Pinnacle Holdings (Pty) Ltd and Four Others v Acc-Ross Holdings Ltd (86/LM/Aug08) [2008] ZACT 98 (24 November 2008)
- Citation
- [2008] ZACT 98
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- D Lewis, N Manoim, M Mokuena
- Case number
- 86/LM/Aug08
More details
- Court
- Competition Tribunal
- Panel
- D Lewis, N Manoim, M Mokuena
- Case number
- 86/LM/Aug08
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that although the merging parties are both involved in property development, their respective projects do not compete in the same geographic or customer markets. The residential estate developments of the primary acquiring firms are aimed at high-net-worth individuals, while Acc-Ross's developments target the middle-income market. The golf estates developed by the parties are located approximately 250 km apart, serving distinct geographic areas. The potential vertical integration arising from the merger, namely the use of Pinnacle Group's in-house marketing for Acc-Ross's developments, was deemed unlikely to result in foreclosure concerns due to Acc-Ross's negligible market share and the parties' intention to continue using independent estate agents. No public interest concerns were identified. Accordingly, the Tribunal approved the merger unconditionally.
Court disposition
Merger approved unconditionally.
Orders
- The merger between Pinnacle Point Holdings (Pty) Ltd and Four Others and Acc-Ross Holdings Ltd is approved without conditions.
- No public interest conditions are imposed.
02
Material facts
Parties
Pinnacle Point Holdings (Pty) Ltd
Applicant Counsel: Cliffe Dekker Hofmeyr IncNew Port Finance Company (Pty) Ltd
Applicant Counsel: Cliffe Dekker Hofmeyr IncProperty Promotions and Management (Pty) Ltd
Applicant Counsel: Cliffe Dekker Hofmeyr IncGoldman Asset Management Ltd
Applicant Counsel: Cliffe Dekker Hofmeyr IncRakeen Development PJSc
Applicant Counsel: Cliffe Dekker Hofmeyr IncAcc-Ross Holdings Ltd
RespondentAmounts and remedies
- Shareholding Acquired in Acc Ross: 60
- Estimated Sale Price of Project Pluto Stands: ZAR 7,000,000
- Estimated Sale Price of Project Pluto Stands (upper Range): ZAR 10,000,000
- Estimated Sale Price of Welvergenoegd Development Stands (lower Range): ZAR 500,000
- Estimated Sale Price of Welvergenoegd Development Stands (upper Range): ZAR 1,000,000
03
Procedural history
Posture
Merger Control / Merger Clearance Decision
04
Questions and positions
Legal issues
- 01
Whether the proposed merger would substantially prevent or lessen competition in the relevant property development markets.
- 02
Whether the transaction would result in significant vertical integration raising foreclosure concerns.
- 03
Whether the merger raises any public interest concerns warranting conditional approval.
Party arguments
- Applicant
- The merging parties argued that the transaction would enable them to exploit substantial synergies and cost savings, thereby increasing shareholder value. They contended that the merger would provide critical mass to finance new projects on more favourable terms and facilitate access to larger development opportunities. The parties maintained that the merger would not result in anti-competitive effects due to the lack of significant market overlap and the continued use of independent estate agents and marketing companies.
- Respondent
- The Competition Commission submitted that although there is an overlap in the development of residential estates and golf courses, there is no significant geographic overlap as the respective projects target different markets and are located in distinct areas. The Commission further argued that any potential vertical integration would not raise foreclosure concerns due to Acc-Ross's minimal market share and the parties' intention to continue using third-party service providers. No public interest issues were identified.
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
Competition Act, No. 89 of 1998
Vertical integration resulting from a merger must be assessed for potential foreclosure effects, but is not anti-competitive per se.
- 03
Competition Act, No. 89 of 1998
Public interest considerations must be evaluated in all merger proceedings, including effects on employment and small businesses.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that although the merging parties are both involved in property development, their respective projects do not compete in the same geographic or customer markets. The residential estate developments of the primary acquiring firms are aimed at high-net-worth individuals, while Acc-Ross's developments target the middle-income market. The golf estates developed by the parties are located approximately 250 km apart, serving distinct geographic areas. The potential vertical integration arising from the merger, namely the use of Pinnacle Group's in-house marketing for Acc-Ross's developments, was deemed unlikely to result in foreclosure concerns due to Acc-Ross's negligible market share and the parties' intention to continue using independent estate agents. No public interest concerns were identified. Accordingly, the Tribunal approved the merger unconditionally.
Obiter and limits
- The Tribunal noted that the continued use of estate agents and marketing companies post-merger would mitigate any risk of foreclosure in the marketing of residential developments.
- It was observed that the transaction would likely enhance shareholder value and facilitate access to larger development opportunities without adversely affecting competition.
Court disposition
Merger approved unconditionally.
- The merger between Pinnacle Point Holdings (Pty) Ltd and Four Others and Acc-Ross Holdings Ltd is approved without conditions.
- No public interest conditions are imposed.
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: 86/LM/Aug08
In the matter between
Pinnacle Holdings (Pty) Ltd and Four Others Primary Acquiring firms
And
Acc-Ross Holdings Ltd Primary Target Firm
Panel : D Lewis (Tribunal member); N Manoim (Tribunal member) and M Mokuena (Tribunal member)
Heard on : 15 October 2008
Decided on : 15 October 2008
Reasons Issued : 24 November 2008
Reasons for decision
Approval
[1] On 15 October 2008 the Competition Tribunal issued a Merger Clearance Certificate approving the merger between Pinnacle Point Holdings (Pty) Ltd and Four Others and Acc-Ross Holdings Ltd unconditionally. The reasons for the approval appear below.
Parties
[2] The primary acquiring firms are Pinnacle Point Holdings (Pty) Ltd (“Pinnacle Point”), New Port Finance Company (Pty) Ltd (“New Point”), Property Promotions and Management (Pty) Ltd (“Property Promotions”), Goldman Asset Management Ltd (“Goldman Asset Management”) and Rakeen Development PJSc (“Rakeen”), hereinafter referred to as “the primary acquiring firms”.
[3] The primary target firm is Acc-Ross Holdings Ltd (“Acc-Ross”). Acc-Ross controls Acc-Ross Networks (Pty) Ltd (“Acc-Ross
Networks”), Gardener Ross Holdings Ltd (“Gardener Ross”) and Accretio Holdings (Pty) Ltd “Accretio”).
Transaction
[4] In terms of the structure of the transaction, the primary acquiring firms will collectively acquire 60% share in Acc-Ross. A voting pool agreement will then be entered into by the primary acquiring firms in terms of which they will each have joint control in Acc-Ross.
Rationale
[5] The merging parties submit that through this transaction, they will be able to exploit the benefits of the substantial synergies that exist and cost saving that will be achieved, thereby increasing shareholder value. Further, the merging parties submit that this transaction will give the critical mass to finance new projects on more favourable terms and will provide easier access to large development opportunities in South Africa and beyond.
Parties Activities
[6] The merging parties are involved in property development. The primary acquiring firms focus is on developing land residential stands (which often have golf courses) and resorts. Currently, the primary acquiring firm are engaged in developing properties in the Free State, Western Cape and Eastern Cape.
[7] The property development activities of Acc-Ross are focused on developing residential units as well as leisure and resort developments.
Acc-Ross is currently involved in developing property in Gauteng, the Free State, Eastern and Western Cape.
Competition analyses
[8] There is an overlap in the activities of the merging parties in respect of the development of residential estates and golf courses. The merging parties’ residential estate developments are situated in Cape Town. However, the Commission submits that there is no geographic overlap as the merging parties respective development projects are not aimed at the same market.
[9] In this regard, the Commission states that the primary acquiring firms’ development project (i.e. Project Pluto) is low density aimed at the “super rich” and the stands will sell for between R7 000 000 and R10 000 000. Acc-Ross’ project, (i.e. Welvergenoegd Development) on the other hand, is a suburban high density residential development aimed at the middle income primary residential market and will sell for between R500 000 and R1000 000.
[10] Both merging parties also develop golf estate in the Free State. The primary acquiring firms’ golf estate is situated in Clarens and the primary target firm golf estate in Orangeville. The Commission investigated the potential geographic overlap of these estates and found that they do not serve the same geographic area as they are approximately 250 km apart.
[11] The transaction also results in a potential vertical integration. This potential integration occurs in that the Pinnacle Group has developed in-house marketing capacities which might be used to market the target firm’s residential developments. However, this integration is unlikely to raise any significant foreclosure concerns as Acc-Ross’s market share for residential development is less than 1%.
[12] In addition, the merging parties envisage that they will, post-merger, continue using the services of estate agents and marketing companies to sell stands on their developments and is accordingly not anticipated that this merger will result in the foreclosure of such service providers.
Public interest
[13] The transaction does not give rise to any public interest issues and is accordingly approved without conditions.
_______ 24 November 2008
D Lewis Date
Tribunal Member
Concurring: N Manoim and M Mokuena
Tribunal Researcher : I Selaledi
For the merging parties : Cliffe Dekker Hofmeyr Inc
For the Commission : Thabelo Ravhugoni (Mergers and Acquisitions)
4
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