COMPETITION TRIBUNAL OF SOUTH AFRICA

                                Case No.: 65/LM/Aug06

In the matter between:

SANDOWN MOTOR HOLDINGS (PTY) LTD                                Acquiring Firm
                                                                                       
and

PAARL MOTORS (PTY) LTD                                                             Target Firm                                               
_______________________________________________________________

Panel			:	D Lewis (Presiding Member), N Manoim (Tribunal 
Member), and Y Carrim (Tribunal Member) 

Heard on		:	11 October 2006
Delivered on		:	11 October 2006  

REASONS FOR DECISION

Approval

[1]	The Competition Tribunal issued a Merger Clearance Certificate on 11 October 2006 approving without conditions the proposed merger between Sandown Motor Holdings Ltd (“SMH”) and Paarl Motors (Pty) Ltd (“Paarl Motors”). The reasons for the approval appear below.

The parties and the merger transaction

[2]	SMH is a subsidiary of DaimlerChrysler South Africa (Pty) Ltd (“DCSA”), which in turn is controlled by DaimlerChrysler AG (“DCAG”), a German company. DCSA has a 75% interest in and exercises control over SMH. 
[3]	SMH will acquire the entire business of Paarl Motors, a DCSA franchised new and used motor vehicle dealership, as a going concern.  Pursuant to entering into the sale of shares agreement, SMH will own and control Paarl Motors. 

Rationale for the transaction

[4]	The Selfords Trust enters into this deal in order to realise its investment in the business of Paarl Motors.

[5]	SMH claims that the proposed deal would allow SMH to improve its efficiency and customer service levels in its Western Cape operations. SMH also claims that it will be able to allocate its capital investment and other resources more efficiently between its various dealerships located in Cape Town and the surrounding areas and thereby enhance its ability to compete with dealers of vehicles brands such as BMW, Audi, Renault and Ford. 

The relevant market

[6]	SMH is a DCSA franchised dealership subsidiary, which operates the DCSA brand centres in Gauteng and the Western Cape. SMH describes itself on its website as the ‘largest dealer network in the powerful Mercedes-Benz, Smart Cars, Chrysler, Jeep and Mitsubishi’ (the so-called ‘passenger vehicles’). It also sells commercial vehicles in brand names such as Mercedes-Benz, Freightliner, Mitsubishi Fuso and Western Star. SMH only sells DCSA products, both new and used motor vehicles – and is also involved in after-sales service and sale of spare parts in respect of the vehicles it sells as well as sourcing of vehicle accessories.  

[7]	DCSA currently operates in South Africa as a manufacturer and supplier of passenger cars and commercial vehicles. DCSA markets eight (8) branded passenger cars as well as commercial vehicles. 

[8]	Paarl Motors is a DCSA franchised dealership, which operates in Paarl in the Western Cape. It sells new and used vehicles – it is also involved in after-sales service and sale of spare parts in respect of its franchised brands; vehicle accessories; and provides forecourt/service station.

[9]	It is clear from the aforegoing that the merging parties’ activities overlap horizontally. This is the case because both parties are involved in the retail sale of new and used passenger and commercial vehicles, spare parts and services of these vehicles and the sourcing of vehicle accessories. It should be noted that we have previously approached market definition in the retail motor vehicle markets by finding that different segments constitute distinct relevant product markets. The passenger vehicle submarkets may include cars which are entry level, small, lower middle, upper middle, large, lower luxury, upper luxury, lower speciality, upper speciality, small utility, lower middle utility, upper middle utility, small minivans, and minivans. The market for commercial vehicles can be categorised into light, medium, heavy commercial
vehicles, and buses and coaches over ten tons. 

[10]	From a geographic market point of view, DCSA manufactures and supplies its products for sale throughout South Africa. SMH operates its entire range of services in Gauteng and the Western Cape whilst Paarl Motors conduct its business in Paarl, Western Cape. The merging parties believe that the geographic markets for the manufacture/supply of vehicles as well as for the sale of passenger and commercial vehicles is national. The Commission viewed the geographic market as the Western Cape area/region. We deem it unnecessary for us to explore the geographic market issue for purposes of this transaction given our finding below. 

Competition analysis

[11]	We are satisfied that the proposed transaction appears unlikely to result in a substantial prevention or lessening of competition for reasons outlined below. 

[12]	The Commission’s market share investigation yielded the following results in respect of each segment/sub-category of the affected markets. The merging parties’ have a combined post-merger market share for the passenger vehicles market in the Western Cape region of approximately 8% (small cars); 32% (luxury cars); 32% (specialty cars); 15% (sport utility vehicles); and 14% (minivans). With regard to commercial vehicles, the merging parties have a combined post-merger market shares of approximately 6% (light commercial vehicles); 13% (medium commercial vehicles); 13% (heavy commercial vehicles); 35% (extra-heavy commercial vehicles) and 23% (buses). 

[13]	As can be seen from the above market shares, the merging parties appear to be market share leaders in the three (3) categories, viz., luxury cars, specialty cars and extra heavy commercial vehicles. The merging parties contend that the luxury market is highly competitive and manufacturers continually innovate and release new models in order to attract luxury vehicle buyers, and that new players such as Subaru have entered this market segment recently. The merging parties argued similarly with respect to specialty cars but added that there are a significant number of large competitors in this market notably Toyota whom the merging parties regard as a formidable competitor. The merging parties advised us that there are other large competitors in the extra heavy commercial market segment in the form of Tyco, Nissan and Volvo. 

[14]	The Commission contends that although in its view there is a high likelihood of a reduction in intra-brand competition, this is unlikely to result in reduced inter-brand competition in the affected markets given the prevalence of a wide range of brands and players in the market for the sale of new and used passenger and commercial vehicles.     

Public Interest

[15]	The merging parties submitted that proposed transaction would not have an impact on any public interest aspects. Indeed the merging parties foresee potential benefit to the hundred and eight (108) current employees of Paarl Motors since they will all be employed by SMH, a larger vehicle dealer.   

Conclusion

[16]	We are satisfied that the proposed transaction is unlikely to result in a substantial lessening or prevention of competition in the relevant markets. There are no public interest grounds that justify prohibiting or imposing any conditions on the merger. We accordingly approve the proposed transaction unconditionally.

______________
D Lewis  

N Manoim and Y Carrim concurring.

Tribunal Researcher: T Masithulela

For the merging parties	:	L Morphet and H Irvine (Deneys Reitz 
Inc.) 

For the Commission		:	L Lamola (Mergers and Acquisitions)