Capital Propfund (Pty) Ltd and Another v Knoxco 10 Properties (Pty) Ltd (LM091Oct21) [2022] ZACT 6 (17 March 2022)
- Citation
- [2022] ZACT 6
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Mondo Mazwai, Yasmin Carrim, Andreas Wessels
- Case number
- LM091Oct21
More details
- Court
- Competition Tribunal
- Panel
- Mondo Mazwai, Yasmin Carrim, Andreas Wessels
- Case number
- LM091Oct21
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed merger between Capital Propfund, Inospace, and Knoxco 10 Properties would not substantially prevent or lessen competition in the relevant market for industrial property in the Sandton/Randburg and Roodepoort nodes. Although the merged entity would have a post-merger market share of approximately 26.66%, the market remains competitive with other providers. The Tribunal addressed the Commission's concern regarding potential information exchange by imposing conditions prohibiting directors involved in the operations of the Fortress and Taurus Groups from serving on the joint venture's board and requiring non-disclosure undertakings to prevent the sharing of competitively sensitive information. The transaction does not negatively affect employment and will result in an estimated 12.31% black ownership in the joint venture. No other public interest concerns were identified. The merger was approved subject to the specified conditions.
Court disposition
Merger conditionally approved subject to competition and public interest conditions.
Orders
- The merger is approved subject to the conditions set out in Annexure 'A', including the implementation of Chinese wall limitations and non-disclosure undertakings between the joint venture partners.
- No directors involved in the operations of Fortress Group or Taurus Group's light industrial businesses may be appointed to the joint venture's board.
- The merging parties must ensure that competitively sensitive information is not shared between Fortress Group and Taurus Group outside the joint venture.
02
Material facts
Parties
Capital Propfund (Pty) Ltd
Applicant Counsel: Susan MeyerInospace (Pty) Ltd
Applicant Counsel: Susan MeyerKnoxco 10 Properties (Pty) Ltd
RespondentCompetition Commission
Respondent Counsel: Nolubabalo Myoli and Grashum MutizwaAmounts and remedies
- Post Merger Market Share (gross Lettable Area): 26.66
- Fortress Target Properties Market Share: 21.04
- Inospace Target Properties Market Share: 5.62
- Estimated Black Ownership in Joint Venture Post Merger: 12.31
- Fortress Current Black Ownership: 15.43
- Inospace Current Black Ownership: 11.91
03
Procedural history
Posture
Large Merger Review / Conditional Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger will substantially prevent or lessen competition in the relevant market.
- 02
Whether the merger raises concerns regarding information exchange between joint venture partners.
- 03
Whether the transaction has any negative impact on public interest, including employment and black ownership.
Party arguments
- Applicant
- The merging parties argued that the transaction would not substantially lessen competition, as their combined market share would remain constrained by other industrial property providers. They accepted the imposition of conditions to prevent information exchange between the joint venture partners and highlighted the positive impact on black ownership post-merger.
- Respondent
- The Competition Commission raised concerns about potential information exchange between the Taurus and Fortress Groups, as both would continue to operate competing properties outside the joint venture. The Commission also assessed the merger's impact on market concentration, employment, and black ownership, recommending approval subject to conditions preventing anti-competitive information sharing.
05
Court’s reasoning
Legal principles
- 01
Competition Act 89 of 1998
A merger may be approved subject to conditions if it is unlikely to substantially prevent or lessen competition, provided that any potential anti-competitive concerns are adequately remedied.
- 02
Competition Act 89 of 1998
The Tribunal must consider public interest factors, including the effect on employment and the promotion of greater spread of ownership, when assessing mergers.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed merger between Capital Propfund, Inospace, and Knoxco 10 Properties would not substantially prevent or lessen competition in the relevant market for industrial property in the Sandton/Randburg and Roodepoort nodes. Although the merged entity would have a post-merger market share of approximately 26.66%, the market remains competitive with other providers. The Tribunal addressed the Commission's concern regarding potential information exchange by imposing conditions prohibiting directors involved in the operations of the Fortress and Taurus Groups from serving on the joint venture's board and requiring non-disclosure undertakings to prevent the sharing of competitively sensitive information. The transaction does not negatively affect employment and will result in an estimated 12.31% black ownership in the joint venture. No other public interest concerns were identified. The merger was approved subject to the specified conditions.
Obiter and limits
- The Tribunal noted that the market share calculation may be overstated due to incomplete property data, but this does not alter the competitive assessment.
- The Tribunal acknowledged the merging parties' willingness to accept conditions to address information exchange concerns, demonstrating a commitment to compliance with competition law.
Court disposition
Merger conditionally approved subject to competition and public interest conditions.
- The merger is approved subject to the conditions set out in Annexure 'A', including the implementation of Chinese wall limitations and non-disclosure undertakings between the joint venture partners.
- No directors involved in the operations of Fortress Group or Taurus Group's light industrial businesses may be appointed to the joint venture's board.
- The merging parties must ensure that competitively sensitive information is not shared between Fortress Group and Taurus Group outside the joint venture.
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: LM091Oct21
Capital Propfund (Pty) Ltd and Inospace (Pty) Ltd (Primary Acquiring Firm)
and
Knoxco 10 Properties (Pty) Ltd (Primary Target Firm)
Heard on: 18
February 2022
Order Issued on: 18
February 2022
Reasons Issued on: 17
March 2022
REASONS
FOR DECISION
[1] On 18 February 2022, the Competition Tribunal conditionally approved a large merger between Capital Propfund Proprietary Limited ("Capital"), Inospace Proprietary Limited ("Inospace") and Knoxco 10 Properties Proprietary Limited.
[2] The primary acquiring firms are Capital and Inospace. The primary acquiring firms are ultimately controlled by Fortress REIT Limited (“Fortress”) and The Taurus Trust (“Taurus”), respectively.
[3] The Fortress Group is constituted of property ownership firms, with a portfolio of immovable properties and rental enterprises in all nine provinces of South Africa. Fortress' portfolio is spread across the logistics/industrial, retail and office sectors. The Taurus Group owns industrial, storage and office space in Gauteng through Inospace.
[4] The primary target firm is Knoxco 10 Properties Proprietary Limited (which is to be known as "Inofort").
[5] Inofort is a private joint venture company formed for purposes of this proposed transaction and as such currently does not have any activities. Currently, Knoxco is wholly owned by Mr Mark Antony Fox.
[6] In terms of this transaction, the Fortress group of companies (through Capital, Capital Propfund 2 Proprietary Limited and Lodestone Investments Proprietary Limited) will transfer 12 immovable properties and letting enterprises to Inofort. The Taurus group of companies (through Inospace, Inospace 3 and Phepha Prop 004 Proprietary Limited) will transfer 8 immovable properties and letting enterprises to Inofort. The properties transferred by the acquiring firms into Inofort shall be referred to as “the Target Properties”.
[7] The Competition Commission (“the Commission”) found that the activities of the merging parties overlap with regard to the provision of industrial property within a broader node encompassing the adjacent Sandton/Randburg and Roodepoort nodes. In this market, the Commission found that the Inospace Target Properties have a market share of approximately 5,62% while the Fortress Target Properties have a market share of approximately 21,04%. As such, the merged entity will have a post- merger market share of approximately 26.66%, based on gross lettable area.
[8] The Commission found the market share of the merged entity may nevertheless be overstated as some properties were not included due to a lack of information. Regardless, the Commission is of the view that the merging parties will continue to be constrained by other industrial properties in the market.
[9] The Commission raised a concern about potential information exchange that may arise as a result of the proposed merger, as the two joint venture partners (being the Taurus Group and Fortress Group) still operate competing light industrial properties outside the joint venture.
[10] In order to remedy this potential concern, the merging parties have accepted not to appoint directors to the joint venture who are also involved in the operations of Fortress Group and Taurus’s light industrial businesses; as well as providing non-disclosure undertakings preventing the sharing of competitively sensitive information between the joint venture partners Fortress Group and Taurus Group. The merging parties have agreed to impose these “Chinese wall” limitations as a condition to the approval of the merger.
[11] The transaction does not have any effect on employment.
[12] With regard to the promotion the greater spread of ownership, the Commission noted that currently Inofort does not have any black ownership. Fortress is listed on the JSE, and its investors include HDI shareholders. At present, Fortress has approximately 15.43% black ownership and is a level 4 B-BBEE contributor. Inospace currently has approximately 11.91% black ownership. As such post-merger the merging parties estimate that Inofort will be 12.31% black owned.
[13] There are no other public interest concerns.
[14] We concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market, or to have a negative impact on the public interest for the reasons mentioned. In order to remedy the potential information exchange concern, the proposed transaction is approved subject to the conditions annexed hereto as Annexure “A”.
17 March 2022
Ms Mondo Mazwai
Ms Yasmin Carrim and Mr Andreas Wessels concurring
Tribunal Case Manager:
Kameel Pancham
For the Merging Parties:
Susan Meyer of Cliffe Dekker Hofmeyr Inc.
For the Commission:
Nolubabalo Myoli and Grashum Mutizwa
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