition would not result in any vertical or horizontal effects in the South African market, as neither party operates as an alcoholic beverage distributor in South Africa. The transaction does not raise any public interest concerns, including employment, as confirmed by the parties. The Tribunal agreed with the Commission that the initial acquisition and the call option for the remaining shares constitute a single interrelated transaction. To address the possibility of market changes if the call option is exercised after 31 October 2014, the Tribunal imposed a condition requiring re-notification in such circumstances. The transaction was approved subject to these conditions.
Obiter and limits
- The Tribunal clarified that the full line service offered by CA Sales in Botswana and Swaziland is not available in South Africa, further supporting the absence of competitive overlap.
- The management fee earned by SMC Brands SA (Pty) Ltd for services to its subsidiaries is remitted to South Africa, but this does not constitute operational activity in the South African market.
Court disposition
Conditional approval of the merger, subject to re-notification if the call option for the remaining shares is exercised after 31 October 2014.
- The acquisition of 49% of the total issued share capital of SMC Brands SA (Pty) Ltd by CA Sales Holdings (Pty) Ltd is approved unconditionally in terms of section 16(2)(a) of the Act.
- The acquisition of sole control is approved in terms of section 16(2)(b) of the Act, provided that CA Sales exercises its option to purchase the remaining issued share capital of SMC on or before 31 October 2014.
- Should CA Sales exercise its call option at a date later than 31 October 2014, the parties are required to obtain a new approval prior to implementation.
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.: 017715
In the matter between:
CA Sales Holdings (Pty) Ltd Primary Acquiring Firm
and
SMC Brands SA (Pty) Ltd Primary Target Firm
Panel
Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on
01 October 2013
Order issued on
01 October 2013
Reasons issued
29 October 2013
DECISION
Conditional approval
Panel
Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on
01 October 2013
Order issued on
01 October 2013
Reasons issued
29 October 2013
DECISION
1. On 01 October 2013, the Competition Tribunal (“Tribunal”) approved the proposed acquisition by CA Sales Holdings (Pty) Ltd of SMC Brands SA (Pty) Ltd subject to a condition.
2. The reasons for approving the proposed transaction follow.
Parties to transaction
The primary acquiring firm
3. The primary acquiring firm is CA Sales Holdings (Pty) Ltd (“CA Sales”).
4. CA Sales is the parent company of a group of companies which acts as agents for manufacturers of fast-moving consumer goods (“FMCG”).
CA Sales provides sales, merchandising, warehousing and distribution services in South Africa, Lesotho, Botswana, Namibia and Swaziland.
5. Through its subsidiaries in Botswana and Swaziland, CA Sales offers sales, warehousing and distribution services to manufacturers of FMCG products. This full line service is not offered in South Africa.1
6. CA Sales owns four subsidiaries which are active in South Africa.2 One such subsidiary is an investment-holding company, whilst another is a sales and merchandising business which operates in retail and wholesale stores representing FMCG manufacturers. The other two companies provide dedicated sales and merchandising services of Spar’s house brand products in specific provinces in South Africa.
The primary target firm
7. The primary target firm is SMC Brands SA (Pty) Ltd (“SMC”). Taeuber & Corssen SA (Pty) Ltd, the Annerine Smith Trust, Rian Smit and Herman Smith are its current shareholders. Although SMC is a South African company, it does not conduct business in South Africa and it only provides in-house management services to its whoiiy-owned subsidiaries operating in Botswana, Namibia and Swaziland. The management fee which SMC gets in return for its services is, however, remitted back into South Africa.
8. SMC has a licence agreement with Diageo Pic in terms of which SMC distributes its premium beverage alcohol products in Botswana,
Namibia and Swaziland. These products include inter alia Smirnoff vodka, Johnnie Walker whiskey, Guiness stout and Captain Morgan. Brandhouse Beverages (Pty) Ltd distribute the Diageo products in South Africa.3
Proposed transaction
9. The merging parties have notified the Commission of CA Sales’ intention to acquire 100% of SMC. However, in terms of the proposed transaction, SMC will initially only purchase 49% of SMC. CA Sales has been granted an irrevocable right and option to purchase the remaining 51%. The timing of the exercise of this option is uncertain as it depends on the approval of SMC’s audited financial statements for the period ending in June 2014.
10. As a result of this call option, the Commission took the view that both the initial transaction and the exercise of the call option in substance form part of a single yet interrelated transaction to acquire 100% of SMC. it analysed the transaction on the assumption that CA Sales was acquiring sole control. However, as market conditions may have changed if the option is exercised at a later date than that presently anticipated, the Commission sought a condition that if the option was exercised later than Ocotber 31 2014, the transaction would have to be re-notified.
11. The Tribunal, with the agreement of the Commission and the merging parties, added some clarity to the condition by amending the wording thereof. As a result, the transaction was approved subject to the condition set out in Annexure A which we released on 1 October 2013.
Competition assessment
Overlaps
12. Although both CA Sales and SMC’s subsidiaries distribute alcohol, neither operates in South Africa.
13. CA Sales operates as an alcoholic beverage distributor in Botswana only, whilst SMC distributes alcohol in Swaziland, Botswana and Namibia. Furthermore, the merging parties do not have a licence to distribute alcoholic beverages in South Africa.
14. The proposed transaction will not result in any vertical or horizontal effects in the South African market.4
Public Interest
15. The merging parties confirmed that the proposed transaction will not have any adverse impact on employment and that no retrenchments will result from the proposed transaction 5 No other public interest issues arise as a result of this transaction.
CONCLUSION
16. Having regard to the facts above, we find that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market. Furthermore, no public interest concerns arise as a result of the proposed transaction. We approve the proposed transaction subject to the conditions set out in the attached “Annexure A”.
NORMAN
MANOIM
29 October 2013
DATE
Yasmin Carrim and Andreas Wesseis concurring
Tribunal Researcher: Nicola llgner
For the Commission: Tshegofatso Radinku
For the merging parties: Susan Meyer of Cliffe Dekker Hofmeyr Inc.
ANNEXURE A
In the large merger involving:
CA Sales Holdings (Pty) Ltd I SMC Brands SA (Pty) Ltd
CT CASE NUMBER: 017715
CONDITIONS
1. The acquisition of 49% of the total issued share capital of SMC Brands SA (Pty) Ltd by CA Sales Holdings (Pty) Ltd, be approved
unconditionally in terms of section 16(2)(a) of the Act; and further
2. The acquisition of sole control is approved in terms of section 16(2)(b) of the Act, provided that CA Sales exercises its option to purchase the remaining issued share capital of SMC ("Call Option") on or before 31 October 2014. Should CA Sales exercise
its Call Option at a date later than 31 October 2014, the parties will be required to obtain a new approval prior to implementation.
1 See page 30 of the merger record.
2 Pack ‘n Stack Investment Holdings (Pty) Ltd, Pack ‘n Stack (Pty) Ltd, Monteagle Merchandising Services (Pty) Ltd and Monteagle Merchandising Services KZN (Pty) Ltd.
3 See page 25 of the merger record.
4 See page 25 of the merger record.
5 See pages 27 and 28 of the merger record.
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