Attacq Waterfall Investment Company (Pty) Ltd v Pocket 3 and Pocket 24 on Portion 1 of the Waterfall Farm 5 (LM090Sep23) [2023] ZACT 79 (4 December 2023)
- Citation
- [2023] ZACT 79
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- AW Wessels, T Vilakazi, G Budlender
- Case number
- LM090Sep23
More details
- Court
- Competition Tribunal
- Panel
- AW Wessels, T Vilakazi, G Budlender
- Case number
- LM090Sep23
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed transaction would not result in a substantial prevention or lessening of competition in the relevant market for rentable light industrial property within a 15 km radius in Midrand, as the combined market share of the merging parties would remain below 15%. The Tribunal also considered the existence of viable alternatives in the market, such as other large industrial property developments. Regarding public interest, the Tribunal determined that there would be no adverse effect on employment, as neither the Target Firm nor JVCO has employees, and employee representatives raised no concerns. The Tribunal further found that the transaction would increase the shareholding of historically disadvantaged persons in the Target Firm from 29.76% to 30.73%, based on BEE certificates and shareholding calculations. No other public interest concerns were identified. Accordingly, the Tribunal unconditionally approved the merger.
Court disposition
The merger is unconditionally approved.
Orders
- The proposed transaction is approved without conditions.
02
Material facts
Parties
Attacq Waterfall Investment Company (Pty) Ltd
Applicant Counsel: Justin Balkin and Preanka GoundenPocket 3 and Pocket 24 on Portion 1 of the Waterfall Farm 5
RespondentAmounts and remedies
- AWIC Pre Merger Shareholding in JVCO (%): 23.57
- AWIC Post Merger Shareholding in JVCO (%): 50
- Sanlam Life Shareholding in JVCO (%): 76.43
- Attacq HDP Shareholding (normal Flow Through) (%): 28.63
- Attacq HDP Shareholding (modified Flow Through) (%): 33.47
- Target Firm Pre Merger HDP Shareholding (%): 29.76
- Target Firm Post Merger HDP Shareholding (%): 30.73
- Sanlam Limited HDP Shareholding (%): 28
- AWIC HDP Shareholding (%): 33.47
03
Procedural history
Posture
Large Merger / Merger Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger will result in a substantial prevention or lessening of competition in the relevant market.
- 02
Whether the transaction raises any adverse public interest concerns, including employment and spread of ownership.
- 03
Whether the increase in historically disadvantaged persons (HDPs) shareholding post-merger is sufficient.
Party arguments
- Applicant
- The applicant argued that the transaction is a consequence of exercising a call option under the shareholders agreement, allowing AWIC to increase its shareholding in JVCO to 50%. The applicant submitted that the merger would not adversely affect competition, as the combined market share in the relevant market for rentable light industrial property would remain below 15%. The applicant further contended that there would be no negative impact on employment, as neither the Target Firm nor JVCO has employees, and that the transaction would increase HDP shareholding in the Target Firm.
- Respondent
- The respondent, comprising the Target Firm, confirmed that the transaction results from AWIC exercising its call option. The respondent did not raise any concerns regarding competition or public interest, and agreed with the applicant's submissions that there would be no adverse effect on employment or other public interest issues.
05
Court’s reasoning
Legal principles
- 01
Section 12A of the Competition Act, 89 of 1998
A merger may not be approved if it is likely to substantially prevent or lessen competition in any market, unless the prevention or lessening of competition is outweighed by technological, efficiency, or other pro-competitive gains.
- 02
Section 12A(3) of the Competition Act, 89 of 1998
The Tribunal must consider the effect of a merger on public interest, including employment and the spread of ownership among historically disadvantaged persons.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed transaction would not result in a substantial prevention or lessening of competition in the relevant market for rentable light industrial property within a 15 km radius in Midrand, as the combined market share of the merging parties would remain below 15%. The Tribunal also considered the existence of viable alternatives in the market, such as other large industrial property developments. Regarding public interest, the Tribunal determined that there would be no adverse effect on employment, as neither the Target Firm nor JVCO has employees, and employee representatives raised no concerns. The Tribunal further found that the transaction would increase the shareholding of historically disadvantaged persons in the Target Firm from 29.76% to 30.73%, based on BEE certificates and shareholding calculations. No other public interest concerns were identified. Accordingly, the Tribunal unconditionally approved the merger.
Obiter and limits
- The Tribunal noted that the vertical relationship between the parties, involving development and property management services, does not raise substantial foreclosure concerns, as AMS will continue to provide services to other properties.
- The Tribunal observed that the calculation of HDP shareholding post-merger is based on the most recent BEE certificates of Attacq and Sanlam, and that the increase in HDP shareholding is consistent with public interest objectives.
Court disposition
The merger is unconditionally approved.
- The proposed transaction is approved without conditions.
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: LM090Sep23
In the large merger between: Attacq Waterfall Investment Company (Pty) Ltd Primary Acquiring Firm And Pocket 3 and Pocket 24 on Portion 1 of the Waterfall Farm 5 Primary Target Firm
Panel: AW Wessels (Presiding Member) T Vilakazi (Tribunal Member) G Budlender (Tribunal Member) Heard on: 09 November 2023 Order issued on: 10 November 2023 Reasons Issued on: 04 December 2023
REASONS FOR DECISION
Introduction
[1] On 10 November 2023, the Competition Tribunal (“the Tribunal”) unconditionally approved the merger whereby Attacq Waterfall Investment Company Proprietary Limited (“AWIC”) will increase its share in the development rights in respect of two land parcels known as Pocket 3 and Pocket 24 on portion 1 of the Waterfall Farm 5 (“the Development Rights”).
Primary acquiring firm
[2] AWIC is wholly owned and controlled by Attacq Limited (“Attacq”). AWIC holds and controls various real estate portfolios and development and leasehold rights in Waterfall City. AWIC also holds a 23.57% indirect interest in Waterfall JVCO 115 (Pty) Ltd (“JVCO”). Attacq, which operates as a Real Estate Investment Trust (“REIT”), is listed on the Johannesburg Stock Exchange Limited (“the JSE”) and is not controlled by any single shareholder. Attacq controls the following firms: Attacq Management Services Proprietary Limited (“AMS”), AWIC, Attacq Ellipse (Pty) Ltd and Attacq the Mix (Pty) Ltd. Attacq, its subsidiaries and all the firms directly and indirectly controlling it, will hereinafter be collectively referred to as the “Acquiring Group”.
Primary target firm
[3] The primary target firm comprises a 50% share in the Development Rights. The Development Rights are currently held by JVCO, a private company registered in accordance with the laws of South Africa. JVCO is currently controlled by Sanlam Life Insurance Limited (“Sanlam Life”), a public company registered in accordance with the laws of South Africa, which holds a 76.43% stake in JVCO. AWIC, the Acquiring Firm, holds the remaining 23.57% in JVCO.
[4] Sanlam Life is listed on the JSE and is not directly or indirectly owned by any firm. JVCO wholly owns and controls the Development Rights. The Development Rights do not control any firms. The Development Rights will hereinafter be collectively referred to as the “Target Firm”.
Proposed transaction and rationale
[5] In terms of the proposed transaction AWIC will increase its share in the Target Firm from 23.57% to 50%.
[6] The Acquiring Group submitted that its rationale for the proposed transaction is that the shareholders agreement provides for the opportunity for AWIC to increase its shareholding in JVCO (and hence in respect of the Development Rights) to 50% (“the Option”). AWIC exercised the Option on 29 June 2022.
[7] The Target Firm submitted that the proposed transaction is a consequence of the exercise of a call option by AWIC.
Competition assessment
[8] The Competition Commission (“Commission”) found that proposed transaction gives rise to a horizontal overlap as the Acquiring Group owns a portfolio of light industrial properties and the Development Rights will be developed into industrial properties.
[9] Further, the merger parties have a pre-existing vertical relationship. AMS, the Acquiring Group’s subsidiary, has been appointed to conduct development management services and once the developments on Waterfall Farm are completed, AMS will perform asset management and property management services. According to the Commission’s assessment, it is unlikely that any substantial foreclosure concerns will arise from this relationship as AMS will continue to provide its development management, asset management and property management services to other developing properties. Therefore, we do not deal with this issue any further in these reasons.
[10] The Commission assessed the horizontal competition effects of the proposed transaction in the market for rentable light industrial property within a 15 km radius of the Target Firm’s rentable light industrial properties in Midrand.
[11] The Commission found that the merger parties will have a combined market share of less than 15% in the abovementioned market.
[12] Having considered the above, and that there are viable alternatives, such as two additional large industrial property developments (Simmer & Jack and Randport), in the relevant market, we do not consider it likely that the proposed merger will result in a substantial prevention or lessening of competition in the relevant market.
Public interest
Employment
[13] The merging parties submitted that there will be no adverse effect on employment.
[14] The Target Firm does not have any employees, it comprises Development Rights which have not yet been developed. JVCO, the seller, also does not have any employees. The Commission engaged the employee representatives of the Acquiring Group, who confirmed that there were no concerns raised by the employees regarding the proposed transaction.
[15] Considering the above, we are of the view that the proposed transaction does not raise any employment concerns.
Spread of ownership
[16] The merger parties submitted that the Acquiring Group has a 28.63% shareholding by historically disadvantaged persons (“HDPs”) using a normal flow-through principle and 33.47% based on the modified flow-through principle. The shareholding is held by Attacq and is based on Attacq’s black economic empowerment (“BEE”) certificate dated 29 September 2023 which expires on 28 September 2024.
[17] The Target Firm’s pre-merger HDP shareholding is 29.76%,[1] based on the HDP shareholding of the two shareholders pre-mergers, AWIC,[2] and Sanlam.[3]
[18] The overall HDP shareholding in the Target Firm will increase to 30.73% post- merger. The post-merger HDP shareholding is calculated as follows:
18.1.
AWIC currently has a HDPs shareholding of 33.47% and AWIC will hold 50% of the shares in the Target Firm which means the HDP share in the Target Firm attributable to AWIC is 16.73%, and
18.2.
Sanlam Limited currently has a HDP shareholding of 28% and Sanlam will hold 50% of the shares in the Target Firm which means the HDP shareholding in the Target Firm attributable to 14%.
Other public interest issues
[19] The proposed transaction raises no other public interest issues.
Conclusion
[20] Given the above, we unconditionally approve the proposed transaction.
04 December 2023
Mr Andreas Wessels Date
Prof Thando Vilakazi and Adv Geoff Budlender SC
Tribunal Case Manager: Theodora Michaletos For the Merging Parties: Justin Balkin and Preanka Gounden of ENSAfrica For the Commission: Tamara Paremoer, Makati Seekane and Ratshi Maphwanya
[1] K2018366052 (South Africa) (Pty) Ltd and Castleview Property Fund Ltd (LM065Jul22.).
[2] Attacq wholly owns AWIC, which in turn holds a 23.57% of the issued share capital of the seller, JVCO.
[3] Sanlam holds 76.4% of the issued share capital of the seller, JVCO. Based on Sanlam’s BEE certificate dated 9 March 2023, which expires 9 March 2024.
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