COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 16/LM/Mar05
In the large merger between:
Channel Life Ltd
and
mCubed Investment Life Ltd
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Reasons
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Introduction
1. On 13 April 2005 the Competition Tribunal approved the merger between
Channel Life Ltd and M Cubed Investment Life Ltd. The reasons are set
out below.
The transaction
2. Channel Life Ltd (“Channel Life”) will acquire 100% of the issued share
capital of mCubed Investment Life Ltd (“mCubed Investment Life”).
3. Channel Life is controlled by Channel Life Holdings whose shareholders
are PSG Group Ltd and Arch Equity Life Holding. Although Arch Equity
Life Holdings only holds 26% of the shares in Channel Life Holdings, it is
entitled to exercise 51% of the votes at shareholder level. PSG Group
holds 74% of the shares in Channel Life Holdings but is only entitled to
exercise 49% of the votes on shareholder level.
4. mCubed Investment Life’s holding company is mCubed Holdings Ltd
which has in excess of fifteen subsidiaries. 1
1 mCubed Holdings is restrained from marketing a similar product than mCubed Investment Life for a
Rationale for the transaction
5. mCubed Holdings’ is selling mCubed Investment Life because the
company has not attracted any new clients since mCubed Holdings had
sold ESP and AM, two sister subsidiaries from whom mCubed Investment
Life had previously sourced all its clients. 2 The business has thus
effectively become dormant.
6. Channel Life wishes to grow its market share in respect of investment
business sold to the retail and institutional markets. Instead of using its
existing life insurance licence to sell this product, it has decided to operate
it as a separate business and to house it within an entity, which holds an
investment only linked life licence. This will reduce its institutional clients’
credit risk exposure. To achieve this Channel Life would have had to apply
for a linked life licence, which costs R10 million. It decided to rather
acquire mCubed Investment Life since it already owned such a licence.
Effect on competition
7. The Channel life group markets and sells longterm life insurance products
to individuals and groups by way of a single or recurring premium. 3 The
products are mainly sold to corporate clients which act as brokers and
which onsell these products. Channel life does not have a linked life
licence and accordingly only sells marketrelated products.
8. mCubed Investment Life sells investment type insurance products to
groups, described as linked products with single premiums. These
products have no life insurance component.
9. According to the merging parties their product markets overlap in one
instance, the single premium longterm (group) insurance products
market. Even though mCubed Investment Life sells single premium linked
products and Channel life marketrelated products these can be regarded
products and Channel life marketrelated products these can be regarded
as interchangeable single premium products, according to the parties.
period of 36 months after the acquisition .
2 See Tribunal Case No: 85/LM/Oct04
3 Individual products include life and disability insurance options, local and offshore investment plans,
retirement savings plans, preservation schemes and annuities. Group products include retirement funds and
risk benefits offered to employers and retirement funds. Policyholders will only be able to purchase single
premium policies if they have a substantial amount of money to invest, whilst policyholders who do not
have a lump sum to invest, will choose recurring premium policies.
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10. The Competition Commission defined the market broadly as the national
market for longterm insurance. However, it is not clear to the Tribunal that
this is indeed the product market. It seems to us that clients who buy this
product wish to acquire an investment product rather than life insurance
product. Channel life, itself, formulates its objectives for the new entity as
follows:
“To be recognised as the most innovative developer and
underwriter of investment products in South Africa, operating within
a niche market in the institutional and retail segments….”
11. In spite of this the parties maintain that although it is not a genuine life
insurance product, it is an investment through a life licence and therefore
is seen as a class of insurance product.
12. We are not convinced that the relevant product market is defined correctly,
however, the fact remains that this is a merger between two firms that
have very low market shares, less than 2% each, in this product market.
They compete with all the main life insurance companies such as Old
Mutual, Investec, Sanlam, Momentum and Liberty Group.
13. In light of the above we find that the merger would not substantially
prevent or lessen competition, whichever way the relevant market is
defined.
Public interest issues
14. The transaction does not raise any public interest issues.
____________ 14 June 2005
N Manoim Date
Concurring: Y Carrim and M Mokuena
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