Newshelf 1273 Proprietary Limited v Business of Joint Medical Holdings Limited (018192) [2014] ZACT 2; [2014] 1 CPLR 123 (CT) (15 April 2014)
- Citation
- [2014] ZACT 2
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Takalani Madima, Imraan Valodia, Anton Roskam
- Case number
- 018192
More details
- Court
- Competition Tribunal
- Panel
- Takalani Madima, Imraan Valodia, Anton Roskam
- Case number
- 018192
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed transaction would not result in any overlap between the activities of the merging parties, as Newshelf was not active in any market prior to the merger. The transaction would likely increase competition, as JMH and LHG would become direct competitors post-merger. Barriers to entry in the private hospital market are high, but the negotiating power of large medical schemes would continue to constrain the merged entity. No public interest concerns were identified. Therefore, the Tribunal concluded that the transaction was unlikely to substantially prevent or lessen competition in the market for private hospital services in the greater Durban Metro area and approved the merger unconditionally.
Court disposition
Merger approved unconditionally.
Orders
- The proposed transaction is approved unconditionally.
02
Material facts
Parties
Newshelf 1273 Proprietary Limited
Applicant Counsel: Mark GardenBusiness of Joint Medical Holdings Limited
RespondentAmounts and remedies
- Number of Hospital Beds Involved: 552
03
Procedural history
Posture
Merger Control / Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger is likely to substantially prevent or lessen competition in the market for private hospital services in the greater Durban Metro area.
- 02
Whether any public interest concerns arise from the proposed transaction.
Party arguments
- Applicant
- The merging parties argued that the transaction would allow for optimal structuring of JMH and the introduction of a new investor, RMBV. They contended that there was no overlap in activities between the merging parties, as Newshelf was a newly incorporated shelf company with no business operations. The transaction would result in JMH and LHG becoming direct competitors, thereby increasing competition in the relevant market. No public interest concerns were identified.
- Respondent
- The Commission agreed that the transaction would not result in a substantial prevention or lessening of competition in the relevant market. It noted that barriers to entry in the private hospital sector are high due to regulatory and cost factors, but the merged entity would continue to be constrained by the negotiating power of large medical schemes. The Commission also found no public interest concerns arising from the transaction.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may not be approved if it is likely to substantially prevent or lessen competition in the relevant market.
- 02
Competition Act, No. 89 of 1998
Public interest considerations must be assessed in merger proceedings, including the effect on employment and the ability of small businesses to compete.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed transaction would not result in any overlap between the activities of the merging parties, as Newshelf was not active in any market prior to the merger. The transaction would likely increase competition, as JMH and LHG would become direct competitors post-merger. Barriers to entry in the private hospital market are high, but the negotiating power of large medical schemes would continue to constrain the merged entity. No public interest concerns were identified. Therefore, the Tribunal concluded that the transaction was unlikely to substantially prevent or lessen competition in the market for private hospital services in the greater Durban Metro area and approved the merger unconditionally.
Obiter and limits
- The Tribunal noted that the manner in which tariffs are determined in the private hospital sector, through negotiations with large medical schemes, acts as a significant constraint on market power.
- The Tribunal observed that the exit of LHG as a controlling shareholder and its subsequent competition with JMH may enhance competition in the relevant market.
Court disposition
Merger approved unconditionally.
- 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: 018192
In the matter between:
NEWSHELF 1273 PROPRIETARY LIMITED.......................................................Primary Acquiring Firm
AND
THE
BUSINESS OF JOINT MEDICAL HOLDINGS LIMITED................................Primary Target Firm
Panel: Dr Takalani Madima (Presiding Member)
; Prof Imraan Valodia (Tribunal Member)
: Anton Roskam (Tribunal Member)
Heard on : 26 March 2014
Order Issued on : 26 March 2014
Reasons Issued on : 15 April 2014
Reasons for Decision
Approval
[1] On 26 March 2014 The Competition Tribunal (“the Tribunal”) unconditionally approved an acquisition by Newshelf 1273 (Pty) Ltd of the business of Joint Medical Holdings Ltd.
[2] The reasons for unconditionally approving the proposed transaction follow hereunder.
Parties to the Transaction
Primary acquiring firm
[3] The primary acquiring firm is Newshelf 1273 (Pty) Ltd (“Newshelf), a newly incorporated shelf company which has no history of business operations.
[4] Newshelf is owned by Joint Medical Holdings Limited (“JMH”) and RMB Ventures Six Limited (“RMBV”). JMH is a private hospital group with five hospitals in and around the greater Durban Metro area.
[5] RMBV is managed by Rand Merchant Bank, the investment banking arm of FirstRand. FirstRand is a public company listed on the Johannesburg Securities Exchange (“JSE”) and the Namibian Stock Exchange with no single shareholder exercising direct or indirect control over it.
Primary target firm
[6] The primary target firm is the business of JMH. The business of JMH comprises five hospitals in and around the Durban Metro area with a total of 552 beds. The hospitals are owned by 306 medical practitioners (“the Doctor Shareholders”).
Proposed Transaction
[7] The proposed transaction is to occur through the following steps:
• the exit of Life Healthcare Group (“LHG”) as controlling shareholder of JMH;
• the business of JMH will be transferred to Newshelf in exchange for Newshelf shares; and
• RMBV is to acquire a minority controlling interest in Newshelf.
[8] Post-merger, the issued share capital of Newshelf will be held as to 75-85% by JMH and 15-25% by RMBV.
Rationale
[9] The Doctor Shareholders view the transaction as an opportunity to optimally structure JMH and introduce an investor. LHG views the terms on which it is exiting JMH as commercially sensible. RMBV, as a private equity investor, considers the acquisition of a stake in Newshelf to represent an attractive risk adjusted return for investors.
Relevant Market and Impact on Competition
[10] The affected hospitals are JMH Ascot Park Hospital, JMH City Hospital, Maxwell Clinic, JMH lsipingo and JMH Durdoc Hospital; ail of which are private hospitals situated in and around the greater Durban Metro area. The relevant market was thus defined as the market for the provision of private hospital services in the greater Durban Metro area.
[11] Both from a regulatory and a costs perspective, barriers to entry in the relevant market are notably high. No hospital may be established prior to compliance with stringent licensing regulations and high costs are incurred in relation to infrastructure, equipment and personnel.
[12] Prior to the proposed transaction taking effect, Newshelf, being a newly incorporated shelf company, is not active in any particular market. There thus exists no overlap between the activities of the merging parties. The proposed transaction is in fact likely to increase competition in the relevant market since pre-merger, LHG is a controlling shareholder of JMH while post-merger JMH and LHG are likely to be direct competitors in the market for the provision of private hospital services in the Durban Metro area.
[13] A noteworthy countervailing factor specific to the relevant market stems from the manner in which tariffs are determined. Private hospital and large medical schemes enter into negotiations to arrive at suitable tariffs. These medical schemes wield considerable negotiating power and will continue to constrain the merged entity post-merger.
[14] In light thereof, the Tribunal found that the proposed transaction is unlikely to substantially prevent or lessen competition in the market for the provision of private hospital services in the greater Durban Metro area.
Public Interest
[15] No public interest concerns were identified by the Commission or the merging parties. The Tribunal is similarly of the view that no public interest concerns arise from the proposed transaction.
Conclusion
[16] In light of the above I conclude that the proposed transaction is unlikely to substantially prevent or lessen competition in the market for the provision of private hospital services in the greater Durban Metro area.
Accordingly, I approve the transaction unconditionally.
15 April 2014
DATE
DrTakalani Madima
Prof Imraan Valodia and Anton Roskam concurring
Tribunal Researcher: Shannon Quinn
For the merging parties: Mark Garden- ENS Africa
For the Commission: Rakgole Mokolo
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