Cashbuild warns shareholders that its bid to purchase Pepkor’s The Building Company (TBC) for R1 billion had been shot down by the Competition Commission because it would result in the creation of the single-largest retailer of building materials, hardware and related products in South Africa.

Cashbuild on August 4 announced the proposed acquisition as it aimed to broaden its geographical footprint.

“It should be noted that this is only a recommendation at this stage, and the Competition Tribunal must still hear arguments from all parties,” said Cashbuild. On Friday, the Competition Commission said the merger would result in a substantial prevention or lessening of competition in the market for building materials, hardware and related products in South Africa.

In its reasons for the decision, it said the Cashbuild Group was a Southern African-based retailer of building materials and related products that operated Cashbuild-branded stores and P&L Hardware-branded stores.

The Cashbuild Group operated 318 stores in Africa. In South Africa, the Cashbuild Group had 228 stores. Cashbuild’s product range consisted of building materials such as cement, timber, bricks and associated products, such as tools, hardware, ceilings, electrical products, decorative products and plumbing products.

The Building Company, on the other hand, was wholly owned and controlled by Pepkor. The Building Company owns and controls about 48 trading firms in South Africa. The entities controlled by TBC include Campwell Hardware trading as Buco Western Cape; Building Supply, MacNeil, Timbercity Lowveld and Tiletoria Cape. TBC and all the firms it controlled were collectively referred to as TBC Group. TBC Group operated 160 stores in Africa, and comprises three divisions, namely retail, wholesale and specialised divisions..

“This market is highly concentrated, with only four retailers that have a national footprint. Of the four national retailers, three are corporate retailers, while the fourth is a buying group comprised of independent franchisees. Cashbuild, the acquiring firm, is the largest corporate retailer by number of stores at the national level. The Building Company, the target firm, is the second-largest corporate retailer by number of stores at the national level (including Buco stores and other specialist/single specialty stores),” the commission said.

At a local level, the commission also found that the merging parties’ stores overlapped in more than 80 townships. It would affect independent retailers “in these areas, independent retailers do not exert a significant competitive constraint to the merging parties.

These include areas such as Alice, Sterkspruit, Acornhoek, Giyani, Lethlabile and Thabazimbi. Thus, the proposed merger will give the merging parties the ability to unilaterally increase prices or change trading terms in several geographic areas.”

Cashbuild said last month in its third-quarter operational update that revenue was up 21 percent on the third quarter of the prior financial year, while the 299 existing stores’ revenue increased by 19 percent, and the 18 stores opened since July 2019 contributed 2 percent.

Cashbuild’s shares closed 1.95 percent higher at R303 on Friday.

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