Government Employees Pension Fund v Certain Properties in Zenprop Portfolio (116/LM/OCT08) [2009] ZACT 6 (23 January 2009)
- Citation
- [2009] ZACT 6
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- N Manoim, Y Carrim, M Mokuena
- Case number
- 116/LM/OCT08
More details
- Court
- Competition Tribunal
- Panel
- N Manoim, Y Carrim, M Mokuena
- Case number
- 116/LM/OCT08
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that, although the combined post-merger market share for Grade A office space in Midrand was initially high, the anticipated entry of new developments would reduce this share significantly. The presence of other active competitors and the sophistication of tenants in negotiating rental levels further mitigated any risk of increased pricing power by the merged entity. No evidence was presented to suggest that the merger would result in a substantial lessening or prevention of competition, nor were there any public interest concerns. Accordingly, the merger was approved without conditions.
Court disposition
Merger approved without conditions.
Orders
- The merger between Government Employees Pension Fund and Certain Properties in Zenprop Portfolio is approved without conditions.
02
Material facts
Parties
Government Employees Pension Fund
Applicant Counsel: Glyn Marais AttorneysCertain Properties in Zenprop Portfolio
Respondent Counsel: Glyn Marais AttorneysAmounts and remedies
- Combined Post Merger Market Share for Grade a Office Space in Midrand: 20.2
- Estimated Post Merger Market Share After New Developments: 13
03
Procedural history
Posture
Merger Application / Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed property merger would result in a substantial lessening or prevention of competition in the relevant market.
- 02
Whether the merger would enable the merged entity to exercise pricing power in Grade A office space in Midrand.
- 03
Whether there are any public interest concerns arising from the merger.
Party arguments
- Applicant
- The applicant argued that the acquisition of the 50 Zenprop properties was a strategic move to grow its property investment portfolio. It submitted that the combined post-merger market share in Grade A office space in Midrand, although initially high at 20.2%, would decrease to approximately 13% due to new developments already underway. The applicant further contended that there are other active competitors in all overlapping nodes and that tenants are sophisticated market participants who can negotiate competitive rental levels, thus limiting any potential pricing power.
- Respondent
- The respondent, Zenprop, supported the transaction as an opportunity to realize returns on its investment while remaining active in the property industry. It acknowledged current liquidity challenges in the property sector and maintained that the merger would not result in anti-competitive effects, given the presence of other competitors and the anticipated increase in market capacity from new developments.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may only be prohibited if it is likely to result in a substantial lessening or prevention of competition in the relevant market.
- 02
Competition Act, No. 89 of 1998
Market share alone is not determinative; the presence of competitors and new market entrants must be considered in assessing competitive effects.
- 03
Competition Act, No. 89 of 1998
Public interest considerations must be assessed, but in the absence of any such concerns, the focus remains on competition.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that, although the combined post-merger market share for Grade A office space in Midrand was initially high, the anticipated entry of new developments would reduce this share significantly. The presence of other active competitors and the sophistication of tenants in negotiating rental levels further mitigated any risk of increased pricing power by the merged entity. No evidence was presented to suggest that the merger would result in a substantial lessening or prevention of competition, nor were there any public interest concerns. Accordingly, the merger was approved without conditions.
Obiter and limits
- The Tribunal noted that the property industry is currently facing liquidity challenges, which may influence the rationale for mergers and acquisitions.
- The sophistication of tenants and the use of intermediaries in rental negotiations were highlighted as factors limiting the potential for anti-competitive pricing behavior.
Court disposition
Merger approved without conditions.
- The merger between Government Employees Pension Fund and Certain Properties in Zenprop Portfolio 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: 116/LM/OCT08
In the matter between:
GOVERNMENT EMPLOYEES PENSION FUND Acquiring Firm
and
CERTAIN PROPERTIES IN ZENPROP
PORTFOLIO Target firms
______________
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal Member), and
M Mokuena (Tribunal Member)
Heard on : 19 December 2008
Order issued on : 19 December 2008
Reasons issued on : 23 January 2009
REASONS
FOR DECISION
APPROVAL
On 19 December 2008 the Tribunal approved the property merger between the aforementioned parties. The reasons for the decision follow:
THE PARTIES
The primary acquiring firm is Government Employees Pension Fund (âGEPFâ) which owns a portfolio comprising office, retail, industrial and residential properties.1 The Public Investment Corporation (âPICâ) is the investment portfolio manager of GEPF. The primary target properties entail 50 properties and letting enterprises of Zenprop (Pty) Ltd (âZenpropâ) which comprise of office, retail, industrial and hotel properties.2
THE TRANSACTION AND RATIONALE
In terms of the proposed transaction GEPF intends to acquire the aforesaid 50 properties of Zenprop. GEPF views the proposed transaction as a development strategy, to grow its property investment portfolio. Zenprop, which is primarily a property developer, considers the proposed transaction as an opportunity to realize the needed returns on its investment while it remains in the industry, particularly with the current liquidity problems faced by the property industry.
RELEVANT
PRODUCT MARKET
The proposed merger results in geographical overlap in the activities of the merging parties in 8 nodes consisting of Grade A,B and P office space, and light industrial properties. These are set out below with their respective post merger market shares:
The combined post merger market shares of the merging parties in respect of the overlapping nodes are not significantly high and do not raise any competition concerns, except for the Grade A office space in Midrand which raises concerns given the high combined post market share of 20.2%. The concerns do not only stem from the high market share in this area alone, but also the effect that this might have on managing the rental levels in this area.
The merging parties submitted that the 20.2% estimated combined post merger market share would decline to an estimated 13% as a result of new office developments in Midrand already in progress.3 In addition there are other active players in all the overlapping nodes which will compete with the merging parties.
It appears from oral submissions made during our hearings that the likelihood of additional capacity coming into the market is already having a bearing on rental levels being achieved in the area. Also tenants, who are typically large concerns making use of intermediaries to negotiate for them, have a very sophisticated view of the market and know what rental levels they can expect to achieve. In the circumstances at present, it would appear that the merged entity would not be in a position post merger to increase its pricing power in respect of levels for Grade A office space in Midrand. 4
CONCLUSION
The Tribunal finds that this merger will not result in any substantial lessening or prevention of competition in the relevant market. Accordingly the merger is approved without conditions.
There are no public interest issues.
___ 23 January 2009
N Manoim Date
Tribunal Member
Y Carrim and M Mokoena concurring
For the merging parties : Glyn Marais Attorneys
For the Commission : T Mavhase
Tribunal Researcher: L Xaba
1 For GEPFâs property portfolio, see Appendix B attached to the partiesâ competitiveness report â pg. 75 â 78 of the record.
2 For Zenpropâs target property portfolio, see Appendix A pg. 72 -73 of the record.
3 This new development is called Waterfall Property Development in Midrand between Allandale and the M1 Highway, which will include the Waterfall Eco Office Park.
4See Mr. Zagaretosâ submissions from PIC, pg. 6 of the transcript, and Mr. Weinsteinâs submissions from Zenprop, pg. 7 of the transcript.
4
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