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 [Pepkor] 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.
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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.
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