Delta Property Fund Limited v Orthotouch Limited (LM073Jul15) [2015] ZACT 95 (25 November 2015)
- Citation
- [2015] ZACT 95
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, Andiswa Ndoni, Anton Roskam
- Case number
- LM073Jul15
More details
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, Andiswa Ndoni, Anton Roskam
- Case number
- LM073Jul15
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that, although the merged entity would have a significant market share in Grade B and C office properties in Bloemfontein, mitigating factors such as medium to long-term leases, substantial countervailing power of government tenants, and upcoming new developments would constrain any potential anti-competitive effects. In Nelspruit, the market share and accretion were minimal, and tenants were protected by existing leases and alternative vacant spaces. No adverse impact on employment or other public interest concerns were identified. Therefore, the merger was unlikely to substantially prevent or lessen competition or negatively affect public interest, and unconditional approval was warranted.
Court disposition
The merger between Delta Property Fund Limited and Orthotouch Limited is unconditionally approved.
Orders
- The proposed transaction is approved unconditionally.
02
Material facts
Parties
Delta Property Fund Limited
Applicant Counsel: Kitso TlhabaneloOrthotouch Limited
RespondentCompetition Commission
Respondent Counsel: Relebohile Thabane and Nompucuko NontombanaAmounts and remedies
- Post Merger Market Share in Bloemfontein (grade B and C Office Properties): 45
- Accretion in Bloemfontein (grade B and C Office Properties): 38
- Post Merger Market Share in Nelspruit (grade B and C Office Properties): 20
- Accretion in Nelspruit (grade B and C Office Properties): 5
03
Procedural history
Posture
Merger Application / Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger would substantially prevent or lessen competition in the relevant office property markets.
- 02
Whether the transaction raises any public interest concerns, including adverse effects on employment.
Party arguments
- Applicant
- Delta submitted that the acquisition of the fifteen properties from Orthotouch aligns with its growth strategy and represents an attractive investment opportunity. Delta argued that the transaction would not negatively affect competition, as tenants had not raised concerns and government tenants possessed substantial countervailing power. Delta also highlighted the expected development of new office space as a constraint on post-merger market power.
- Respondent
- Orthotouch submitted that the transaction provides an opportunity to realise sale proceeds. The Competition Commission argued that, although there is a horizontal overlap in Grade B and C office properties in Bloemfontein and Nelspruit, the transaction does not raise competition concerns due to tenant protection through lease agreements, the presence of alternative vacant spaces, and the lack of objections from tenants.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may only be prohibited if it is likely to substantially prevent or lessen competition in any relevant market.
- 02
Competition Act, No. 89 of 1998
Public interest factors, including employment, must be considered in merger assessments.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that, although the merged entity would have a significant market share in Grade B and C office properties in Bloemfontein, mitigating factors such as medium to long-term leases, substantial countervailing power of government tenants, and upcoming new developments would constrain any potential anti-competitive effects. In Nelspruit, the market share and accretion were minimal, and tenants were protected by existing leases and alternative vacant spaces. No adverse impact on employment or other public interest concerns were identified. Therefore, the merger was unlikely to substantially prevent or lessen competition or negatively affect public interest, and unconditional approval was warranted.
Obiter and limits
- The Tribunal noted that the lack of tenant objections and the presence of government as a major tenant with countervailing power were significant in assessing the competitive effects of the merger.
- The anticipated development of new office space was considered a relevant constraint on the acquiring firm's market power post-merger.
Court disposition
The merger between Delta Property Fund Limited and Orthotouch Limited is unconditionally approved.
- The proposed transaction is approved unconditionally.
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: LM073Jul15
In the matter between:
Delta Property Fund Limited
Primary Acquiring Firm
and
Orthotouch Limited
Primary Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: Andiswa Ndoni (Tribunal Member)
: Anton Roskam (Tribunal Member)
Heard on
: 28 October 2015
Order Issued on
: 28 October 2015
Reasons Issued on : 25 November 2015
Reasons for Decision
Approval
[1] On 28 October 2015, the Competition Tribunal (''Tribunal") unconditionally approved the merger between Delta Property Fund
Limited ("Delta") and Orthotouch Limited ("Orthotouch")
[2] The reasons for approving the proposed transaction follow.
Parties to transaction
Primary acquiring firm
[3] The primary acquiring firm, Delta is a property fund which is publically listed on the Johannesburg Stock Exchange. It has controlling interests in various office, retail and industrial properties.
Primary target firm
[4] The primary target firm, Orthotouch is a property management company which focuses on the development of commercial property assets which includes retail centres and corporate developments.
Proposed transaction and rationale
[5] In the proposed transaction Delta would acquire fifteen properties ("Target Properties") from Orthotouch. The properties
consist of twelve properties in Bloemfontein and three properties in Nelspruit, Welkom and Kroonstad respectively. As a result of the implementation of the proposed transaction Delta would wholly own and control the Target Properties.
[6] Delta submitted that it has identified the Target Properties as an attractive investment opportunity which is in line with its overall growth strategy. Orthotouch submitted that the proposed transaction is an opportunity for it to realise sale proceeds.
Impact on competition
[7] The Commission, in its investigation identified a horizontal overlap in respect of office property. The overlap identified by the Commission is only in relation to Grade B and C office properties in Bloemfontein and Nelspruit as Delta owns office properties in these two areas.
[8] In analysing the impact of the proposed transaction on the market for Grade B and C office properties in Bloemfontein, the Commission found that the merged entity would have a post-merger market share of between 40-45% with an accretion ranging between 35-38%. The Commission was of the view that, despite the high accretion rate, the proposed transaction did not present competition concerns. The Commission came to this view on the basis that none of the tenants raised any concerns about the proposed transaction and many of the larger tenants had medium to long terms leases. Furthermore regard had to be given to the fact that government was one of the biggest tenants with substantial countervailing power and that a new development of 8600m2 was expected to be developed by 2017 which would act as constraints on the acquiring firm post- merger.
[9] When evaluating the effect of the proposed transaction for Grade B and C properties in Nelspruit, the Commission found that the post-merger market share would be between 15-20% with a minimal accretion falling under 5%. The Commission was of the view that as both the market share and accretion was minimal that the proposed transaction was unlikely to raise concerns in this market. In this market the Commission found mitigating factors such as that tenants would be protected by their existing lease agreements and that there were suitable alternative vacant spaces.
[10] On the evidence presented before us we are of the view that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market.
Public interest
[11] The merging parties confirmed that the proposed transaction will not result in an adverse impact on employment. [1] The proposed transaction further raises no other public interest concerns.
Conclusion
[12] In light of the above, we approve the proposed transaction unconditionally.
25 November 2015
DATE
________
Ms Yasmin Carrim
Ms Andiswa Ndoni and Mr Anton Roskam concurring
Tribunal Researcher: Aneesa Raval
For the merging parties: Kitso Tlhabanelo of Cliffe Dekker Hofmeyr
For the Commission: Relebohile Thabane and Nompucuko Nontombana
[1] Inter alia merger record page 9.
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