African Rainbow Capital Fund v Fledge Capital (Pty) Ltd (LM236Nov17) [2018] ZACT 78 (8 May 2018)
- Citation
- [2018] ZACT 78
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Enver Daniels, Medi Mokuena, Fiona Tregenna
- Case number
- LM236Nov17
More details
- Court
- Competition Tribunal
- Panel
- Enver Daniels, Medi Mokuena, Fiona Tregenna
- Case number
- LM236Nov17
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that, although the merger created potential for coordinated conduct and information exchange between competing firms in the bond origination and short-term insurance markets, these risks were sufficiently mitigated by the conditions imposed. Specifically, the ARC Fund would not influence the appointment of Betterlife board members, and no individual would serve on the boards of both Betterlife and the other relevant firms. The Tribunal also found no adverse public interest effects, including on employment or B-BBEE compliance. Accordingly, the merger was approved subject to the agreed conditions.
Court disposition
Merger conditionally approved subject to annexed conditions.
Orders
- The proposed transaction is approved subject to the conditions annexed to the order.
- ARC Fund shall not influence the appointment of Betterlife board members.
- No individual may serve on the boards of both Betterlife and Ooba, lndwe, or Alexander Forbes.
02
Material facts
Parties
African Rainbow Capital Fund
Applicant Counsel: Lizel BlignautFledge Capital (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Review / Conditional Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger would facilitate coordinated conduct between competing firms in the bond origination and short-term insurance markets.
- 02
Whether the merger would create a platform for the sharing of competitively sensitive information among competitors.
- 03
Whether the transaction raises any public interest concerns, including employment and B-BBEE compliance.
Party arguments
- Applicant
- The applicant argued that the transaction would enable Fledge Capital to become an accredited B-BBEE investment entity and inject significant capital into the business. The ARC Fund sought to expand and diversify its investment portfolio. The parties contended that the conditions agreed upon would prevent any anti-competitive information exchange or coordinated conduct between competing firms.
- Respondent
- The respondent, represented by the Competition Commission, raised concerns about potential coordinated conduct and information sharing between Ooba, Betterlife, lndwe, and Alexander Forbes post-merger. The Commission required structural and behavioural conditions to ensure that ARC Fund would not influence the appointment of directors to Betterlife and that no individual would serve on the boards of both Betterlife and the other relevant firms, thereby mitigating the risk of anti-competitive conduct.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
Mergers must not facilitate coordinated conduct or the sharing of competitively sensitive information between competitors.
- 02
Competition Act, No. 89 of 1998
Public interest considerations, including employment and B-BBEE compliance, must be assessed in merger reviews.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that, although the merger created potential for coordinated conduct and information exchange between competing firms in the bond origination and short-term insurance markets, these risks were sufficiently mitigated by the conditions imposed. Specifically, the ARC Fund would not influence the appointment of Betterlife board members, and no individual would serve on the boards of both Betterlife and the other relevant firms. The Tribunal also found no adverse public interest effects, including on employment or B-BBEE compliance. Accordingly, the merger was approved subject to the agreed conditions.
Obiter and limits
- The Tribunal noted the importance of structural and behavioural remedies in addressing competition concerns arising from mergers involving complex shareholding and board appointment arrangements.
- The Tribunal emphasised that public interest considerations, such as B-BBEE compliance, can be positively advanced through merger transactions when appropriate conditions are imposed.
Court disposition
Merger conditionally approved subject to annexed conditions.
- The proposed transaction is approved subject to the conditions annexed to the order.
- ARC Fund shall not influence the appointment of Betterlife board members.
- No individual may serve on the boards of both Betterlife and Ooba, lndwe, or Alexander Forbes.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM236Nov17
In the matter between
African Rainbow Capital Fund
Primary Acquiring Firm
And
Fledge Capital (Pty) Ltd
Primary Target Firm
Panel
: Mr Enver Daniels (Presiding Member)
: Mrs Medi Mokuena (Tribunal Member)
: Prof Fiona Tregenna (Tribunal Member)
Heard on
: 25 April 2018
Order Issued on : 25 April 2018
Reasons Issued on : 8 May 2018
REASONS
FOR DECISION
Approval
[1] On 25 April 2018, the Competition Tribunal ("the Tribunal") conditionally approved the large merger between the African Rainbow Capital Fund ("ARC Fund") and Fledge Capital (Pty) Ltd ("Fledge Capital").
[2] The reasons for the approval follow.
Parties to the transaction and their activities
Primary acquiring firm
[3] The primary acquiring firm is the ARC Fund, an investment fund that forms part of the African Rainbow Capital Group ("ARC Group").
The ARC Group is a South African investment group with controlling and non-controlling interests in a number of entities.
[4] Of relevance to the current transaction is the ARC Fund's interests in the following financial service providers: Ooba (Pty) ltd ("Ooba"), lndwe Broker Holdings (Pty) ("lndwe") ltd and Alexander Forbes Limited ("Alexander Forbes").
Primary target firm
[5] The primary target firm is Fledge Capital, an independent investment entity not controlled by any single firm. Fledge Capital has a number of investments in a wide range of industries, relevant to the proposed transaction is its non controlling interest in Betterlife Group Limited ("Betterlife"). Betterlife is a financial services provider.
Proposed transaction and rationale
[6] In terms of the proposed transaction, the ARC fund will subscribe for a number of newly issued shares in Fledge Capital, diluting the existing shareholders' interests in the process. Post-transaction, ARC will hold a controlling interest in Fledge Capital.
[7] The transaction allows Fledge Capital to become an accredited B-BBEE investment entity and will inject a significant amount of capital
into the entity. The ARC Fund wishes to expand and diversify its investment portfolio through this acquisition.
Relevant market and impact on competition
Horizontal assessment
[8] The Commission evaluated the activities of entities in which the merging parties have either a controlling or non-controlling interest and found a number of horizontal overlaps. Ultimately, the Commission raised concerns that the merger may facilitate coordinated conduct between Ooba and Betterlife in the market for bond origination services and between Ooba, lndwe, Alexander Forbes and Betterlife in the short-term insurance products market.
[9] Fledge Capital is entitled to appoint a representative onto the board of directors of Betterlife, while the ARC Fund is entitled to appoint members onto the Ooba, lndwe and Alexander Forbes boards respectively. Post-merger, the ARC Fund would thus be entitled to appoint or influence the appointment of directors onto the boards of competing firms, representing a potential platform for sharing of competitively sensitive information. To address these concerns, the parties have agreed that therepresentative of Fledge Capital on the board of Betterlife will be chosen by the founding shareholders of Fledge Capital and not by the ARC Group. Further, the ARC Group will not exercise any influence over the founding shareholders when they appoint this representative. Lastly, the merging parties have agreed that no person may serve or be appointed to the board of Betterlife if they serve or are appointed to the boards of lndwe, Ooba and/or Alexander Forbes.
Public interest
[10] The Commission was satisfied that the proposed transaction was unlikely to adversely impact employment or any other public interest concern. We accordingly agreed with the Commission's analysis.
Conclusion
[11] In light of the above, we conclude that the information exchange concerns that may arise from the merger have been sufficiently addressed by the conditions. Further, no public interest issues arise from the proposed transaction.
Accordingly we approve the proposed transaction subject to the conditions annexed hereto.
Mr Enver Daniels
Ms Medi Mokuena and Prof Fiona Tregenna
8 May 2018
Date
Tribunal Researcher:
Jonathan Thomson
For the merging parties: Lizel Blignaut of ENS Africa
For the Commission:
Raksha Darji
Grashum Mutizwa
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