Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd v Khora Investments (Pty) Ltd in respect of Khora's 30% undivided share in Botshabelo Mall Properties and the Letting business conducted thereon (LM220Nov18) [2019] ZACT 10 (11 February 2019)
- Citation
- [2019] ZACT 10
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, lmraan Valodia, Mondo Mazwai
- Case number
- LM220Nov18
More details
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, lmraan Valodia, Mondo Mazwai
- Case number
- LM220Nov18
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the transaction, involving the acquisition of Khora's 30% undivided share in Botshabelo Mall by Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd, did not amount to a merger during Investec's temporary holding, as Investec would hold the shares for less than 12 months for risk management purposes. The Tribunal accepted the Commission's finding that there was a horizontal overlap in the provision of rentable retail properties but no geographical overlap, as the nearest property controlled by the acquiring group was 410 km away. There was no vertical overlap. The property management agent would remain unchanged, and employment would not be adversely affected. The Tribunal concluded that the transaction would not substantially prevent or lessen competition in any relevant market and raised no public interest concerns. The transaction was approved unconditionally.
Court disposition
The proposed transaction is approved unconditionally.
Orders
- The acquisition by Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd of Khora's 30% undivided share in Botshabelo Mall Properties and the letting business conducted thereon is approved without conditions.
02
Material facts
Parties
Liberty Group Ltd
Applicant Counsel: Desmond Rudman2 Degrees Properties (Pty) Ltd
Applicant Counsel: Desmond RudmanKhora Investments (Pty) Ltd
RespondentAmounts and remedies
- Khora's Undivided Share Percentage: 30
03
Procedural history
Posture
Merger Approval / Final Determination
04
Questions and positions
Legal issues
- 01
Whether the acquisition of Khora's 30% undivided share in Botshabelo Mall by Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd constitutes a merger under the Competition Act.
- 02
Whether the proposed transaction is likely to substantially prevent or lessen competition in any relevant market.
- 03
Whether the transaction raises any public interest concerns, including employment.
Party arguments
- Applicant
- The acquiring firms argued that the transaction would allow them to exercise sole control over the target business, enjoy full income and benefits, and manage the business more efficiently. They submitted that the transaction would not adversely affect employment, as it merely shifts control from joint to sole ownership. The rationale for the transaction was based on Khora's financial distress and inability to meet its credit obligations, necessitating the sale of its share.
- Respondent
- Khora Investments (Pty) Ltd confirmed that its financial difficulties and inability to meet credit obligations led to the proposed transaction. Investec Limited, as Khora's creditor, sought liquidation but agreed to settle by transferring Khora's share to Investec, which would then transfer it to the acquiring firms. The Commission argued that Investec's temporary holding of the shares did not constitute a merger, as it was for risk management and would last less than 12 months. The Commission found no competition or public interest concerns.
05
Court’s reasoning
Legal principles
- 01
Competition Act 89 of 1998
A transaction constitutes a merger under the Competition Act if it results in a change of control over a business.
- 02
Commission's Practitioner's Update, Issue 4
Temporary acquisition of shares for risk mitigation purposes, held for less than 12 months, does not amount to a merger.
- 03
Sycom Property Fund Collective Investment Scheme in Property and AECI Pension Fund; Redefine Properties Limited and Hyprop Investments Limited
Shopping complexes situated outside a 10 km radius do not impose a competitive constraint on each other.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the transaction, involving the acquisition of Khora's 30% undivided share in Botshabelo Mall by Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd, did not amount to a merger during Investec's temporary holding, as Investec would hold the shares for less than 12 months for risk management purposes. The Tribunal accepted the Commission's finding that there was a horizontal overlap in the provision of rentable retail properties but no geographical overlap, as the nearest property controlled by the acquiring group was 410 km away. There was no vertical overlap. The property management agent would remain unchanged, and employment would not be adversely affected. The Tribunal concluded that the transaction would not substantially prevent or lessen competition in any relevant market and raised no public interest concerns. The transaction was approved unconditionally.
Obiter and limits
- The Tribunal noted that the Commission's approach to temporary risk mitigation transactions is consistent with previous guidance and does not trigger merger notification requirements.
- The Tribunal accepted that geographical separation of retail properties is a significant factor in assessing competitive constraints in the property sector.
- The retention of the existing property management agent post-merger was considered a positive factor in maintaining continuity for tenants and employees.
Court disposition
The proposed transaction is approved unconditionally.
- The acquisition by Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd of Khora's 30% undivided share in Botshabelo Mall Properties and the letting business conducted thereon 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: LM220Nov18
In the matter between:
Liberty Group Ltd and 2 Degrees Properties (Pty) Ltd
Acquiring Firms
and
Khora Investments (Pty) Ltd in respect of Khora's
Target firm
30% undivided share in Botshabelo Mall
Properties and the Letting business
conducted thereon
Panel :
Yasmin Carrim (Presiding Member)
:
lmraan Valodia (Tribunal Member)
:
Mondo Mazwai (Tribunal Member)
Heard on : 30 January 2019
Order Issued on : 30 January 2019
Reasons Issued on : 11 February 2019
Reasons for Decision
Approval
[1] On 30 January 2019, the Competition Tribunal ("Tribunal") approved a property transaction between Liberty Group Ltd ("Liberty"), 2 Degrees Properties (Pty) Ltd ("2 Degrees") and Khora Investments (Pty) Ltd ("Khora") in respect of Khora's 30% undivided share in the Botshabelo Mall Properties ("Botshabelo Mall") and the letting business conducted thereon.
[2] The reasons for approving the proposed transaction follow.
Parties to proposed transaction
Primary acquiring firms
[3] The primary acquiring firms are Liberty and 2 Degrees, companies duly incorporated in accordance with the laws of the Republic of South Africa.
[4] Liberty is a wholly-owned subsidiary of Liberty Holdings Limited, a company publicly listed on the Johannesburg Stock Exchange ("JSE").
Liberty Holdings is a subsidiary of the Standard Bank Group Limited which is not controlled by any firm.
[5] 2 Degrees is a wholly-owned subsidiary of Liberty Two Degrees Limited ("New L2D"). New L2D is a portfolio established under the Liberty 2 Degrees Scheme and is ultimately controlled by Liberty.
[6] Liberty is a long-term insurance provider in the financial services sector. In addition, it owns various properties in the hospitality, retail and office space sectors.
[7] New L2D is a collective investment scheme in property in the form of a trust established in terms of the Collective Investment Schemes
Control Act.[1]
[8] Collectively the acquiring firms will be referred to as the 'acquiring group'.
Primary target firm
[9] The primary target firm is Khora's 30% undivided share in Botshabelo Mall and the letting business conducted thereon ("target business"). Botshabelo Mall is situated in the Botshabelo area of the Free State Province. It leases out rental space to a number of different tenants including, amongst others, Pick n Pay, Shoprite, Cashbuild and Truworths.
[10] The remaining 70% of the target business is controlled by the acquiring firms.
[11] Khora, the seller, is controlled by the Bokoena Family Trust and was, pre transaction, afforded minority protection rights with respect to the target business in terms of the co-ownership agreement it had entered into with the acquiring firms.
Proposed transaction and rationale
[12] The financial difficulties experienced by Khora, resulting in the company being incapable of meeting its credit obligations, have given rise to the proposed transaction. Investec Limited ("Investec"), one of Khora's creditors, instituted a High Court application for the liquidation of Khora. Investec and Khora eventually agreed to settle the litigation on the terms that Khora's 30% undivided share in the target business shall be transferred to Investec.
[13] Following the implementation of the above-mentioned settlement agreement, Investec has agreed, by virtue of a sale agreement, to the transfer of Khora's 30% undivided share to Liberty and 2 Degrees. Post-merger, the Target Business will be wholly-owned by Liberty and New L2D. However, the shares would first have to be transferred to Investec.
[14] Investec reassured the Commission that the proposed transaction is simply a means of recovering the loan facility provided to Khora and to comply with the terms of the settlement agreement which was made an order of court. The transfer of the shares to Investec and then to the acquiring group will take place almost simultaneously.
[15] The Commission was satisfied that the transfer of the undivided shares to Investec will not amount to a merger according to the Commission's Practitioner's Update, Issue 4, entitled "The application of merger provisions of the Competition Act 89 of 1998, as amended, to risk mitigation financial transactions" as Investec will hold the shares for less than 12 months for the purpose of risk management and with the objective of selling them on to Liberty.[2]
[16] In terms of the rationale, the acquiring firms submitted that the transaction presents them with the ability to exercise sole control
over the target business, enjoy the full income and benefits and allow them to manage the business better.
[17] Khora confirmed that the proposed transaction stems from its inability to meet its credit obligations.
Impact on competition
[18] The Commission considered the activities of the merging parties and found that there appeared to be a horizontal overlap between the activities of the merging parties in relation to the provision of rentable retail properties.
[19] Although there was an overlap, the Commission concluded that there was no geographical overlap between the activities of the merging parties as the nearest retail property controlled by the Acquiring Group is situated in Johannesburg (Melrose Arch) which is 410 km from the target business.[3]
[20] The Commission was also satisfied that the current property management agent, JHI Retail (Pty) Ltd ("JHI'), would be retained
post-merger. Particularly after discovering that Liberty Holdings Limited owns 49% of the shares in, and exercises joint control over, JHI.
[21] The Commission found no vertical overlap between the activities of the parties.
Public interest
[22] The merging parties submitted that the proposed transaction will have no adverse effect on employment because it simply involves move from joint to sole control .[4]
[23] The Commission was of the view that the proposed transaction is unlikely to raise employment concerns as.
[24] The Commission was of the view that the proposed transaction is unlikely to raise concerns on any other public interest grounds.
Conclusion
[25] In light of the above, we concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market and raised no public interest concerns. Accordingly, we approved the proposed transaction unconditionally.
Ms Yasmin Carrim
Prof AW Wessels and Ms Mondo Mazwai concurring
11 February 2019
DATE
Case Manager: Helena Graham
For the merging parties: Desmond Rudman of Webber Wentzel
For the Commission: Rakgole Mokolo
[1] 45 of 2002.
[2] See Competition Commission v Standard Bank of South Africa Ltd FTN228Feb16.
[3] According to the Commission, the Competition Tribunal ("Tribunal') has, in previous cases, accepted that shopping complexes situated outside a 1O km radius of each other do not impose a competitive constraint upon one another. See Sycom Property Fund Collective Investment Scheme in Property and AECI Pension Fund in respect of the property letting enterprise known as "Somerset Mall" and in Somerset Mall Property Management Company (Pty) Ltd; and Redefine Properties Limited and Hyprop Investments Limited in respect of a 50% undivided share of the business enterprise known as South Coast Mall.
[4] See Commission's Recommendations page 18.
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