COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 96/LM/Nov04
In The Large Merger Between:
JP Morgan Securities South Africa (Pty) Ltd
And
Cazenove South Africa (Pty) Ltd
Reasons for Decision
Approval
On 12 January 2005 the Competition Tribunal issued a Merger Clearance Certificate approving
the transaction between JP Morgan Securities South Africa (Pty) Ltd and Cazenove South
Africa (Pty) Ltd. The reasons for this decision follow.
The Parties
The primary acquiring firm is JP Morgan Securities South Africa (Pty) Ltd (“JP Morgan
Securities”), a wholly owned subsidiary of JP Morgan International Finance Ltd, which in turn is
wholly owned by JP Morgan Chase and Co (“JPMC”). JPMC is a public company listed on the
New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. JPMC
has several subsidiaries worldwide. In South Africa, JPMC has control over the following
entities: JP Morgan Securities, the Johannesburg branch office of JP Morgan Chase Bank; JP
Morgan Equities Limited, Sharestock Nominees (Pty) Ltd and Tasc Administration (Pty) Ltd.
The primary target firm is Cazenove South Africa (Pty) Ltd (“Cazenove SA”), which at the time
of notification, was one of seven wholly owned subsidiaries of Cazenove International Holdings
Limited (“Cazenove International”). Cazenove International is wholly owned by Cazenove and
Co Limited, which in turn is owned by the Cazenove Group Plc. The parties however, informed
the Tribunal that as part of an internal restructuring, the shares of Cazenove SA had been
transferred from Cazenove International to Cazenove & Co.
The Transaction
JP Morgan Securities is acquiring the entire share capital of Cazenove SA. The transaction is
prompted by an international transaction in which Cazenove Group Plc and JP Morgan form a
prompted by an international transaction in which Cazenove Group Plc and JP Morgan form a
UKbased partnership to be called JP Morgan Cazenove. 1 The transaction will combine
Cazenove’s investment banking business with JP Morgan’s United Kingdombased investment
1 Parties’ competitiveness report at page 287 of the record.
banking business2 in a jointly owned company. According to the parties the South African
transaction is separate from the international transaction and the South African operations of the
parties will not form part of the international joint venture referred to above.
Rationale for the Transaction
According to the parties, the joint venture will provide Cazenove’s clients with access to JP
Morgan’s global network, capital strength and broad capabilities, while still preserving
Cazenove’s operational independence The parties hope to increase their market share since
the transaction will enable them to compliment each other through some of their business
activities.
The Parties’ Activities
Worldwide, the activities of JPMC are internally organized into six major business segments viz.
asset and wealth management, card services, commercial banking, investment banking, retail
financial services and treasury and securities services. JPMC’s activities in South Africa are
conducted through its subsidiaries listed below:
JP Morgan Securities trades primarily in nongovernment fixed income securities and
also markets structured products to its client base, and earns fees on corporate debt
origination and securitisation in South Africa.
The Jhb branch of JP Morgan trades in foreign exchange and capital markets in South
Africa. It also offers structured products and advisory service to its client base and has a
full banking licence.
JP Morgan Equities is engaged in equities broking and trading.
Tasc Administration provides a comprehensive portfolio administration and investment
accounting service for local and foreign investments. Additional services include
performance management and composite measurement, securities lending, tax services
and reporting.
Sharestock Nominees holds various investments as a nominee company. Income on
these investments is credited directly to the beneficial shareholders.
Worldwide, the Cazenove group is involved in investment banking and operates primarily in the
United Kingdom. The group’s activities include corporate finance, capital markets, equities and
fund management. Cazenove SA offers a comprehensive range of financial advice and services
including corporate finance and equities research, sales and trading. Ancillary to these services,
Cazenove SA also conducts corporate broking activities, including shareholder analysis and
sponsorship activities.
Impact on competition
The Commission analysed the transaction on both a broad market for corporate, investment and
merchant banking and on the narrower markets for corporate finance services and equities
2 This includes the and acquisitions, equity capital markets and debt capital markets businesses of JP
Morgan.
2
research, sales and trading services. The corporate finance market includes mergers and
acquisitions advisory services and debt and equity capital markets services. With regard to the
geographic market, the parties submit that the relevant services are offered globally. The
Commission however, used the national market for its analysis.
The table below shows the parties’ 2003 market shares in the corporate finance market: 3
Relevant Market JP Morgan Cazenove Combined
Mergers and acquisitions advisory services 17.18% 4.45% 21.63%
Debt and equity capital markets services 8.68% 0%4 8.68%
According to the parties, the nature of the equities research, sales and trading services market
is such that it is difficult to obtain market shares. Instead the parties provided the weighted
rankings for research, sales and equities dealing. 5
Rank Company % of points
for
research
Company % of
points for
sales
Company % of points
for equities
dealing
1 Deutsch
Securities 13.1 Deutsch
Securities 17.6 Deutsch
Securities 14.4
2 Merrill Lynch 11.3 UBS 15.0 Merrill Lynch 14.3
3 JP Morgan 9.3 Investec 13.7 UBS 13.8
4 Nedcor
Securities 9.0 Cazenove 11.7 Investec 11.5
5 UBS 8.9 Merrill Lynch 8.9 JP Morgan 9.3
6 Barnard Jacobs
Mellet 8.4 Barnard Jacobs
Mellet 8.0
Nedcor
Securities /
Barnard Jacobs
Mellet
8.9 each
7 Investec 7.9 Andisa
Securities 6.8 Andisa
Securities 6.0
8 Citigroup 7.15 JP Morgan 6.0 Citigroup 5.0
9 Cazenove 6.7 Citigroup 5.7 First South
Securities 4.1
10 Andisa
Securities 6.5 Nedcor
Securities 5.6
From the above table, JP Morgan is ranked 3 rd in research with Cazenove ranked 9 th. In sales,
3 Commission’s report
4 Cazenove SA was last involved in this market in 2001 when they had a market share of 5,5%
5 Financial Mail survey in May 2004. These scores take into account the value of the assets under
management of each client.
3
JP Morgan is ranked 8 th and Cazenove 4 th. While Cazenove SA does engage in dealing, it was
not ranked in 2003. JP Morgan on the other hand was ranked 5 th.
In the Commission’s view the above market shares (and weighted ranking, in the case of
equities research, sales and trading services market) are relatively low and unlikely to raise
competition concerns in the relevant markets for the following reasons:
the market for corporate, investment and merchant banking is dynamic and
characterized by lumpy demand and bidding markets. The performance of participants
therefore varies constantly depending on their deal flow and the size, nature and number
of transactions handled in a particular period;
the market is highly competitive with many players, cross border trade and a number of
international banks active in South Africa;
customers, who are mostly large corporate clients, choose their own bankers according
to reputation and expertise they have displayed in previous transactions. According to
the Commission clients are not typically loyal to one service provider and are motivated
by factors such as price and service levels;
government organisations also have a policy of rotating their business between the
various providers rather than concentrating their activities on one or two favoured
providers;
finally, the market shares of the parties are relatively low and although there are entry
barriers in terms of regulation, it is still possible to enter the market if the enterprise has
capital, expertise and a reputation for dealing in these markets.
In light of the above, we are of the view that the transaction does not raise any significant
competition concerns. Furthermore, t here are no public interest concerns. Accordingly, we
agree with the Commission’s recommendation that the transaction be unconditionally approved.
15 February 2005
N Manoim Date
Concurring: D Lewis and M Madlanga
For the merging parties: Phumlani Ngcongo (Webber Wentzel Bowens)
Heather Irvine (Deneys Reitz)
For the Commission: Lindiwe Khumalo (Mergers and Acquisitions)
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