Mergence Africa Property Investment Trust and Another and 8 Property Letting Enterprises held by ApexHi Properties Limited and Another (130/LM/NOV07,131/LM/NOV 07) [2008] ZACT 14; [2008] 1 CPLR 121 (CT) (19 February 2008)
- Citation
- [2008] ZACT 14
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- N Manoim, Y Carrim, U Bhoola
- Case number
- 130/LM/NOV07,131/LM/NOV 07
More details
- Court
- Competition Tribunal
- Panel
- N Manoim, Y Carrim, U Bhoola
- Case number
- 130/LM/NOV07,131/LM/NOV 07
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the simultaneous mergers involving Mergence and Dipula acquiring property portfolios from ApexHi Properties Limited did not result in any significant increase in market concentration or anticompetitive effects. The post-merger market shares in the relevant local markets were minimal, and there was no overlap between the properties transferred to Dipula and Mergence. Although Redefine was a shareholder in all the acquiring firms and had board representation, the Tribunal concluded that the relationships did not amount to market division or coordinated conduct that would substantially lessen competition. No public interest concerns were identified, and the transactions were consistent with sectoral empowerment objectives. Accordingly, both mergers were approved without conditions.
Court disposition
Both mergers are approved without conditions.
Orders
- The large merger between Mergence Africa Property Investment Trust and 38 Property Letting Enterprises held by ApexHi Properties Limited is approved without conditions.
- The large merger between Dipula Property Investment Trust and 66 Property Letting Enterprises held by ApexHi Properties Limited is approved without conditions.
02
Material facts
Parties
Mergence Africa Property Investment Trust
Applicant Counsel: Vani Chetty Competition Law (Pty) LtdDipula Property Investment Trust
Applicant Counsel: Vani Chetty Competition Law (Pty) LtdApexHi Properties Limited
RespondentCompetition Commission
Respondent Counsel: Makgale Mohlala and William KganareAmounts and remedies
- Post Merger Market Share for Local Convenience Shopping Centre in Alberton: ZAR 3.11
- Post Merger Market Share for Light Industrial Property in Alberton: ZAR 0.9
- Post Merger Market Share for Light Industrial Property in Wynberg: ZAR 1.97
03
Procedural history
Posture
Large Merger Application / Merger Approval
04
Questions and positions
Legal issues
- 01
Whether the simultaneous mergers between Mergence Africa Property Investment Trust and Dipula Property Investment Trust with property portfolios held by ApexHi Properties Limited would substantially prevent or lessen competition in the relevant markets.
- 02
Whether the structure and relationships among Redefine, ApexHi, Dipula, and Mergence raise concerns about market division or coordinated conduct.
- 03
Whether any public interest issues arise from the transactions.
Party arguments
- Applicant
- The applicants argued that the transactions would allow Mergence and Dipula, both black empowerment entities, to expand and diversify their property portfolios, with Mergence focusing on retail properties and Dipula seeking a national footprint. The properties acquired were of smaller value and did not fit ApexHi's core portfolio strategy. Redefine, as a strategic partner and shareholder, facilitated funding and compliance with empowerment requirements. The applicants submitted that there was no significant overlap in the relevant product and geographic markets and that the transactions would not result in anticompetitive effects.
- Respondent
- The Competition Commission submitted that the post-merger market shares in the affected local markets were insignificant and would not raise competition concerns. The Commission noted the cooperative relationships among Redefine, ApexHi, Dipula, and Mergence, and raised the issue of possible market division or coordinated conduct. However, the Commission concluded that the transactions would not substantially prevent or lessen competition and did not raise any public interest concerns.
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 market.
- 02
Prima merger Case no. 68/LM/JUL05
The assessment of market concentration must consider both product and geographic overlap, as well as the relationships among shareholders and board members.
- 03
Competition Act, No. 89 of 1998
Public interest considerations must be evaluated in merger proceedings, including empowerment and sectoral transformation.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the simultaneous mergers involving Mergence and Dipula acquiring property portfolios from ApexHi Properties Limited did not result in any significant increase in market concentration or anticompetitive effects. The post-merger market shares in the relevant local markets were minimal, and there was no overlap between the properties transferred to Dipula and Mergence. Although Redefine was a shareholder in all the acquiring firms and had board representation, the Tribunal concluded that the relationships did not amount to market division or coordinated conduct that would substantially lessen competition. No public interest concerns were identified, and the transactions were consistent with sectoral empowerment objectives. Accordingly, both mergers were approved without conditions.
Obiter and limits
- The Tribunal noted that the cooperative relationships among Redefine, ApexHi, Dipula, and Mergence may warrant further scrutiny in future mergers to assess whether combined assets should be considered in evaluating market concentration.
- The Tribunal observed that the division of property portfolios between Mergence and Dipula was not based on any particular rationale and did not result in geographic or product market overlap.
Court disposition
Both mergers are approved without conditions.
- The large merger between Mergence Africa Property Investment Trust and 38 Property Letting Enterprises held by ApexHi Properties Limited is approved without conditions.
- The large merger between Dipula Property Investment Trust and 66 Property Letting Enterprises held by ApexHi Properties Limited 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
REPUBLIC OF SOUTH AFRICA
Case no.: 130/LM/NOV07
131/LM/NOV 07
In the large merger between:
Mergence Africa Property Investment Trust
Dipula Property Investment Trust Primary Acquiring Firms
and
38 Property Letting Enterprises held by
ApexHi Properties Limited
66 Property Letting Enterprises held by
ApexHi Properties Limited Primary Target Firms
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal
Member), U Bhoola (Tribunal Member)
Heard on : 6 February 2008
Order issued on : 15 February 2008
Reasons issued on : 19 February 2008
________________
Reasons [Non- Confidential]
Introduction
On February 2008 the Competition Tribunal simultaneously dealt with and approved two mergers; the first one between Mergence Africa Property Investment Trust and 38 Property letting enterprises held by ApexHi Properties Limited (âthe Mergence transactionâ), and the second one between Dipula Property Investment Trust and 66 Property Letting Enterprises (âthe Dipula transactionâ) held by ApexHi Properties Limited . The reasons for approving both mergers are set out below.1
The parties and the transaction
In the âMergence transaction, Mergence Africa Property Investment Trust (âMAP Trustâ) which is controlled by Mergence Africa Property Fund (Pty) Ltd (âMAPFâ)2, is acquiring 38 Property Letting Enterprises which comprise of 24 retail properties, 9 offices and 5 Industrial properties (âTarget Property Portfolioâ) which are held by ApexHi Properties Limited (âApexHiâ), a variable rate property loan stock company listed on the JSE in the real estate sector. Redefine, a listed property loan stock company with various subsidiaries among which is Outward, and which through these subsidiaries, participates in the rental of commercial properties in the retail, office and industrial space sectors of the property market in South Africa, is a major shareholder of ApexHi.
In the Dipula transaction, Dipula trust, which is ultimately controlled by Dijalo Property Service (Pty) Ltd and Redefine Income Fund Ltd, is acquiring a portfolio of 66 properties comprising 54 retail properties, 10 offices and 2 industrial properties from ApexHi.
Prior to both transactions in casu, Redefine reached agreement with Dijalo Property Services (Pty) Ltd (âDijaloâ), a black owned company, and formed Dipula Property Investment Trust (âDipulaâ) which is 51% owned by Dijalo, and 49% by Redefine. The transaction between Redefine and Dijalo was approved by this Tribunal in December 2006.3
Thus Redefine is the key player in both the Mergence transaction and the Dipula transaction, both in regard to its relationship with Mergence, Dipula, and ApexHi.
Redefineâs overall structure in relation to the transactions in casu is as follows:
Mergence is a small, new entrant black empowerment company in the property market which currently holds predominantly industrial portfolio. According to the submissions made at the hearing, the relationship between Mergence and Redefine is one of an enterprise development nature, and Redefine is a strategic equity partner which facilitates funding for Mergence.
Dipula is also a black empowerment company which according to the submissions made at the hearing, though partly owned by Redefine, exists and operates distinctly from Redefine. Both Mergence and Dipula have one representative from Redefine on their boards.
Rationale for the transaction
The rationale for Mergence is to add and inject as many retail properties as possible, whilst growing and at the same time diversifying their property portfolios.
Dipula regards its transaction as an opportunity to meet its strategy to acquire more commercial properties in order to grow its property fund, which is currently relatively small. The properties that Dipula holds are mainly in Gauteng, and this transaction gives it a national footprint to have properties in other provinces.
For ApexHi, both transactions are a strategy to dispose of properties with smaller value which do not fit ApexHiâs overall core portfolio which is of larger value. The properties in these transactions were previously acquired from Prima, an acquisition
which was approved by this Tribunal in November 2005.4 At the hearing, Mr Elliot for ApexHi submitted that the current two transactions are in line with ApexHiâs new strategy which seeks to focus on the management of property portfolio with larger value, rather than dispersing that and diversifying that with small properties. ApexHi divided these small property portfolios into two so that one goes to Mergence, and the other one to Dipula. We were informed that there was no particular rationale for how the properties were divided and allocated.
Redefine sees the mergers as an opportunity towards complying with the empowerment requirements for the property sector.
Relevant Market
In the Mergence transaction, ApexHiâs target property portfolio in the retail, commercial (office), and industrial sectors, is geographically located in various provinces throughout South Africa. Mergenceâs current property portfolio is predominantly industrial with some retail properties and commercial properties, which are geographically located in Gauteng, KwaZulu-Natal, Cape Town, Free State, Mpumalanga, Limpopo and Western Cape provinces.
The properties currently held by Mergence which fall within ApexHiâs product classification and geographic area are: (a) rentable retail space in Alberton area (local convenience retail shopping centre), Gauteng; (b) rentable industrial space in Alrode, Alberton (light industrial), Gauteng; and (c) rentable industrial space in Wynberg area, (light industrial) Gauteng.
In the Dipula Merger the product overlap is in respect of grade A and B offices, light industrial properties as well as stand alone retail shopping centres and local convenience retail shopping centres. However there is no geographic overlap in these product markets between the merging parties.
In light of the fact that Redefine is a shareholder in each of the acquiring firms, we also considered whether there is an overlap in the product markets defined in the two transactions. Although it was found that the product markets of the two transactions overlap in respect of convenience retail shopping centres and light industrial property it was found that they are not situated in the same geographic areas.
There is no need to consider the Dipula transaction any further. There is also no overlap between the properties transferred to Dipula and Mergence. In the circumstances, we will only consider the effect that the Mergence transaction will have on competition.
Competition Evaluation
In the Mergence transaction, the Commission submitted that the merging parties would have a 3.11% combined post merger market share for local convenience shopping centre in Alberton, 0.9% for light industrial property in Alberton, and 1.97% for light industrial property in Wynberg. The market share accretion is clearly insignificant to raise any competition issues. There appears to be a co-operative rather than a competitive relationship between Redefine and ApexHi. This is not surprising having regard to the fact that Redefine owns 27.96% shares in ApexHi, and that two of Redefineâs executive board members are non executive board members in ApexHiâs Board. One of the issues we had to consider in these transactions is whether Redefine, ApexHi and the newly created Dipula and Mergence, are engaged in dividing property markets between themselves to avoid competition with one another.5
This may suggest that even though these firms have never formally merged as a single economic entity they may be run as one and the Commission may want to investigate this further in any further merger between these firms. In mergers involving only one of these firms, the Commission may want to have regard to whether the combined assets of the other three firms should be taken into account in assessing the concentration levels that result from the merger.
Effects on Competition
These transactions are unlikely to have any anticompetitive effects, particularly when having regard to the insignificant change in the market structure post these transactions.
Public interest
The transactions do not raise any public interest issues.
Conclusion
Accordingly, these mergers must be approved without conditions.
____ 19 February 2008
N Manoim Date
Concurring: Y Carrim, U Bhoola
Tribunal Researchers: L Xaba and R Badenhorst
For the Merging Parties : Vani Chetty Competition Law (Pty) Ltd
For the Commission : Makgale Mohlala and William Kganare
(Mergers and Acquisitions)
1 As the mergers raise similar issues we have dealt with them in the same decision
2 Outward holds 49% shares in MAPF
3 Case No. CT 78/LM/SEP06
4 ApexHi Properties Limited and Prima Property Trust 68/LM/JUL05
5 This is not the first time that we have queried the inter-relationships between Redefine and ApexHi, See our decision in the Prima merger Case no. 68/LM/JUL05
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