Used Equipment Company (Pty) Ltd and Barloworld Equipment (Pty) Ltd and BLC Plant Company (Pty) Ltd (20/LM/Apr03) [2003] ZACT 29 (4 June 2003)
- Citation
- [2003] ZACT 29
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- D. Lewis, U. Bhoola, L. Reyburn
- Case number
- 20/LM/Apr03
More details
- Court
- Competition Tribunal
- Panel
- D. Lewis, U. Bhoola, L. Reyburn
- Case number
- 20/LM/Apr03
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the joint venture between Barloworld Equipment and BLC Plant Company, forming the Used Equipment Company, would not substantially lessen competition in the market for used earthmoving equipment. The product overlap was limited to the purchase and sale of used equipment, and the market was characterized by low entry barriers and significant customer countervailing power. The geographic market was defined as national, and the parties' combined market shares did not raise competition concerns. No public interest issues were identified that would alter this conclusion. Accordingly, the merger was approved unconditionally.
Court disposition
Merger approved unconditionally.
Orders
- The merger between Used Equipment Company (Pty) Ltd, Barloworld Equipment (Pty) Ltd, and BLC Plant Company (Pty) Ltd is approved without conditions.
02
Material facts
Parties
Used Equipment Company (Pty) Ltd
Applicant Counsel: Deneys Reitz AttorneysBarloworld Equipment (Pty) Ltd
Respondent Counsel: Deneys Reitz AttorneysBLC Plant Company (Pty) Ltd
Respondent Counsel: Deneys Reitz Attorneys03
Procedural history
Posture
Large Merger / Merger Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed joint venture will substantially lessen competition in the market for used earthmoving equipment.
- 02
Whether there are public interest concerns that would prevent approval of the merger.
Party arguments
- Applicant
- The merging parties argued that the joint venture would entrench an existing marketing alliance, allow Barloworld Equipment to expand into the used equipment market, and enable BLC Plant Company to benefit from Barloworld's national infrastructure. They submitted that demand substitution exists between different brands, that market shares do not raise competition concerns, and that entry barriers are low due to the presence of many other dealers and countervailing customer power.
- Respondent
- The Competition Commission concurred with the parties, defining the geographic market as national and noting that the merger would not result in a substantial lessening of competition. The Commission highlighted the low entry barriers and the ability of customers to source equipment from various suppliers, including directly from manufacturers.
05
Court’s reasoning
Legal principles
- 01
Competition Act, section 16(2)(a)
A merger may only be prohibited if it is likely to substantially prevent or lessen competition, unless public interest concerns dictate otherwise.
- 02
Competition Tribunal precedent
Market definition must consider product overlap and geographic scope relevant to the transaction.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the joint venture between Barloworld Equipment and BLC Plant Company, forming the Used Equipment Company, would not substantially lessen competition in the market for used earthmoving equipment. The product overlap was limited to the purchase and sale of used equipment, and the market was characterized by low entry barriers and significant customer countervailing power. The geographic market was defined as national, and the parties' combined market shares did not raise competition concerns. No public interest issues were identified that would alter this conclusion. Accordingly, the merger was approved unconditionally.
Obiter and limits
- The Tribunal noted that the ability of customers to source equipment directly from manufacturers further reduces the risk of anti-competitive effects.
- The parties indicated that the joint venture would secure significant export orders, which may enhance competition internationally.
Court disposition
Merger approved unconditionally.
- The merger between Used Equipment Company (Pty) Ltd, Barloworld Equipment (Pty) Ltd, and BLC Plant Company (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
REPUBLIC
OF SOUTH AFRICA
Case No: 20/LM/Apr03
In the large merger between:
The Used Equipment Company (Pty) Ltd
And
Barloworld Equipment (Pty) Ltd and BLC Plant Company (Pty) Ltd
Reasons for Decision
________________
APPROVAL
On 4 June 2003 the Competition Tribunal issued a Merger Clearance Certificate approving the merger between the Used Equipment Company (Pty) Ltd and Barloworld Equipment (Pty) Ltd and BLC Plant Company (Pty) Ltd in terms of section 16(2)(a). The reasons for the approval of the merger appear below.
The Merger Transaction
1. Barloworld Equipment (Pty) Ltd (âBEâ) and BLC Plant Company (Pty) Ltd (âBLCâ) are forming a joint venture company, the Used Equipment Company (Pty) Ltd (âUECâ), which has not traded up until now. BE and BLC will each have a 50% interest in this company. This company will undertake the business of purchasing, refurbishing, marketing and selling used earthmoving equipment.
Rationale for the Transaction
2. This transaction is effectively an entrenchment of an existing marketing alliance between BE and BLC. BE is a subsidiary of Barloworld, and has the sole dealership for the Caterpillar brand of earth-moving equipment. They deal predominantly in new equipment, whereas BLC deals in used earth-moving equipment of a range of brands. BE wants to move more into the used earthmoving equipment market while BLC hopes to gain the benefits of the national scale and infrastructure that BE provides. The parties have also indicated that UEC will secure significant export orders for its products.
The Relevant Market
3. BE sells used (primarily Caterpillar) equipment while BLC focuses on the purchase, repair and resale of used earthmoving equipment of all brands. Examples of such products include hydraulic excavators, skid steer loaders, wheel loaders, and a variety of other products designed primarily to move quantities of earth.
BE and BLC are essentially intermediaries or dealers in used equipment. They buy and sell used earthmoving equipment, either from construction companies or via import agents (auctioneers). Companies would sell the used equipment to the dealers in exchange for other equipment.
5. The product overlap is in respect of the purchase and sale of used earthmoving equipment.
Geographic Market
6. The trade in earthmoving equipment occurs on a national, as well as an international level, since products can be imported at very low import duties. The commission defines the geographic market as national and we will likewise confine ourselves to this narrower level of analysis.
Impact on competition
7. The parties submit that there is demand substitution between different brands of earthmoving equipment and most suppliers keep a wide range of earthmoving equipment.
8. The market shares of the new earthmoving equipment market were used to calculate the likely market shares of the joint venture entity in the used market. These figures do not raise competition concerns.
9. It further appears that entry barriers in the used earthmoving equipment market are low, since there are many other participants who deal in all brands of used earthmoving equipment. There is in addition countervailing power from customers, who are able to source this type of equipment from a variety of suppliers. Customers can furthermore source directly from the manufacturers, thereby cutting out the intermediaries.
Conclusion
We conclude that the merger will not lead to a substantial lessening of competition. There are no public interest concerns which would alter this conclusion. The merger is therefore approved unconditionally.
_____ 4 June 2003
D.Lewis Date
Concurring: U. Bhoola, L. Reyburn
For the merging parties: Deneys Reitz Attorneys
For the Commission: M. Worsley, M. Mohlala, Competition Commission
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