Redefine Properties Ltd v Grapnel Property Investments Pty Ltd in respect of the property letting enterprise known as Ericsson Building (018424) [2014] ZACT 26 (13 February 2014)
- Citation
- [2014] ZACT 26
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- N Manoim, T Madima, M Mokuena
- Case number
- 018424
More details
- Court
- Competition Tribunal
- Panel
- N Manoim, T Madima, M Mokuena
- Case number
- 018424
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed merger would not result in any substantial prevention or lessening of competition in the market for rentable Grade A office space in the Woodmead node, Gauteng, as the merged entity's post-merger market share would be less than 6%. Significant competition from other property owners such as Growthpoint, Acucap, and Investec would remain. In the retail space market, the transaction would not negatively affect competition due to the differing categorisation of the properties involved. The Tribunal further noted that the sole tenant, Ericsson, occupies the entire building and has sufficient bargaining power to negotiate lease terms, mitigating any risk of anti-competitive conduct by the merged entity. No adverse public interest effects, including on employment, were identified. Accordingly, the merger was approved without conditions.
Court disposition
Merger approved without conditions.
Orders
- The merger between Redefine Properties Limited and Grapnel Property Investments Proprietary Limited in respect of the Ericsson Building is approved without conditions.
02
Material facts
Parties
Redefine Properties Limited
Applicant Counsel: Vani ChettyGrapnel Property Investments Proprietary Limited
RespondentAmounts and remedies
- Post Merger Market Share: 6
03
Procedural history
Posture
Merger Approval / Decision
04
Questions and positions
Legal issues
- 01
Whether the proposed merger will substantially prevent or lessen competition in the relevant markets.
- 02
Whether the transaction raises any public interest concerns, including employment effects.
- 03
Whether the single tenant's bargaining power mitigates any potential anti-competitive effects.
Party arguments
- Applicant
- Redefine Properties Limited argued that the acquisition of the Ericsson Building would not result in any substantial lessening of competition in the relevant office and retail property markets. The applicant emphasised that the post-merger market share would remain low, and that the presence of strong competitors in the area would ensure continued competition. Furthermore, the applicant asserted that the transaction would not negatively impact employment or raise any other public interest concerns.
- Respondent
- Grapnel Property Investments Proprietary Limited did not oppose the merger and confirmed that the transaction would not adversely affect competition or employment. The respondent highlighted that the sole tenant, Ericsson, occupies the entire building and possesses sufficient bargaining power to negotiate lease terms, thereby preventing the merged entity from exercising market power over the tenant.
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, unless the parties can show technological, efficiency or other pro-competitive gains.
- 02
Competition Act, No. 89 of 1998
Public interest considerations, including the effect on employment, must be assessed in merger proceedings.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed merger would not result in any substantial prevention or lessening of competition in the market for rentable Grade A office space in the Woodmead node, Gauteng, as the merged entity's post-merger market share would be less than 6%. Significant competition from other property owners such as Growthpoint, Acucap, and Investec would remain. In the retail space market, the transaction would not negatively affect competition due to the differing categorisation of the properties involved. The Tribunal further noted that the sole tenant, Ericsson, occupies the entire building and has sufficient bargaining power to negotiate lease terms, mitigating any risk of anti-competitive conduct by the merged entity. No adverse public interest effects, including on employment, were identified. Accordingly, the merger was approved without conditions.
Obiter and limits
- The Commission's approach was formalistic, assuming multiple tenants with weak bargaining power, but the facts revealed a single tenant with strong bargaining power.
- The presence of a single tenant with a long-term lease until 2016 further reduces any risk of anti-competitive effects arising from the merger.
Court disposition
Merger approved without conditions.
- The merger between Redefine Properties Limited and Grapnel Property Investments Proprietary Limited in respect of the Ericsson Building 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.018424
In the matter between:
Redefine Properties Limited
Primary Acquiring Firm
and
Grapnel Property Investments Proprietary
Primary Target Firm
Limited in respect of the property letting enterprise known as Ericsson Building
Reasons for Decision
Panel
N Manoim (Presiding Member), T Madima (Tribunal Member) and M Mokuena (Tribunal Member)
Heard on
05 February 2014
Decided on
05 February 2014
Reasons issued on: 13 February 2014
Approval
On 05 February 2014, the Competition Tribunal (“Tribunal”) approved the merger between Redefine Properties Ltd (“Redefine”)
and Grapnel Property Investments (Pty) Ltd “Grapnel”), in respect of the Property Letting Enterprise known as Ericsson
Building(“Target Property”). The reasons for approving the proposed transaction follow below.
Parties to the transaction
[1] The primary acquiring firm is Redefine, a property loan stock company listed on the Johannesburg Stock Exchange. Redefine’s property portfolio comprises of a diversified range of properties which include office, retail and industrial space situated throughout the country.
[2] The primary target firm is part of the Grapnel Property Group, and is a privately owned business which comprises of two core elements. One being a property investment company, and the other being a property services company. For purposes of the proposed transaction Grapnel’s ownership of the Target Property is relevant. The Target Property is an office building, although it also has a small retail component used for retail space and a gymnasium. The Target Property is located at Kelvin Drive in Woodlands, Gauteng.
Proposed transaction
[3] Through a Sale Agreement, Redefine seeks to acquire the Target Property from Grapnel which includes, the property, buildings erected on the property, fixed assets, leases and all tenants deposits and guarantees from tenants. Such that post merger, Redefine will acquire sole control of the Target Property.
Relevant markets and impact on competition
[4] The proposed transaction results in a horizontal overlap since both parties are active in the provision of rentable Grade A office space in the Woodmead node in the Gauteng Region. Redefine owns two Grade A offices in Woodmead, namely the Allhart Park and Accenture Woodmead. As such, there is a geographical overlap that arises from the proposed transaction.
[5] The Commission’s findings was that the proposed transaction will not result in any competition concerns as the post-merger market shares of the Merging Parties will be less than 6%. Clearly showing that post merger the merged entity will face significant competition from competitors such as Growthpoint, Acucap and Investec amongst others.[1]
[6] In relation to the market for rentable retail space, the proposed transaction will not have a negative impact on the market, as
Redefine’s rentable retail space Pro-Shop, in the Woodmead node is categorised as a neighbourhood centre, whilst the Target
Property’s rentable retail property is categorised as a small free standing centre.[2]
[7] The Commission’s approach here is formalistic and assumes the target premises have multiple tenants with weak bargaining power. However the most important fact in this merger is that there is a single tenant, Ericsson that rents the entire target property. The tenant has a lease until 2016. After that date we are told, there will have to be a re-negotiation. Given that the tenant rents the entire building it has sufficient bargaining power with the merged firm to prevent it from using its ownership of other properties in the area from exercising market power over it. The merger for this reason raises no competition concerns.
Public Interest
[8] The merging parties confirmed that the proposed transaction will have no adverse effect on employment[3] and the proposed transaction raises no other public interest concerns.
CONCLUSION
[9] We accordingly approve the transaction without conditions.
13 February 2014
DATE
Mr. Norman Manoin
Dr. Takalani Madima and Ms. Medi Mokuena concurring.
Tribunal Researcher: For the merging parties: For the Commission:
Caroline Sserufusa
Vani Chetty of Vani Chetty Competition Law Clementine Mahlangu
[1] See page 13 of the Commission’s Report.
[2] See page 14 of the Commission’s Report.
[3] See Merger record at pages 79-80.
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