Naspers is a giant – the company is worth over R1.1tn (yes, trillion)!

To give you an idea of how enormous that number is, that’s only slightly less than the total taxes collected by SARS in the 2019 financial year.

Amongst a zillion other things, Naspers owns AutoTrader and OLX. Back in September 2018, they announced an intention to acquire WeBuyCars and invest R1.4bn in the company.

That deal now finds itself in the junkyard.

𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐨𝐧 𝐥𝐚𝐰 𝐢𝐬𝐧’𝐭 𝐟𝐨𝐫 𝐬𝐢𝐬𝐬𝐢𝐞𝐬

Transactions above a certain size require approval from competition authorities. I’ve always found competition law to be a fascinating space.

Whilst some may argue that these laws represent unwelcome interference in a free economy, the reality is that the Competition Commission (and Competition Tribunal) plays a critical role in protecting the basic economic rights of ordinary South Africans.

Price fixing, unfair trading practices, mass job losses from mergers and undesirable iron grips on industries are the topics that these authorities deal with on a daily basis.

Even the United States, the beacon of capitalism, has competition laws. They just call them antitrust laws.

𝐓𝐡𝐞 𝐍𝐚𝐬𝐩𝐞𝐫𝐬 – 𝐖𝐞𝐁𝐮𝐲𝐂𝐚𝐫𝐬 𝐝𝐞𝐚𝐥 𝐢𝐬 𝐝𝐞𝐚𝐝

In May 2019, the Competition Commission (the first port of call) recommended that the Naspers / WeBuyCars transaction should be prohibited.

A deal being blocked doesn’t mean that anyone did anything wrong. It just means that the Competition Commission is concerned about an opportunity becoming available for somebody to misbehave in future, to the detriment of broader society.

After the Commission’s recommendation, the deal was referred to the Competition Tribunal. The Tribunal agreed with the Commission, relegating the deal to the M&A graveyard last Friday.

𝐖𝐡𝐲 𝐝𝐢𝐝 𝐭𝐡𝐞𝐲 𝐤𝐢𝐥𝐥 𝐢𝐭?

How does a car dealer directly compete with a classifieds business?

Well, it doesn’t directly compete. It does however represent a vertical relationship.

Car dealers advertise in the classifieds. It would theoretically be possible for the companies to work together to squeeze other used car businesses out the market. This could drive up used car prices, thereby negatively impacting the South African consumer.

I can understand that logic.

Something I can’t quite get my head around is the Commission noting that Naspers was anticipating an entry into the South African market for the wholesale and online buying of used cars, but put these plans on ice to do the WeBuyCars deal instead.

It’s an odd precedent to set and makes one wonder how “build or buy” decisions will be managed in future. It’s not unusual at all for a company to consider a new entry into an industry, only for the eventual decision to be the acquisition of an existing competitor instead.

𝐒𝐢𝐳𝐞 𝐝𝐨𝐞𝐬 𝐦𝐚𝐭𝐭𝐞𝐫

Dealing with competition authorities becomes a tough reality for conglomerates. They need to keep growing in order to justify their high valuations, but eventually the opportunities start to dry up as competition authorities block substantial deals.

This forces huge companies to look for acquisition opportunities in new geographies or entirely different industries, which isn’t always the best use of shareholder money.

Back to the drawing board for Naspers…perhaps they will go into competition with WeBuyCars instead, which will please the authorities!

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