Dis-Chem Pharmarcies Ltd v Quenets Pharmaceutical Wholesalers (Pty) Ltd, Brandwacht Marketing (Pty) Ltd (LM115Jul18) [2018] ZACT 51 (15 November 2018)
- Citation
- [2018] ZACT 51
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Enver Daniels, lmraan Valodia
- Case number
- LM115Jul18
More details
- Court
- Competition Tribunal
- Panel
- Enver Daniels, lmraan Valodia
- Case number
- LM115Jul18
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed merger would not result in a substantial prevention or lessening of competition in either the national or Western Cape markets for the wholesale distribution of pharmaceutical products. The combined post-merger market shares were below thresholds that would raise competition concerns, and the merged entity would continue to face competition from other market participants. The vertical relationship between the parties was limited and did not alter the structure of the downstream retail market. Public interest concerns raised by a competitor were investigated and found to be unsubstantiated, with no evidence of job losses or market foreclosure. Accordingly, the Tribunal approved the transaction unconditionally.
Court disposition
The proposed merger is approved unconditionally.
Orders
- The proposed transaction between Dis-Chem Pharmacies Ltd and Quenets Pharmaceutical Wholesalers (Pty) Ltd, Brandwacht Marketing (Pty) Ltd is approved without conditions.
02
Material facts
Parties
Dis-Chem Pharmacies Ltd
Applicant Counsel: Adv Michelle Le RouxQuenets Pharmaceutical Wholesalers (Pty) Ltd
RespondentBrandwacht Marketing (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Approval / Final Determination
04
Questions and positions
Legal issues
- 01
Whether the proposed merger between Dis-Chem and Quenets/Brandwacht is likely to substantially prevent or lessen competition in the relevant markets.
- 02
Whether the transaction raises any public interest concerns, including potential job losses or market foreclosure.
Party arguments
- Applicant
- Dis-Chem argued that the proposed acquisition would not result in any substantial lessening of competition, as the combined market shares post-merger would remain low in both the national and Western Cape markets for wholesale pharmaceutical distribution. Dis-Chem also asserted that there would be no retrenchments or job losses, and that the transaction would not negatively impact the independent pharmacy sector.
- Respondent
- A competitor objected, claiming the merger would strengthen Dis-Chem's monopoly and eliminate independent pharmacies. The Competition Commission, however, found these concerns unsubstantiated, noting low market shares for Dis-Chem in both upstream and downstream markets and the continued availability of alternatives for retailers and wholesalers post-merger.
05
Court’s reasoning
Legal principles
- 01
Section 12A of the Competition Act 89 of 1998
A merger may only be prohibited if it is likely to substantially prevent or lessen competition in any relevant market.
- 02
Section 12A(3) of the Competition Act 89 of 1998
Public interest factors, including employment and the ability of small businesses to compete, must be considered in merger assessments.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed merger would not result in a substantial prevention or lessening of competition in either the national or Western Cape markets for the wholesale distribution of pharmaceutical products. The combined post-merger market shares were below thresholds that would raise competition concerns, and the merged entity would continue to face competition from other market participants. The vertical relationship between the parties was limited and did not alter the structure of the downstream retail market. Public interest concerns raised by a competitor were investigated and found to be unsubstantiated, with no evidence of job losses or market foreclosure. Accordingly, the Tribunal approved the transaction unconditionally.
Obiter and limits
- The Tribunal noted that the absence of objections from the Commission and merging parties regarding the panel composition allowed the hearing to proceed with two members.
- The merging parties confirmed that no retrenchments or job losses would result from the transaction, addressing employment-related public interest concerns.
Court disposition
The proposed merger is approved unconditionally.
- The proposed transaction between Dis-Chem Pharmacies Ltd and Quenets Pharmaceutical Wholesalers (Pty) Ltd, Brandwacht Marketing (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: LM115Jul18
In the matter between
Dis-Chem Pharmacies Ltd
Primary Acquiring Firm
And
Quenets Pharmaceutical Wholesalers (Pty) Ltd,
Primary Target Firms
Brandwacht Marketing (Pty) Ltd
Panel
: Enver Daniels (Presiding Member)
: lmraan Valodia (Tribunal Member)
Heard on : 31 October 2018
Order Issued on : 31 October 2018
Reasons Issued on : 15 November 2018
REASONS
FOR DECISION
Approval
[1] On 31 October 2018, the Competition Tribunal ("Tribunal") unconditionally approved the proposed transaction involving Dis-Chem Pharmacies Ltd ("Dis-Chem") and Quenets Pharmaceutical Wholesalers (Pty) Ltd ("Quenets"), Brandwacht Marketing (Ply) Ltd ("Brandwacht"), hereinafter collectively referred to as the merging parties.
[2] Prior to the commencement of the hearing, Ms Andiswa Ndoni (Ms Ndoni) was scheduled to sit on the panel alongside myself and Prof. lmraan Valodia. Unfortunately, Ms Ndoni received news that a family member passed away and thus was not in a position to adjudicate over the proposed transaction. In terms of section 31(3)(a) of the Competition Act 89 of 1998 (the "Act") I, Enver Daniels as the Deputy Chairperson of this Tribunal, in the absence of the Chairperson as he was traveling abroad, assumed the position of Chairperson and excused Ms Ndoni. I decided to proceed with the hearing with only two Tribunal Members sitting on the panel. No objections were raised by the Commission or the merging parties.
[3] The reasons for approval of the proposed transaction follow.
Parties to the transaction
Primary Acquiring Firm
[4] Dis-Chem is ultimately controlled by the Saltzman Family Trust. Dis-Chem controls a total of 40 firms. Dis-Chem and its subsidiaries are hereinafter collectively referred to as the 'Dis-Chem Group'.
[5] The Dis-Chem Group is a corporate pharmacy group operating through two divisions, retail and wholesale. In terms of the retail activities,
the Dis-Chem Group operates 129 retail pharmacies which offer a range of scheduled and unscheduled pharmaceutical products; as well as 'front-shop' items.[1]
[6] The Dis-Chem Group's wholesale activities include logistics, warehousing, fine distribution, supply chain management and in store category management. The Dis Chem Group supply their own retail pharmacies and independent pharmacies. Their warehousing facilities
are located in Midrand and Cape Town.
Primary Target Firms
[7] The primary target firms are Quenets and Brandwacht.
[8] Quenets is a pharmaceutical wholesaler located in the Western Cape. Quenets wholesale activities include logistics, warehousing, fine distribution, supply chain management, in store category management, marketing activities and bulk distribution. Quenets distributes
pharmaceutical products and front-shop items.
[9] Brandwacht is a market company and conducts all of marketing activities related to the wholesale of the products by Quenets.
Proposed transaction
[10] In terms of the Share Purchase Agreement, Dis-Chem will acquire Quenets and Brandwacht. Post-merger, Dis-Chem will own and control the target firms.
Impact on competition
[11] The Competition Commission ("Commission") considered the activities of the merging parties and identified a horizontal overlap in the following markets: (i) the national market for the wholesale distribution of pharmaceutical products and (ii) the Western Cape market for the wholesale distribution of pharmaceutical products.
[12] In the national market for the wholesale distribution of pharmaceutical products, the Commission found that the merging parties will have a combined post-merger market share of less than 20%, with a de minimis share accretion.
[13] In the Western Cape market for the wholesale distribution of pharmaceutical products, the Commission found that the merging parties will have a combined post merger market share of less than 15%, with an accretion of less than 5%.
[14] The Commission was of the view that the post-merger market shares are relatively low and that the merged entity will continue to face competition from market participants such as Alpha Pharm, Pharmaceutical Distributors and manufacturers who supply directly to the retailers.
[15] The Commission also identified a vertical relationship between the merging parties as Quenets supplied pharmaceutical products to 17 Dis-Chem retail pharmacies on an ad hoc basis in 2018. This prompted an investigation into the effect of the proposed transaction on the downstream market for the retail of scheduled and unscheduled pharmaceutical products in the Western Cape. The Commission found that Dis-Chem has a market share of less than 15%.
[16] Given that Dis-Chem has a low market share, the proposed transaction does not change the structure of the retail market, and the relationship between the merging parties was very brief; the Commission was of the view that the proposed transaction is unlikely to raise foreclosure concerns.
[17] In light of the above, the Commission concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market. We according agree with the Commission's findings.
Public interest
[18] A competitor in the market for the wholesale distribution of pharmaceutical products raised concerns about the proposed transaction. The competitor was of the view that the proposed transaction would strengthen Dis-Chem's position as a monopoly and eliminate the independent pharmacy sector.
[19] The Commission investigated the matter and found that the concerns were unsubstantiated. First, Dis-Chem's market shares in both the upstream and downstream markets are relatively low. Secondly, there is nothing to suggest that the proposed transaction will result in Dis-Chem acquiring market power. Moreover, the retailers and wholesalers will have alternatives post-merger.
[20] The merging parties confirmed that the proposed transaction will not result in any retrenchments or job losses. The proposed transaction does not raise any other public interest concerns.
Conclusion
[21] In light of the above, we conclude that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market. ln addition, no public interest concerns arise from the proposed transaction. Accordingly, we approve the proposed transaction unconditionally.
Mr Enver Daniels
Prof. lmraan Valodia concurring.
15 November 2018
Date
Tribunal Researcher : Hlumelo Vazi
For the merging parties : Adv Michelle Le Roux instructed by Saltzman Attorneys
For the Commission N Msiza and G Mutizwa
[1] Front shop items include personal care and beauty products; healthcare and nutrition products; baby care items; food products;
shoes and electronics.
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