IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 105/LM/Dec04
In the matter between:
Community Healthcare Holdings (Pty) Ltd First Applicant
Cornucopia (Pty) Ltd Second Applicant
and
The Competition Commission First Respondent
Business Venture Investments No. 790 (Pty) Ltd Second Respondent
Afrox Healthcare Ltd Third Respondent
Brimstone Investment Corporation Ltd Fourth Respondent
Mvelaphanda Strategic Investments (Pty) Ltd Fifth Respondent
African Oxygen Ltd Sixth Respondent
Reasons for Decision
INTRODUCTION
1. The applicants in this manner applied to intervene in the abovementioned
merger proceedings. We heard the application on the 8 th February 2005, and
decided to dismiss the application. Our reasons for this decision follow.
THE PARTIES
2. The first applicant is Community Healthcare Holdings (Pty) Ltd
(“Community Healthcare”), a company with limited liability duly registered and
incorporated in accordance with the company laws of the Republic of South
Africa. The first applicant holds a 43,75% interest in a group called
Community Hospital Group (Pty) Ltd (“CHG”). Netcare also owns a 43,75%
interest in CHG and the remaining shares are held by management. The first
applicant is controlled by historically disadvantaged persons. CHG owns and
operates a number of smaller hospitals. 1 The first applicant also has other
subsidiaries that operate in the health sector.
3. The second applicant is Cornucopia (Pty) Ltd (“Cornucopia”), a private
company duly registered and incorporated in accordance with the company
laws of the Republic of South Africa. The second applicant is a wholly owned
subsidiary of CHG. In November 2004 the second applicant acquired shares
in Ahealth. The second applicant also owns shares in the Wilgers hospital
which is a hospital that is controlled by Ahealth.
4. The first respondent is the Competition Commission, which is cited for its
interest in the matter. The Commission indicated that it would not oppose the
application.
5. The second to the sixth respondents are the parties to the merger. For
simplicity we refer to them collectively as the respondents. The respondents
opposed the application.
BACKGROUND
6. On 5 December 2003, a large merger was filed with the Tribunal in terms of
which a consortium of firms purchased the entire share capital of AHL. The
transaction was made pursuant to a scheme of arrangement in terms of
section 311 of the Companies Act, Act No. 61 of 1973.
7. The Tribunal commenced hearings in respect of this merger on 14 July
2004. Prior to the hearing the first applicant, along with several other firms,
was recognised as an intervenor in those proceedings and was represented
at the hearing by its legal representatives. 2 For convenience we will refer to
these proceedings as the “prior proceedings”.
8. In the prior proceedings the main issue of concern for the intervenors was
the role of Medi Clinic in the prior transaction. Medi Clinic is a major
competitor of Afrox and along with Netcare is one of the three major hospital
groups in the country. Medi Clinic was 1) to have a 25% stake in the
purchaser of Ahealth, called Bidco, 2) to be responsible for much of the
financial risk and 3) had entered into a related transaction with Bidco, in terms
financial risk and 3) had entered into a related transaction with Bidco, in terms
of which the latter had agreed to sell 2500 of Ahealth’s beds to it.
9. The prior proceedings hearings were adjourned in August 2004 and were
1 The transcript is inconsistent on this point, but it seems the number of hospitals is either five
or six. Despite the discrepancy it is common cause that CHG is a small to medium sized
operator in the hospital sector and considerably smaller than the big three Ahealth, Medi
Clinic and Netcare whose operations are characterised by the fact that they enjoy a national
footprint.
2 Note that the Tribunal did not have to determine the intervention application in these
proceedings, as the merging parties did not oppose them. The intervenors were all
represented at this hearing by the same legal team led by Netcare.
2
scheduled to recommence in September 2004. During the adjournment period
various negotiations took place. Eventually the parties decided to reconstitute
the scheme of arrangement with Afrox substituting itself for Medi Clinic in the
scheme, the introduction of new institutional shareholders, changes to the
funding structure, and the cancellation and disavowal of the disposal
agreement.
10. During the course of these negotiations certain shareholders of Ahealth
brought an application to the High Court alleging that the scheme of
arrangement had lapsed. The initial applicants were joined in their application
by certain intervenors amongst who was the second applicant in this matter,
Cornucopia. All the other applicants and intervenors settled with the
respondents in that case (the second, third and sixth respondents in this
application) except for Cornucopia. Despite not settling Cornucopia did not
pursue the High Court application for reasons that are not explained.
11. The settlement in the High Court applications involved the withdrawal of
Medi Clinic from the prior transaction and certain guarantees around the
termination and nonrenewal of the disposal agreement. It is common cause
that these applicants and intervenors in the High Court were funded by
Netcare and represented by its attorneys. Again here Cornucopia was an
exception and was represented by its own attorneys and counsel.
12. On 6 December 2004, at a prehearing in connection with the prior
transaction, we were advised that the deal had been restructured, and that at
the insistence of the Commission, the deal would be renotified even though
the parties viewed this as unnecessary. The intervenors in the prior
proceedings represented by their erstwhile attorneys withdrew.
13. On 11 December 2004, the respondents filed a new merger notification
with the Competition Commission. This filing has led to the current
proceedings before us today.
proceedings before us today.
14. In terms of this filing the shareholding of the buying entity Bidco is as
follows:
BEECo (comprising Brimstone and Mvelephanda in equal shares) as to
50.2%;
AOL (the sixth respondent) as to 20.1%;
Rand Merchant Bank (RMB) as to 10.1%; 3
Old Mutual Assurance Co. (South Africa) (OMLACSA) as to 10.1%;
Industrial Development Corporation (IDC) as to 4.5%; and
Management as to 5%.
15. At a prehearing conference on 25 January 2005 we directed that the
3 Rand Merchant Bank in fact holds this equity through various entities that it controls.
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hearing in respect of the present filing proceed on the 10 th February 2005.
The applicants brought their application on 28 January 2005, and we heard it
on the 8 February 2005, in order that the intervention could be determined
prior to the commencement of the hearing, since a decision to allow the
intervention would have had a bearing on the conduct, and date of
commencement of the hearings. During the course of argument we allowed
oral testimony from a Mr Dewald Dempers who was the deponent to the
founding affidavit on behalf of both the applicants.
GROUNDS FOR THE APPLICATION
16. The applicants have advanced three grounds in support of their
application:
16.1 The first is that the current proceedings before us are essentially a
continuation of the Medi Clinic proceedings and since in respect of the first
applicant it had been recognised as a participant then it must be regarded
as continuing to be one now.
16.2 The second is that even if the current proceedings are not regarded as
part of the original proceedings, they should be regarded nevertheless as a
sequel to them, and on that basis again, the first applicant has a sufficient
interest to be recognised as a participant.
16.3 In the third place it is contended on behalf of both applicants that they
have established a sufficient interest to be recognised by the tribunal as a
participant in terms of section 53(1)(c)(v) of the Act.
17. We examine each of these grounds separately.
First Ground – In respect of the first applicant that it is already a
participant
18. The first applicant has contended in its founding affidavit that:
“the current proceedings are not in fact fresh proceedings but are a
continuation of the proceedings referred to more fully above [the prior
proceedings] and that such proceedings have never been withdrawn
and I verily believe and have been so advised, constitute part of the
instant proceedings as well.” 4
instant proceedings as well.” 4
19. The first applicant contends that this allegation has not been denied by the
respondents. It relies for this on the fact that the respondents had not
conceded that they needed to make a new filing.
4 See paragraph 3.18.
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20. The fact is that the respondents did and they say so in their affidavits.
Once they had made a new filing we have a new merger and the respondents’
views on whether they needed to do so are now academic. The new filing
created a new jurisdictional fact, one of the consequences of which was that
the first applicant would have to bring a new application to intervene. 5 Nor is
this just a point of procedure or as applicants‘ counsel seemed to suggest a
mere allocation of new case numbers. The respondents fulfilled the
requirements of a new filing in conformity with the Act, including inter alia the
filing of a competitiveness report. The Commission investigated the filing and
prepared a new recommendation for the Tribunal. Thus both the formalities
and substance of a new filing have been met.
21. The current proceedings are therefore not a continuation of the prior
proceedings and the first applicant must apply for intervention de novo .
Second Ground In respect of the first applicant that the proceedings
now are a sequel to the prior proceedings.
22. In its second ground the first applicant contends that the current
proceedings are “unquestionably a sequel” to the first. It relies on the fact that
the restructured transaction, which is the subject of the current proceedings, is
result of the respondents’ attempts to mitigate the competition objections in
respect of the first proceedings. It argues that since it was an intervenor in the
prior proceedings, in which it had raised the very objections which the
restructuring seeks to cure, it is entitled to be recognised as an intervenor in
these proceedings to satisfy itself that its objections have indeed been met
and not been replaced by new ones.
23. In our view if the applicant has these concerns then it must make out a
case for intervention based on the necessary factual or legal issues. It cannot
rely on history to circumvent the founding of a proper case for intervention.
rely on history to circumvent the founding of a proper case for intervention.
The fact that the current proceedings have a history in the prior proceedings
does not obviate the need for the first applicant to make out a case for
intervention in terms of section 53(1(c)(v). It would appear that it is precisely
because the applicants’ case for intervention is so weak that they have relied
on the first applicant’s alleged inherited rights as laid out in these first two
grounds for intervention.
Third Ground In respect of the first and second applicants that they are
entitled to be recognised as participants in terms of section 53(1(c)(v) of
the Act.
5 There was some controversy during our hearing as to whether the first applicant had
withdrawn as an intervenor at the prehearing in December 2004. Whatever the true position
is this is irrelevant given the current filing. Even if the applicant had not withdrawn in the prior
proceedings this would not afford it locus standi as a participant in respect of the new filing.
The prior proceedings have been abandoned and with them any right of participation.
5
24. This is the applicants’ third ground for intervention and is relied upon by
both applicants, unlike the first two.
25. Section 53(1)(c)(v) states:
“(1) The following persons may participate in a hearing, in person or
through a representative, and may put questions to witnesses and
inspect any books, documents or items presented at the hearing:
(c) if the hearing is in terms of Chapter 3
(v) any other person whom the Tribunal recognised as a
participant.”
26. This section needs to be considered in the light of Rule 46, the Tribunal
rule that regulates intervention application. For present purposes we will
consider Rule 46(1), which states:
“Intervenors
1) At any time after an initiating document is filed with the Tribunal,
any person who has a material interest in the relevant matter may
apply to intervene in the Tribunal proceedings by filing a Notice of
Motion in Form CT 6, which must –
a) include a concise statement of the nature of the person’s interest in
the proceedings, and the matters in respect of which the person will
make representations; and
b) be served on every other participant in the proceedings.” (Our
emphasis)
27. For convenience we deal with the second applicant’s argument first.
The second applicant
28. The second applicant is a shareholder of Ahealth. Curiously it acquired its
shareholding in Ahealth in November 2004 after the court had sanctioned the
Scheme of Arrangement. This means that the second applicant had
purchased its shares in the knowledge that if the conditions to the Scheme
were met its shares would be expropriated and it would receive cash instead.
It was also after the conclusion of our first hearings into the prior transaction.
For this reason we put to Mr Dempers in his testimony that it appeared that
6
the reason for the shares being purchased appeared to be ‘tactical’ and he
conceded that it did. 6
29. Counsel contended that the second applicant as a shareholder was thus
similarly situated to the IDC, which was recognised as a participant in terms of
this section of the Act in a merger in terms of which Anglo American Ltd
acquired control of Kumba Resources. 7
30. In that case, which was the subject of three decisions all of which
recognised the IDC’s right to participate, the crucial facts were that the IDC,
although a minority shareholder in Kumba, the target firm, undertook its
investments pursuant to certain statutory goals that are consonant with certain
of the concerns that the Tribunal looks at when it considers a merger in terms
of section 12A. 8
31. In addition the IDC had advanced concerns it had with the merger and the
economic theories of the merging parties, which it met with a critique from its
own experts.
32. The second applicant has failed to make out a case of this quality; in short
it has failed to indicate either why the merger if consummated should have an
adverse effect on it or on what value it can bring to our proceedings if allowed
to intervene. The second applicant then seeks to rely on the case made out
by the first applicant in terms of the section. We find that not only is it not
similarly situated to the first applicant to rely on these grounds, but also, even
if we are wrong on this, given the first applicant’s failure to make out a case
for participation, the second applicant must fail on the same grounds.
33. Finally the second applicant raised certain issues in correspondence with
the Tribunal and the respondents’ attorneys. 9 As this correspondence shows
these issues relate almost entirely to the Scheme of Arrangement and not to
any concern in terms of the Competition Act. They cannot found a basis for
the second applicant to intervene.
The first applicant
the second applicant to intervene.
The first applicant
34. We have found that the first applicant has not made out a case that it is a
6 See Transcript page 68. The explanation for the share purchase appeared to be the not
wholly convincing contention that as a shareholder, the second applicant, which has a minor
stake in an Ahealth owned hospital, would be able to receive financial reports that it would not
otherwise receive. Perhaps the more probable tactical rationale was that as a shareholder the
second applicant had the locus standi to oppose the Scheme of Arrangement a course of
action that as we have seen earlier the second applicant actively pursued when it became an
intervenor in the High Court proceedings to set aside the Scheme.
7 Case No.: 46/LM/Jun02.
8 See CAC decision page 22.
9 See letter to the Tribunal and Commission dated 20 January 2005 and annexure DD4 to the
founding affidavit.
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credible intervenor and secondly that it will be able to provide any value or
assistance to the Tribunal in its deliberations.
35. Although we have evaluated these considerations separately they form
part and parcel of the same conclusion when we ask the ultimate question,
should we recognise the applicants as participants in these proceedings?
36. The legal approach to intervention applications in mergers has been
authoritatively pronounced upon by the Competition Appeal Court (CAC) in
the case of Anglo South African Capital (Pty) Ltd and others v Industrial
Development Corporation of South Africa and the Competition Commission
CAC Case No.: 26/CAC/Dec02 .
37. In that case Jali JA had to deal with the nature of the Tribunals’ discretion
to allow a party to participate. The Court held that the test for an applicant to
have a “ material interest in the relevant matter” , the test laid down in Rule 46
of the Tribunal’s rules, was not a test required by the Act. The Court pointed
out that the ordinary language of the section set out no threshold of interest
for a party to participate. In this respect we agree with applicant’s counsels’
summation of the legal position. This does not mean however that the Court
left the Tribunal with an unfettered discretion to allow a party to intervene. To
the contrary the Court made it clear that
“ The discretion must be exercised judicially or according to the rules of
reason and justice” 10
38. Thus although the decision appears to recognise an intervention
regime in mergers that is more liberal than that provided for in Rule
46(1), that does not mean that the Tribunal is obliged to let in any party
who knocks on its door seeking to intervene.
39. The Tribunal must enquire into the question of whether the party applying
to intervene will assist it in its inquiry in terms of section 12A. This can be
assessed in a variety of ways, which need not all be adumbrated here. The
assessed in a variety of ways, which need not all be adumbrated here. The
Tribunal must take into account the likelihood of assistance balanced against
the consequences of the intervention in terms of the expedition and resolution
of the proceeding. If the likelihood of the prospective intervenor assisting the
Tribunal’s enquiry is doubtful, while the impact of the intervention is more than
likely to impact on the expedition of the proceedings, then the Tribunal should
decline intervention or curtail its extent.
40. In this application the applicants seek the fullest possible rights of
intervention so curtailment has not been possible to consider. This is because
the application is contingent on the applicants seeking access to the full
record and enjoying rights of further discovery.
10 See CAC decision supra page 25.
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41. As Counsel for the applicants expressed it in closing argument:
“The tender, Mr Chairman and members of the Tribunal, for the first
and second applicants to adduce evidence in the proceedings is a
hollow one. With respect, you saw the difficulty that Mr Dempers has in
dealing with questions pertaining to the nittygritty of the transaction,
because he simply doesn’t have access to the necessary information
and documents. It’s a hollow offer to do basically just what Mr
Dempers managed to do today and, with respect, would not be proper
participation” 11
42. The application is thus flawed in its basic premise. It seeks intervention
not by establishing the value of the applicants’ participation, but to see if they
can found a basis to intervene.
43. The entire history of the intervention thus far indicates the applicants’
slender and tenuous basis to claim the right to participate.
44. When the merger was noted in December 2004, the Commission
approached the first applicant for comment. The first applicant and this was
confirmed by Mr Dempers in his oral testimony, indicated that unless they
were afforded access to the respondents filings over which claims for
confidentiality had been made they were unable to comment.
45. After the Commission had filed their recommendation with the Tribunal the
applicants’ attorney wrote to the Commission and Tribunal on 20 January
2005, to express concerns about the merger. But these concerns relate
primarily to the Scheme of Arrangement issues that have no bearing on the
Competition Act. Significantly the letter was written only on behalf of the
second applicant, and no mention is made of the first applicant and its prior
history as an intervenor in the first proceeding, a matter made much of when
the application was argued before us.
46. At the prehearing on 25 January 2005, the applicants’ attorney was
present and announced that he appeared on behalf of the second applicant.
present and announced that he appeared on behalf of the second applicant.
Again no mention was made of the first applicant. On the following day the
applicants’ attorneys wrote to the respondents attorneys. Once again they
write in the name of the second applicant albeit that it is described as a
subsidiary of the first. The letter, which contains a series of interrogatories to
the respondents’ attorneys, again raises no concerns relevant to the
Competition Act. 12
47. Only when the application is brought does the interest of the first applicant
manifest itself. When asked about this anomaly Mr Dempers said that there
11 See transcript page 104.
12 See Annexure DD4 to the founding affidavit.
9
might have been confusion with issues that were being raised with the SRP
where only the second applicant had locus standi. Whether this is so or not is
hard to fathom, but it does illustrate that the applicants have either failed to
properly apply their mind to the question of what their Competition Act
concerns are or that as the respondents suggest that they have an ulterior
commercial purpose for their application.
48. Nor is the application even with the inclusion of the first applicant any
more enlightening. As the respondents have pointed out the application is in
large part a verbatim repetition of the intervention application it made during
the first proceeding. That proceeding was premised on concerns over the role
of Medi Clinic in the transaction. Given its stated absence in the present one,
the applicants have not succeeded in applying their minds to the changed
circumstances. Where in the few parts the present application contains some
original material it goes no further than repeating stock phrases in the Act
without explaining why they are relevant to the case for intervention it seeks to
make.
49. The applicant cannot invoke the machinery of the Act merely by parroting
its phrases.
50. Given the vagueness of the founding affidavit and the unsatisfactory
replying affidavit, which did nothing to address the serious criticisms raised by
the respondents in their answering papers we allowed the applicants chief
executive officer Mr Dempers, who was the deponent in the papers, to give
oral testimony.
51. Essentially he addressed two grounds of concern.
52. The first was that the applicant as an empowerment firm in health sector
and a small business was uniquely situated to make a contribution to the
hearing. But when pressed as to what harm the merger had for empowerment
Mr Dempers was forced to concede that if Afrox was considered an
Mr Dempers was forced to concede that if Afrox was considered an
empowerment firm that would hurt the first applicant, as it would lose the
competitive advantage of its empowerment credentials.
“ Mr Dempers: The only reason which made it possible for us up to now to
survive, was the fact that the bulk of the small independents at the moment
had all enjoyed empowerment status and that gave us a competitive
advantage…Should the Bidco transaction happen, I don’t think our
empowerment status will be a competitive advantage to us anymore and it will
be difficult for us to compete going forward. So it can lead to the demise of
the small and medium players in the industry.” 13
53. It is later on put to him pertinently in crossexamination that the real threat
to the first applicant was that there would be another empowerment entity
13 Transcript page 64
10
entering the market. His answer is:
Mr Dempers: ” Sir again, just a new empowerment entrant into the market of
their size is definitely going to be a threat. I will consent to that. So that’s why
it is important for us to ensure that that is the only advantage and the only
benefit that that participant will enjoy in the market and no other benefits or
relationships or control or influence and that’s basically why we are here.” 14
54. This, as Mr Subel for the respondents points out is not a concern for a
genuine interest in terms of the Competition Act, but is about the first
applicant’s own commercial interests. The Act in section 12A(3)(c) states, (the
relevant public interest that the first applicant invokes) that the Tribunal must
have regard to the effect the merger will have on the ability of firms controlled
or owned by historically disadvantaged persons to become competitive. It
does not require the competition authorities to insulate them from competition
from other firms that can claim to be owned or controlled by historically
disadvantaged persons.
55. The second ground was the relationship of Medi Clinic to the present
merger. Here Mr Dempers contended that it was possible that Medi Clinic still
had some interest in the present transaction by way of a common shareholder
Remgro. It is common cause that Remgro control MediClinic through a 52%
holding and also have a 10% stake in the First Rand Group. First Rand
subsidiaries, through RMB, will hold about 10% of the equity in Ahealth in the
present transaction. However, when it was put to him by Mr Subel that Medi
Clinic was entirely excluded from the transaction, Mr Dempers conceded that
if that were the case, he would not have a problem with the transaction. He
persisted however, in saying that the real decisions are not made at the Medi
Clinic level, but higher up the ladder. Mr Dempers when further pressed was
not able to elaborate on what this might be, but insisted that he be allowed to
not able to elaborate on what this might be, but insisted that he be allowed to
be part of those investigations.
56. Mr Dempers’ evidence in no way bolstered the application; rather it
demonstrated that when sweeping claims were probed the applicants could
offer no more than speculation.
57. Unlike in the IDC case the applicants have neither showed that they have
useful information about the transaction, indeed their knowledge in many
instances was deficient, nor any useful areas of enquiry nor a theory of
competition or public interest harm. At best the applicants raise issues that the
14 See transcript page 66.
11
Tribunal is in as good a position to probe (such as those that relate to the
public interest), or are issues that are relevant to the structure of the market
as a whole and are unrelated to the present merger. Expressed differently the
applicants’ problems with the market are as relevant to the market premerger
as they are post merger and hence not being merger specific, are not relevant
to the case in casu.
58. For this reason the applicants have not made out a case for why they
should be recognised as participants. If we were to recognise them it would
not be on the basis that they would prove of assistance, but only that
perchance they might discover some gem that has thus far eluded all others.
This is not a sufficient basis to allow the application especially when weighed
against the prejudice to the respondents who on the eve of their hearing have
an expectation that it will proceed.
59. The application is dismissed.
COSTS
60. We have decided not make an order of costs. Given the importance we
attach to the need for parties to intervene it would be counterproductive to
make an adverse costs award, as this would chill intervention. If on the other
hand an applicant is shown to be male fide or vexatious we may consider
otherwise.
61. Although the history of this matter shows that the applicants may have
other objectives in seeking intervention, and the respondents have cast doubt
on their true motives, we would need much greater proof before we could
make a finding of bad faith. 15
________________ 16 February 2005
Norman Manoim Date
Concurring: David Lewis and Thandi Orleyn
For the Intervenors: Adv. Allan Nelson SC and Adv. Allan
Coetzee instructed by Rothbart Inc .
For the 2nd to the 6th Respondents: Adv. Arnold Subel SC and Adv.
15 In the answering affidavit Mr Hogben the Chief Executive Officer of AOL describes the
application as “ – an opportunistic attempt by a competitor to thwart a transaction which it
recognises will render the relevant market not less but more competitive. (Page 52 of the
Record)
12
RM
Pearse instructed by Edward Nathan
Corporate Law Advisers .
13