The Constitutional Court of South Africa has ruled that furniture retailer Lewis can intervene in the Pepkor-Shoprite merger proceedings due to credible competition concerns. The court found the Competition Commission’s initial assessment inadequate, particularly regarding consumer surveys and the closeness of competition, which are crucial for lower-income consumers. Lewis argues the merger would reshape the national market, creating a dominant firm and eliminating competition.
South Africa ‘s highest court has ruled that furniture retailer Lewis is entitled to intervene in the Pepkor-Shoprite merger proceedings because it raises credible, merger-specific competition concerns that have not been properly tested by the Competition Commission.
In reasons handed down on Friday, the Constitutional Court said Lewis had “advanced a coherent theory of harm” that went to the heart of the merger’s competitive effects, particularly in the low-income furniture retail market. “There does not appear to be any serious dispute at this juncture that the commission’s initial assessment fell materially short of what was required,” the court said. The court identified “the most glaring inadequacies” in the commission’s investigation as “the absence of consumer surveys and insufficient attention to closeness of competition”, which it described as “self-evidently two crucial features of the theory of harm as a consequence of the proposed merger, particularly to lower-income consumers”. Lewis argues that combining Pepkor’s and Shoprite’s furniture businesses will fundamentally reshape the national market. “Lewis’s primary contention was that the proposed merger would remove a key competitive constraint on the acquiring firm and would in effect be a three-to-two merger at a national level,” the court said. According to Lewis, merging Pepkor and Shoprite’s household furniture retail operations would “create an insurmountably dominant firm of a size and scale that no other retail furniture retailer in South Africa will be able to match”. Lewis calculated the merged entity would have a market share of 59%, based on it having more than 1,100 stores. Lewis claimed the merger would eliminate competition between Pepkor and its “closest competitor in this particular segment of the furniture retail business”, namely Shoprite’s OK Furniture. In support of that claim, Lewis submitted evidence which, it said, exposed the commission’s failure to conduct “a reliable market analysis”, to perform “any pricing analysis” and to properly assess “the relevant local markets and related competitive effects in respect of which the merger parties’ stores overlap”. The Competition Appeal Court had dismissed the evidence as too general and lacking specialised knowledge, a characterisation the Constitutional Court rejected outright. “Both of these are wrong and, it must be said, in the latter instance also uncharitable,” the court said, referring to criticism that Lewis’s evidence amounted to a desktop “Google Maps” exercise. The court found that Lewis had presented extensive factual material, including maps, graphs and statistics, and had set out “the main shortcomings in the commission’s assessment of the proposed merger relating to market definition and competitive effects”. “It also furnished details of the substantive contribution Lewis as intervener wished to make in respect of these two aspects as well as its unique ability to assist the tribunal in deciding the proposed merger,” the court said. It quoted the tribunal’s findings that Lewis was able to “demonstrate detailed knowledge of the various players in the market, their offerings and the market realities of whether they are likely effective rivals of the merging parties”. It accepted the tribunal’s conclusion that “Lewis’ submissions cast material doubt on the completeness of the assessment conducted by the merging parties” and that the company Lewis had “demonstrated its ability to provide significant and material evidence on the nature of competition in the market, the closeness of competition, and the characterisation of regional issues or localised markets”. The court said Lewis did not need to prove the merger would substantially lessen competition in order to be heard. “The tribunal thus correctly held that Lewis had advanced a merger-specific theory of harm; namely the unilateral effects arising from national and local concentration that goes to the purposes of the act,” the judgment states. It adds that Lewis’s participation “will assist” the tribunal in carrying out its statutory duty under section 12A of the Competition Act. The court ruled that allowing intervention does not amount to endorsing Lewis’s conclusions or blocking the merger. Rather, it reflects the need for those concerns to be properly tested in an adversarial process. “In overturning the Competition Appeal Court’s decision to set aside the tribunal order admitting Lewis as an intervenor to the Pepkor-Shoprite Furniture large merger, the Constitutional Court has restated the test for intervention being that the tribunal may permit intervention in large merger proceedings either because the prospective intervenor has a material or genuine interest in the matter, or has the ability to assist the tribunal in evaluating the merger,” said Anthony Norton of Nortons Incorporated which acted on behalf of Lewis.Pepkor warns of investor flight if Lewis blocks Shoprite deal
Mergers & Acquisitions Competition Law South Africa Retail Furniture
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