COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 27/LM/Apr04
In the large merger between:
Selcovest 23 (Pty) Ltd
and
Basfour 2776 (Pty) Ltd
Reasons for Decision
_________________________________________________________________
APPROVAL
On 7 June 2004 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Selcovest 23 (Pty) Ltd and Basfour 2776 (Pty) Ltd
in terms of section 16(2)(a). The reasons for the approval of the merger appear
below.
The Parties
1. The primary acquiring firm is Selcovest 23 (Pty) Ltd (which will later be
renamed “Vukile Property Fund Limited” (“Vukile”), a newly incorporated
company, ultimately controlled by Sanlam Limited. It is directly controlled by
Sanlam Property Asset Management.
2. The primary target firms are Basfour, which is controlled by the Kuper Legh
Group and Investec Property Group 1, Lekup No. 1 (Pty) Ltd and Lekup No.
2 (Pty) Ltd, both controlled by the individuals comprising the Kuper Legh
Property Group.
1 Kuper Legh is comprised of two individuals David Kuper and John Legh
Diagrammatic Representation of Transaction
The Transaction
3. This notification comprises a series of transactions whereby certain office,
industrial and retail property is being sold to a newly incorporated entity
Selcovest 23, (which will later be renamed “Vukile Property Fund Limited” )
controlled by Sanlam. The shareholders of the target firms are selling their
shares in and claims against these firms to Vukile. The shareholders are
also the registered owners of the properties which will postmerger be
transferred to Vukile. Therefore postmerger Vukile will own a portfolio of
investment properties, comprising the Kuper Legh properties 2. Sanlam
2 The parties state that practically, the management of the properties will continue as before, ie by
Sanlam Property Asset management in respect of its properties, Kuper Legh in respect of its
properties.
Sanlam Limited
52.5%
Selcovest/ VUKILE
acquiring
Basfour Lekup 1 Lekup 2
Kuper Legh
Controlled by
Investec
Limited will initially hold 52.5% of the issued share capital of Vukile, later
reducing its shareholding over time 3.
4. Other shareholders of Vukile will be:
Kuper Legh as to 13.9% and
Other vendors and the general public, as to 33.6%.
Merger Rationale
5. All life insurance companies have recently been selling investment
properties to listed property companies and unit trusts for greater flexibility.
It is more beneficial for Sanlam to “promote” the listing of property
companies to which it can sell its investment properties, rather than sell to
property companies already listed. It wishes to wishes to rightsize its
underlying asset portfolio.
Relevant Markets
6. The relevant market can be segmented into different types of property
(either office, retail, commercial or industrial) depending on the use for
which they will be put, as well as the grade of such property 4.
7. Sanlam has already begun commencing transfer of certain properties of
Sanlam subsidiaries to them. The Commission identified the overlaps
according to where the target property was located and the impact of
adding those properties belonging to the Sanlam/Vukile portfolio. Therefore
this analysis was done on the basis that Vukile has already taken transfer of
the Sanlam group properties and is now in the market (even though it was
not previously as it didn’t trade) and so there is a deemed overlap. The
Commission assessed the relevant markets as being:
i. Grade A rentable office space
ii. Grade B rentable office space
iii. Light industrial rentable space
iv. Heavy industrial rentable space
v. Rentable space for community shopping centres
vi. Rentable space for regional shopping centres
vii. Rentable retail space for warehouse centres
vii. Rentable retail space for warehouse centres
3 This has been its stated strategy with other listed property companies in which it holds an
interest, eg MICC Property Fund Ltd.
4 Grades reflect the degree of interior finish, space, availability of parking, environment and building
systems. Refer to the South African Property Owners Association Vacancy Survey.
Geographic Markets
8. In addition the market is further segmented into different geographical areas
or “nodes” where certain types of institutions tend to group, eg
telecommunications firms tend to cluster around the Midrand area. All areas
within that node compete with each other and are substitutable. The
Commission identified four nodes – Parktown, Sandton, Midrand and
Randburg. For instance, the Parktown node will comprise Parktown,
Milpark, Braamfontein and Johannesburg CBD, and these areas will
compete inter se. This is the accepted approach taken in previous
property mergers as well as the approach adopted by market participants.
9. Therefore, though both parties may compete in various types of property
segment, they may not overlap geographically. The Commission assessed
overlaps between the location of Sanlam and Vukile properties on one hand
and those of the target firms on the other. This is because Sanlam will post
merger control the properties via Vukile. Therefore, the overlapping product
and geographic markets can be further delineated as follows:
a. Grade A Office Sandton Node
b. Grade B Office Parktown Node
c. Office B Pretoria CBD
d. Retail warehouse Johannesburg
Impact on competition
10. The combined market shares are as follows:
Relevant Market Vukile Sanlam Target Combined
Grade A Offfice
Sandton Node
6.9%` 0.1% 7%
Grade B Office
Parktown Node
3.3% 1.5% 5%
Office B PTA CBD 3.6% 7.7% 11.3%
Retail warehouse
JHB
3% 0.5% 3.5%
11. The Commission is of the view that since the postmerger combined market
share in any local market is less than 15% and therefore no competition
concerns arise. We agree with this conclusion.
Conclusion
We conclude that the merger will not lead to a substantial lessening of competition
and therefore approve the transaction unconditionally. There are no public interest
concerns which would alter this conclusion.
_____________ 21 June 2004
N. Manoim Date
Concurring: M. Holden, U. Bhoola
For the merging parties: Sonnenberg Hoffman Galombik Attorneys
For the Commission: M. van Hoven and K. Ramathula, Competition
Commission