COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 12/LM/Mar05
In the large merger between:
Hosken Consolidated Investments Ltd Primary Acquiring Firm
and
Fabvest Investment Holdings (Pty) Ltd Primary Target Firm
REASONS FOR DECISION
Approval
[1] The Competition Tribunal issued a Merger Clearance Certificate on 16 May 2005
approving the proposed merger between the abovementioned parties in terms of
section 16(2)(a). The reasons for the approval of the merger appear below.
The Parties
[2] The primary acquiring firm is Hosken Consolidated Investments Ltd (“HCI”), a
public investment holding company listed on the JSE. Its largest shareholder is
SACTWU which holds 45.3% of the issued share capital in HCI. None of its
shareholders either directly or indirectly controls HCI. HCI has a number of
subsidiaries some of which are relevant for purposes of this transaction. 1 Flaghigh
Investments (Pty) Ltd (“Flaghigh”), Tangney Investments (Pty) Ltd and Nactu (Pty)
Ltd (“Nactu”) collectively hold 32.06% of the issued share capital in Tsogo Investment
Holdings (“TIH”). 2
[3] The primary target firm is Fabvest Investment Holdings Ltd (“Fabvest”), which is
controlled by the Fabcos Trust (“Fabcos Trust”) (as to 90.125%). Fabvest currently
controls (directly or indirectly) 3 Fabcos Investment Holdings (“FIH”) (as to 75%) 4,
Censor SA (of which 95% of the issued share capital is held by FIH 5), Anchor Yeast
(Pty) Ltd (of which 95% is held by Censor SA), Established Investments (Pty) Ltd (of
1 Refer to HCI Group Structure, page 164 of the record.
2 Other relevant subsidiaries include Global Payment Technologies (Pty) Ltd (“Global Payment”)
(96%); Vukani Gaming Corporation (Pty) Ltd (“VGC”) (96%); and Vukani Gaming Mpumalanga,
Western Cape, Eastern Cape, and KwazuluNatal (“KZN”). (See page 2 of the Commission’s Report).
3 For all the info as to what Fabvest controls, see page 4749 of the record. See further Fabcos group
structure, page 259 of the record.
4 Subject to change to a 50% share, once the approval of the Johnnic / Fabcos transaction is approved
by the National Gambling Board (“NGB”).
5 According to the parties, FIH’s interests in Censor SA will be transferred to Fabvest pursuant to the
Johnnic/Fabcos transaction.
which 55% is held by Fabvest 6). FIH holds 38% noncontrolling stake in TIH. 7
[4] Below is an organogram which outlines the Fabcos shareholdings:
90.1%
55% 75%
25% (50%)
100% 100% 38%
100% 51%
100%
[5] The structure of TIH’s subsidiaries is as follows:
51% 49%
100% 100%
60% 100% 100% 100% 100%
6 The merging parties pointed out that Fabvest’s interests in Established Investments would be
excluded from the proposed acquisition.
7 The remaining shares in TIH are held by: Flaghigh, Nactu & Tangney (32%) ; Nafcoc
Investment Holding Co. (Pty) Ltd (25%); African Renaissance (4.7%); and Patrice Motsepe
(0.3%).
Fabcos Trust
Fabvest Investment Holdings
Ltd
Fabcos Investment Holdings
Ltd
Johnnic Holdings LtdEstablished Investments
(Pty) Ltd
National Cereal Holdings
(Pty) Ltd
Censor SA Tsogo Investment
Holding Company
Fabfoods(100%)
Dormant
Fabtravel (100%)
Dormant
Fabao Investments
(75%) Dormant
Future Break (44%) – In
liquidation
National Cereal Investment
(Pty) Ltd
Tsogo Sun Holdings
(Pty) Ltd
Premier Foods Ltd
Tsogo Investment
Holding Company
SAB Miller (Southern
Sun)
Tsogo Sun Holdings (Pty)
Ltd
Tsogo Sun Gaming Southern Sun Hotels
Suncoast Casino &
Entertainment
World
The Ridge Casino &
Entertainment Resort
Hemingway’s Casino &
Hotel Montecasino
Emnotweni Casino
2
The transaction
[6] The proposed transaction entails HCI acquiring 90% of the issued share capital
of Fabvest from the Fabcos Trust. The remaining 10% will be acquired through
section 440K of the Companies Act. 8 Postmerger, it is envisaged that HCI will own
and control 100% of the issued share capital of Fabvest. This will further entitle HCI
to indirectly control TIH. 9 It is through this transaction that HCI acquires the gambling
and hotel activities of Fabvest. 10
Rationale for the transaction
[7] HCI labels the present deal / investment in the hotel and casino industries as a
lucrative one as South Africa continues to grow as a tourist destination of choice. HCI
sees the deal as a continuation of its strategy to increase its stake in the Tsogo
group. Fabcos Trust seeks to dispose of its stake in Fabcos to realise its investment
in the hotel and casino industry (Tsogo group) so that it might concentrate on its core
investment in Premier Foods and its subsidiaries. 11
Activities of the parties
[8] HCI is an investment holding company which has interests through its
subsidiaries in 4 sectors, out of which only gambling seems relevant for purposes of
our analysis. HCI is involved in the gambling market through limited payout
machines (“LPM’s”) and casinos. As already pointed out, HCI has a 96% interest in
Vukani, a route operator of LPM’s. Vukani is currently operating in Mpumalanga and
Western Cape provinces. We are told that although Vukani has also been awarded
licences to operate these LMP’s in KwazuluNatal (“KZN”) and the Eastern Cape, it
has as yet not commenced operations in these 2 provinces. Again, HCI has a 32%
noncontrolling stake in TIH, which owns 51% of, and controls, Tsogo Sun Holdings
(“TSH”). TSH (which owns a 100% shareholding in Tsogo Sun Gaming and Southern
Sun Hotels) holds 5 casino licences in SA, viz., Suncoast Casino & Entertainment
Sun Hotels) holds 5 casino licences in SA, viz., Suncoast Casino & Entertainment
World; the Ridge Casino & Entertainment Resort (Witbank); Hemingway’s Casino &
8 This is known as compulsory minority “takeout”. Its salient features are: (1) The acquirer makes
general offer for 100% of target shares; (2) If at least 90% acceptance of offer by all
shareholders is achieved, remaining minorities can be compelled to sell (after six weeks); and
(3) No court approval is required.
9 As consideration for the acquisition of the shares in Fabvest, HCI shall pay the purchase price and
transfer 15 500 000 shares in its capital (approximately 13% of the issued share capital) to Newco, a
vehicle created specifically for this purpose, the shareholders of which shall be the same as the current
shareholders of Fabvest (Page 89 of the Record and also the 4 steps outlined in the
Commission’s report, page 4).
10 HCI will gain indirect control of TSH, which operates 5 casinos throughout South Africa.
Therefore, by acquiring indirect control of TSH, HCI will also acquire the hotel interests of TSH listed
on page 29 of the record. (See the merging parties’ attorneys’ email sent to the Tribunal on
11 May 2005, as well as pages 23 of the transcript of 16 May 2005).
11 The Fabcos Trust has already sold its 50% shares in FIH to Johnnic in a transaction approved by the
Tribunal on 23 February 2005 (Case no.: 01/LM/Jan05) . We were told that the Johnnic /
Fabcos transaction was still awaiting approval of the National Gambling Board (“NGB”), which
may happen in midJune 2005.
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Hotel (East London); Montecasino (Fourways – JHB); and Emnotweni Casino
(Nelspruit); and Suncoast Casino & Entertainment (Durban) (60%). 12
[9] FIH was formed in 1997 to steer the commercial affairs of the Fabcos Trust. It
was incorporated in 1995 as a special purpose vehicle specifically formed for
purposes of acquiring shares and obtaining ownership stakes in corporate entities for
the benefit and on behalf of the Fabcos members. The parties indicated that it was
intended, after the establishment of Fabvest in 1997, that FIH would be ringfenced
to hold only the Fabcos Trust’s casino interests.
[10] TIH is described as a a broad based BEE entity whose shareholding benefits
organized black owned businesses, labour movements and women groups. TIH has
a joint venture company, Tsogo Sun with the SAB Miller. Both TIH and SAB Miller
own a 51% and 49% shares in Tsogo Sun respectively.
[11] Tsogo Sun Gaming is a casino operating entity. It has 5 casino licenses
operating in various geographic areas as described above.
Product overlap
[12] It is evident from the above that the only product overlap between the parties
relates to their respective interests in the gaming industry. As already articulated, HCI
and Fabvest have a common interest in the casino market through their indirect
shareholding in TIH. However, HCI is also involved in the provision of LPM’s.
According to the Commission, the National Gambling Act which regulates the
South African gambling market (with the NGB being a statutorily established body to
serve as the watchdog to oversee gambling activities in SA) – differentiates between
casinos and LPM’s, and therefore separates the activities of casinos and LPM’s. Both
the Commission and the merging parties contended that casinos and LPM’s
the Commission and the merging parties contended that casinos and LPM’s
constitutes separate product markets hence no product overlap exist between HCI
and Fabvest with respect to LPM’s.
[13] Insofar as the casino market is concerned, the Commission and the merging
parties submitted that the postmerger market structure will remain unchanged as the
transaction would only result in HCI acquiring shares in Fabvest to gain control of
TIH. The Commission did not foresee any competition concerns arising postmerger
– no matter how the geographic market is defined. 13
Market shares
[14] Below is a table (provided by the parties) reflecting the market share data
relating to the gaming industry in which Tsogo Sun Gaming operates at provincial
level.14
Gauteng
12 Johnnic holds the balance of 40% in the Suncoast Casino & Entertainment.
13 The merging parties contended that as individual provinces have the power to create their own
regulations, no two provinces operate in exactly the same way to such an extent that the SA’s
geographic market for casinos can be viewed as 9 separate, independent markets sharing
commonalities page 101 of the record and pages 68 of the Commission’s Report).
14 According to the parties, the market shares are management’s best estimates based on gambling
revenue figures from the NGB.
4
Casino Licence holder Market shares (%)
Caesars Peermont Global 27
Carnival City Casino Sun International 17
Emerald Casino resort London Clubs 5
Gold Reef City Gold Reef 21
Montecasino Tsogo Sun 30
Mpumalanga
Casino Licence holder Market shares (%)
Champions Casino Tsogo Sun 41
Emnotweni Casinos Tsogo Sun 39
Graceland Hotel and Casino Peermont Global 20
KwazuluNatal
Casino Licence holder Market shares (%)
Golden Horse Casino Gold Reef 10
Monte Vista Casino and Resort Balele Leisure 4
Sibaya Casino and Entertainment Sun International 34
Suncoast Casino and
Entertainment
Tsogo Sun 48
Tusk Umfolozi Casino Tusk 4
Eastern Cape
Casino Licence holder Market shares (%)
The Boardwalk and Wild Coast Sun Sun International 79
Hemingway Casino Tsogo Sun 21
Competition Evaluation
[15] The parties contended that HCI already holds an investment interest in TIH and
would merely be increasing its stake to an effective controlling interest through this
deal. They further argued that as there would be no market overlap therefore the
merger would not have impact on the gambling industry. They, however, admitted
that barriers to entry are high as significant capital expenditure is required in order to
establish the infrastructure and to acquire the equipment and machinery required for
a new casino entrant to operate. Further to this, the Gambling Act and the various
provincial gambling boards strictly regulate the casino industry. It was argued that
because of this strict regulation countervailing power in this industry is very high. We
were told that entry into the gaming industry was regulated through the old national
Gambling Act 33 of 1996, which provided for the granting of a maximum of 40
licences, distributed across each of the 9 new provinces. With the introduction of the
New Gambling Act – it was argued – the Minister of Trade & Industry (“the Minister”)
is empowered to determine the maximum number of licences awarded from time to
is empowered to determine the maximum number of licences awarded from time to
time with due regard to the criteria set out in the legislation. 15 It appears the criteria
require the Minister to balance the competing considerations of a competitive
marketplace, BEE, and the incidence and consequences of overstimulation of
gambling. In such process, the Minister may also consult with the Competition
15 See page 102104 of the record.
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Commission.16 The Commission contended that the proposed transaction would not
result in any change in the current market structure.
Conclusion
[16] There were no public interest issues. In the Tribunal’s view, the transaction will
not prevent or lessen competition substantially.
_____________ 30 May 2005
David Lewis Date
Concurring: Urmilla Bhoola and Medi Mokuena
For the merging parties: Robert Appelbaum and Nina Malan (Sonneberg
Hoffman Galombik Attorneys)
For the Commission: Hardin Ratshisusu (Mergers & Acquisitions Division)
16 For instance, section 54 of the new Gambling Act requires the licensing authority – when
considering an application for a licence or the transfer of a licence – to consider whether approval of
the application is likely to substantially effect competition in the gambling industry generally, or in
respect of the proposed activity within that province or within SA (where applicable).
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