COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 96/LM/Dec02
In the large merger between:
New Tsogo Sun Holdings (Pty) Ltd
and
Southern Sun Holdings Ltd/Tsogo Sun Holdings (Pty) Ltd
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Reasons for Decision
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Approval
The Competition Tribunal issued a Merger Clearance Certificate on 24 February 2003
approving the merger without conditions. The reasons are set out below.
The merger
The parties to the transaction
• Tsogo Investment Holding Company (Pty) Ltd (“ TIH”) is an investment holding
company, which is a black empowerment group, not controlled by any firm.
• SABSA Holdings (Pty) Ltd (“ SABSA”) is a wholly owned subsidiary of South
African Breweries International (Finance) BV in the Netherlands, which is wholly
owned by SABMiller plc in England. SABSA manufactures, bottles and
distributes beer and soft drinks in South Africa and also holds hotel and gaming
interests in the form of its wholly owned subsidiary Southern Sun Holdings
(“SSH”).
• New Tsogo Sun Holdings (“ NTSH”) a special purpose vehicle created for
purposes of the transaction. It will be controlled jointly by TIH (holding 51% of
the shares) and SABSA (holding 49% of the shares).
The transaction
The transaction involves the disposal by TIH and SABSA of their respective hotel and
gaming interests to NTSH. The assets being acquired by NTSH are the gaming assets of
TIH and SSH.
On completion of the transaction, SABSA will own 49% of NTSH and TIH the
remaining 51%. Following this transaction, Southern Sun Gaming Investments (Pty) Ltd
will be liquidated and NTSH will form two new subsidiaries, Gaming Holdco to house
the gaming assets and Hotel Holdco to house the hotel assets.
Although the structure of the transaction appears complex, the overall changes are
simple. Prior to the merger TIH and SABSA jointly held gaming interests 49% and 51%
respectively through their joint venture company. This balance in holding is now reversed
and TIH has 51% while SABSA has 49%. The other change is that the hotel interests that
SABSA formerly held outside of the JV. now form part of the JV and thus effectively
enlarges the interests held by the JV. The JV will divide its interests into two main
subsidiaries one containing the gaming interests and the other the hotel interests.
Rationale for the transaction
SABMillar and TIH have been associated through a joint venture company Tsogo Sun
Holdings (Pty) Ltd (“Tsogo Sun JV”) since 1994. SABMiller wants to divest of its hotel
and gaming interests held in SSH, which it regards as noncore. The proposed transaction
will facilitate SABMiller’s divestiture strategy for its hotel and gaming assets while at the
same time supporting and facilitating the JV’s original empowerment and expansion
strategies.
Effect on competition
Two relevant markets are involved, the gaming market and the shortterm
accommodation market.
The gaming market consists of a number of casinos throughout South Africa that
compete on a regional basis. Tsogo Sun JV currently operates 5 casinos of the existing 30
casinos in South Africa. These include the MonteCasino (Gauteng), Champions Casino
casinos in South Africa. These include the MonteCasino (Gauteng), Champions Casino
(Mpumalanga), Emnotweni Casino (Mpumalanga), Emonti Casino Resort (Eastern Cape)
and the Suncoast Casino (KwaZuluNatal). It also controls 6 hotels in South Africa,
Emnotweni Sun (Nelspruit), Express by Holiday Inn (Nelspruit), Hemingways (East
London) Palazzo InterContinental (Johannesburg), The Ridge (Witbank) and Sandton
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Convention Centre (Sandown).
In the shortterm accommodation market Tsogo Sun and Southern Sun respectively
control 6 and 68 hotels. Their products overlap in the following geographic markets: East
London, Johannesburg, Midrand and East Rand, Witbank, Nelspruit and Cape Town.
Southern Sun managed all the Tsogo Sun hotels in terms of an arms length management
agreement before the merger. This will continue after the merger.
Of the 14370 rooms 1 available in the Johannesburg, Midrand and East Rand area the
merged entity will own 27.8%. In East London the merged entity will own 14.2% of the
total of 1702 rooms available, in Nelspruit the merged entity will own 25.6% of the 1064
rooms available, in Witbank 32.5% of the total of 283 rooms available and in Cape Town
18.3% of the available 13346 rooms.
The merger will thus not have an effect on competition in the gaming market since this
transaction amounts to a restructuring of assets. The gaming assets were previously
jointly controlled by the merging parties and will, post the merger, be controlled by New
Tsogo Sun Holdings. New Tsogo Sun Holdings will ultimately me controlled by Tsogo
Investment Holdings and SABSA. This is also a regulated industry with the National
Gambling Act, 33 of 1996, providing for the granting of a maximum of 40 licences to be
distributed across each of the 9 provinces of South Africa.
With regard to the shortterm accommodation market we agree with the Commission that
the transaction will not substantially prevent or lessen competition in this market. Apart
from a large number of Bed & Breakfast venues and guest houses there are also well
known international players present in this market. Barriers to entry are low and
international hotel groups such as The Hyatt Hotel, The Hilton Hotel, The Sheraton and
Days Inn have entered the market in recent years.
Public interest
The transaction will not result in any retrenchments and does not raise any other public
interest grounds.
14 March 2003
interest grounds.
14 March 2003
N. Manoim Date
Concurring: D. Lewis and F. Fourie
1 Rooms referred to in this paragraph includes grade 15 hotels and also B & B’s and Guest Houses
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For the merging parties: Webber Wentzel Bowens Attorneys.
For the Commission: L. Mtanga, Competition Commission
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