COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM035Jun23
In the matter between:
LIFE HEALTHCARE GROUP (PTY) LTD Acquiring Firm
and
FRESENIUS MEDICAL CARE SOUTH AFRICA
(PTY) LTD IN RESPECT OF THE DIALYSIS
SERVICES BUSINESS
Target Firm
Approval
[1] On 20 February 2024, the Competition Tribunal (“Tribunal”) conditionally
approved the large merger whereby Life Healthcare Group (Pty) Ltd (“Life”) will
acquire the Dialysis Services Business (“Target Business”) from Fresenius
Medical Care South Africa (Pty) Ltd (“FMC”). Post-merger, Life will exercise sole
control of the Target Business.
Parties to the transaction and their activities
Primary acquiring firm
[2] Life is a wholly owned subsidiary of Life Healthcare Group Holdings Limited
(“Life Holdings”). Life Holdings is listed on the Johannesburg Stock Exchange.
Life controls several companies including East Rand Dialysis Inc. (“ERD”), Life
Vincent Pallotti Orthopaedic Centre (Pty) Ltd, Ligitprops 109 (Pty) Ltd, Life
Panel: L Mncube (Presiding Member)
A Ndoni (Tribunal Member)
I Valodia (Tribunal Member)
Heard on: 19 February 2024
Order issued on: 20 February 2024
Reasons issued on: 18 March 2024
REASONS FOR DECISION
It
competition tribunal
SOUTH AFRICA
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Esidimeni Group Holdings Ltd and Life Bayview Hospital (Pty) Ltd. We will refer
to Life's direct and indirect controlled companies as the "Acquiring Group".
[3] The Acquiring Group has 48 acute care hospitals in South Africa except
Limpopo, offering a range of hospital services. The Acquiring Group offers
dialysis services through ERD at 31 of its 48 South African hospitals.
Primary target firm
[4] FMC is wholly owned by Fresenius Medical Care Beteiligungsgesellschaft mbH,
a German company (“Fresenius Germany”). Fresenius Germany is directly
controlled by Fresenius Medical Care AG & Co KGaA.
[5] The Target Business provides dialysis services in South Africa, Namibia, and
Eswatini from hospitals, medical centres, and standalone dialysis centres. The
Target Business has 45 units in South Africa; 42 freestanding units for
chronically ill out-patients and three mobile units for acutely ill in-patients. The
Target Business is active in all provinces in South Africa except Limpopo and
Northern Cape.
Proposed transaction and rationale
Transaction
[6] According to the Sale of Business Agreement (“the Agreement”), the Acquiring
Group intends to acquire the Target Business from FMC as a going concern.
Post-merger, the Acquiring Group will have sole control over the Target
Business. The proposed transaction has also been notified in Eswatini and
Namibia, both of which are still under investigation.
Rationale
[7] The Acquiring Group intends to expand its presence in the market for renal
dialysis services through the Renal Integrated Care Programme (“RICP”). The
RICP is to establish a market paradigm rather than gain profit. For the Seller,
FMC, the dialysis services business in Southern Africa is no longer a core
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component of its group strategy. Instead, it will continue to supply dialysis
equipment and run a limited number of dialysis centres that it operates in a joint
venture with Clinix.
Competition Assessment
[8] Having considered the activities of the merging parties, we note that the
proposed transaction raises a horizontal and vertical overlap.
[9] The merging parties overlap horizontally in the provision of dialysis services in
South Africa. The merging parties also overlap vertically, in that the Acquiring
Group operates acute care private hospitals, and the Target Business provides
dialysis services to patients in private hospitals.
Relevant Markets
The upstream market for the provision of acute multidisciplinary private hospital
services.
[10] In Netcare Hospitals Proprietary Limited and Lakeview Hospital 1, the Tribunal
considered that the provision of acute multidisciplinary inpatient private hospital
services constituted a separate product market. The Tribunal has also adopted
this approach in subsequent cases.2
[11] In the current case, without concluding on the relevant market we considered
the impact of the merger in the upstream market for the provision of acute
multidisciplinary private hospital services.
1 Netcare Hospitals Proprietary Limited and Lakeview Hospital Case No: IM193Oct17
2 Mediclinic Southern Africa (Pty) Ltd And Matlosana Medical Health Services (Pty) Ltd LM124Oct16
and RH Bophelo and Perthpark Properties in respect of the Shares and Claims in Rondebosch Medical
Centre (Pty) Ltd and Broadcount Investments (Pty) Ltd in respect of property known as Rondebosch
Medical Centre Hospital Case No: LM154Feb20
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The downstream market for the provision of dialysis services
[12] The Competition Commission (“Commission”) assessed the effects of the
proposed transaction in the downstream market for the provision of dialysis
services. We did not receive evidence to suggest that we should depart from this
way of assessing the downstream market.
Geographic Market
The upstream market for the provision of acute multidisciplinary private hospital
services.
[13] Without concluding on the relevant market, we assessed the effects of the
proposed transaction on a national and provincial level for the provision of acute
multidisciplinary private hospital services.
The downstream market for the provision of dialysis services
[14] Without concluding on the relevant market, we assessed the effects of the
proposed transaction on a national and provincial market.
Horizontal issues
Market shares
[15] At a national level, the merging parties will have a combined post-merger market
share of about [10 – 15] %. This combined market share suggests that the
combined entity would not have substantial market power in a national market.
The merged entity will continue to face competition from other dialysis service
providers such as National Renal Care, B Braun, Mediclinic Renal and other
independent providers.
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[16] At the provincial level, the merging parties will have a combined post-merger
market share of about [20 – 25] % in the Northern Cape and about [25 – 30] %
in the Western Cape. In other provinces, they will have a market share of less
than 15%. This combined market share suggests that the combined entity would
not have substantial market power in provincial markets. The merged entity will
continue to face competition from NRC, B Braun, Mediclinic Renal and other
independent providers.
Barriers to entry and expansion
[17] The merging parties submitted that a medium-sized dialysis centre
accommodating 18 dialysis sessions per day could cost between R2 and R5
million, whereas a mobile unit could cost R180,000 (the cost of one dialysis
machine and a vehicle).
[18] The Commission submitted that at a national level, a license is not required for
the establishment of the facility. At a provincial level, the Western Cape and
Eastern Cape require regulatory licensing.
[19] We do not conclude on barriers to entry or expansion but note that in the last
five years, there has been an increase in the number of dialysis service providers
from 260 to 281.
Countervailing power
[20] Customers and competitors who were contacted by the Commission indicated
that prices charged by dialysis providers are determined in consultation with
medical aid schemes. The Commission submitted that medical aid schemes
have countervailing power and that the merging parties will be constrained by
this countervailing power.
[21] However, we have not found it necessary to conclude on this point in this case.
Tariffs comparison (Acquiring Group and the Target Business)
[22] Tariffs are negotiated at a national level. In addition, the Commiss ion established
that prices charged by the merging parties to their uninsured customers differ by
an average of-% . In their defence, the merging parties submitted that post
merger, funders w ill not be charged based on either merging party's current tariff
structure.
[23] According to the merging parties, self-pay patients make up only ■% of dialysis
treatments for the Acquiring Group (ERO) and ■% for the Target Business.
Dialysis patients, w ho are mainly chronically ill, are unlikely to remain self-pay
patients for long.
[24] According to the merging parties, the Target Business charges uninsured
customers approximately I % higher prices for chronic haemodialysis and acute
haemodialysis and I% higher prices for daily peritoneal dialysis. The Acquiring
Group's chronic haemod ialysis prices for uninsured customers are - /o higher
than those for insured customers. The price difference between insured and
uninsured patients for peritoneal dialysis per day is ■%. In the case of acute
haemodialysis, the Acquiring Group charges uninsured customers - lo more
than insured customers.
[25] To alleviate any concerns for-patients, the merged entity has agreed
to the condition that, for-. the Acquiring Group w ill ma intain the 1-
- between 1111 and the for - and -
patients. Annually, the - shall be
Vertical issues
[26] The proposed transaction raises a vertical overlap as the Acquiring Group
operates multidisciplinary acute private hospital services and the Target
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Business is a dialysis service provider that administers dialysis treatment to
patients admitted to acute hospitals.
Input foreclosure
[27] We considered whether the merging parties will have the ability to foreclose their
competitors’ significant access to acute hospitals.
[28] The Acquiring Group has an estimated market share of about [20 - 30] % in the
upstream market for the provision of multi-disciplinary acute private hospital
services nationally. Additionally, the Acquiring Group has high market shares in
the Eastern Cape (60 - 70%); Gauteng (30 - 40%); and North-West (30 – 40 %).
In other provinces, the merging parties have a market share of less than 30%.
[29] The Commission submitted that the merging parties will continue to face
competition from other vertically integrated players such as National Renal Care
and Mediclinic Renal. Additionally, the dialysis providers do not have to operate
in acute hospitals, but can also operate from stand-alone facilities. As a result,
% of Target Business' operations are conducted on its standalone facilities,
wh
ile only % are conducted on mobile facilities located at various acute private
hospitals.
[30] The merged entity has agreed to an open-access condition, to continue to permit
third-party dialysis services providers reasonable access to the Acquiring
Group’s hospitals on a mobile basis for five years to administer acute renal
dialysis treatments.
[31] The merged entity has agreed to a further condition that Life Hospitals shall not
interfere with the clinical discretion of nephrologist residents in its hospitals to
refer patients as set out in the Health Professions Act, No. 56 of 1974. The
nephrologists operating at Life Hospitals shall be free to refer patients to their
preferred dialysis centres.
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[32] The Agreement contains a on the Target Business' -
-· The merging parties argued that since the
it is highly unlikely that the
the South African dialysis services
- · Further, the Acquiring Group is entitled to reasonable - in
respect of its - of more than in the . A
condition has been imposed that the merging parties - the relevant
Third-Party concerns
[33] W here relevant concerns w ere raised by customers and competitors, w e have
taken them into account where appropriate in the competitive assessment
above.
Conclusion on competition assessment
[34] Having regard to the information above, and in light of the conditions, w e do not
consider it likely that the proposed merger w ill result in a substantial prevention
or lessening of competition in any relevant market.
Public interest
Emp loyment
[35] FMC currently emp loys 529 emp loyees and the Target Business accounts for
400 employees. All 400 emp loyees w ill be transferred as a going concern in
terms of section 197 of the Labour Re lations Act No .66 of 1995. FMC submits
that the proposed transaction may result in about 1 0 employees ("Affected
Employees"), mostly professionals being retrenched (e.g. legal, human
resources, IT, and compliance).
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[36] The applicable trade unions were contacted by the Commission and the
Commission did not receive a response from any of the trade unions. The
Employee representatives made submissions but did not wish to intervene
formally. The DTIC requested a 36-month moratorium on employment.
[37] The merging parties have agreed to a condition that apart from the Affected
Employees, there is a three-year moratorium on all other merger-related
retrenchments.
Effect on particular industry or sector
[38] The merging parties proposed the following conditions, the Acquiring Group
shall commit capital expenditure on the Target Business of R over
five years and the relevant provincial health departments in each province in
which the Merged Entity provide dialysis services with a maximum of 8,350
chronic hemodialysis treatments for public sector patients. These conditions
were accepted by the Commission.
Effect on the promotion of a greater spread of ownership to increase the levels of
ownership by historically disadvantaged persons and workers in firms in the market
[39] Life Holdings is a level 3 B-BBEE contributor and FMC does not have any
shareholding held by Historically Disadvantaged Persons (HDPs). Life EST
Employee share trust ("EST") holds % shareholding in Life. For , the
merging parties submitted that the who will be
joining the and meet the qualifying criteria of the
will be permitted to participate.
[40] We conclude that the proposed transaction does not raise any other public
interest concerns.
Conclusion
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[41] In light of the reasons outlined above, we conclude that, given the conditions,
the proposed transaction does not substantially lessen or prevent competition or
raise public interest concerns. W e therefore approve the proposed transaction,
subject to the conditions outlined in Annexure A.
Presiding Member
Prof Liberty Mncube
18 March 2024
Date
Concurring: Ms Andiswa Ndoni and Prof. lmraan Valodia
Tribunal case managers:
For the merging parties:
For the Comm ission:
Moleboheng Mhlati and Baneng Naape
Natasha Rachwal and Nick Altini of Herbert
Smith Freehills
Nonhlanhla Ms iza, Themba Mahlangu and W iri
Gumb ie
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