Mon, 26 Oct 2020

The Competition Tribunal has approved the sale of Jet Stores, to The Foschini Group (TFG), subject to conditions.

The Competition Commission had recommended that the merger be approved after it investigated concerns from competitors that TFG would have obtained a dominant market position through the merger. But it found this was not the case, Fin24 reported earlier.

The Tribunal conducted virtual proceedings on the matter on Wednesday and heard submissions from the Commission, the South African Commercial Catering and Allied Workers Union (Saccawu) and the merger parties.

TFG may now acquire Jet Stores, provided that it will not retrench employees as a result of the merger for a period of two years from the implementation date of the merger, the Tribunal said in a statement issued on Wednesday evening. TFG should also give preference to employees of Edcon, the retail group of which Jet stores is part, for any vacancies that arise in the Jet business for a period of three years from the merger implementation date.

In line wth the Commission's recommendations, the other conditions include that the transferring stores be fully integrated into TFG's structures. TFG should also maintain the same ratio of local procurement by Jet stores as it did in its previous financial year. TFG should also endeavour to increase local procurement for these stores.

The full order and conditions will be made available on the Tribunal's website in due course, it said.

TFG offered to buy some Jet Stores for R480 million in July.

Earlier on Wdnesday, the Tribunal heard of the concerns about the merger raised by Saccawu and competitors like Mr Price.

Tribunal Member, Enver Daniels said Mr Price was concerned that the lower rental rates that Jet managed to negotiate, as well as the roughly R800 million worth of stock that TFG will get as part of the deal will give it an unfair a competitive advantage.

The Commission however, said its investigations showed that TFG is not acquiring a dominant position.

TFG's market share gains post Jet acquisition

In SA, the acquisition of 381 Jet stores will increase TFG's market share in the whole apparel market to 22% after the merger. For clothing specifically, TFG's market share would increase by 7.2% to 24.6% and in footwear, the group will command a 35.4% market share. But TFG will gain the most in the lower LSM market where its clothing market share is set to increase by almost 18%.

"Taken as a whole from a competition perspective, the Commission found that the proposed transaction is unlikely to substantially prevent or lessen competition in the respective markets," said Billy Mabatamela, an analyst at the Commission.

As for the stock that TFG will be getting for free without paying suppliers that are still being owed by Edcon, the Commission said such concerns should be addressed in a different forum because they were a result of Edcon's ailing finances, not the merger.

Commission's principal analyst, Ratshidaho Maphwanya added that it was difficult to conclude that a company getting free stock once-off would result in a long-term dominant position.

"To the extent that this gives the merged entities some sort of competitive advantage as claimed by Mr Price, we find that to be unlikely largely because if there was a competitive advantage, it would only be relevant for one stock run," said Maphwanya.

TFG and Edcon's legal team also added that the stock is outdated and because stores that are being bought continued to trade while the acquisition process was ongoing, the value of that merchandise has diminished significantly.

TFG could revive more Jet Stores than initially agreed

TFG initially offered to but 371 of commercially viable Jet Stores. That figure went down to 333 stores when the sale agreement was signed given the leases that could be negotiated with the landlords. But now 381 stores in SA and another 42 stores in SADC countries that will be transferred.

"I'm told that there is a handful of stores that are still engaged in negotiations that may go across, but the number won't increase materially above the 381," said the merging parties lawyer, Mark Gardner.

The efforts to increase the number of Jet stores that will be retained post-merger means that at this stage 4855 jobs will be saved by through sale of Jet Stores. Of Edcon's total workforce of approximately 17 000, about 2 400 have been retrenched, another 3 5000 took voluntary severance packages. Between the TFG deal and Retailability's acquisition of Edgars stores, roughly 10 000 jobs will be saved, said the merging parties on Wednesday.

Saccawu which wanted to be a recognised union when Jet employees move over to TFG also asked for a five-year moratorium on retrenchments. However, Edcon and TFG's legal team said would agree to include moratorium for only two years.

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