Sanlam Limited and African Life Assurance Company Limited (81/LM/Aug05) [2005] ZACT 72 (31 October 2005)

70 Reportability
Competition Law

Brief Summary

Competition — Merger approval — Merger between Sanlam Limited and African Life Assurance Company Limited — Sanlam acquiring a majority stake in African Life — Minimal increase in market share and no substantial lessening of competition — Tribunal approves merger unconditionally.

COMPETITION TRIBUNAL 
REPUBLIC OF SOUTH AFRICA
     Case No: 81/LM/Aug05
In the large merger between: 
Sanlam Limited 
and
African Life Assurance Company Limited 
Confidential Reasons for Decision
________________________________________________________________
APPROVAL
On   21   October   2005   the   Competition   Tribunal   issued   a   Merger   Clearance  
Certificate   approving   the   merger   between   Sanlam   Limited   and   African   Life  
Assurance   Company   Limited   in   terms   of   section   16(2)(a).   The   reasons   for   the  
approval of the merger appear below.
The Parties
1. The   acquiring   firm   is   Sanlam   Limited   (“Sanlam”),   or   “a   wholly   owned  
subsidiary   of   Sanlam   Limited”,   which   will   probably   be   Sanlam   Life  
Insurance Limited (“Sanlam Life”). The acquiror is a public company listed  
on the life assurance sector of the JSE. Its ordinary share capital is held as  
to   8%   by   Ubuntu­Botho   Investment   Limited.   An   additional   number   of  
Sanlam’s   “A”   deferred   shares   can   be   converted   into   a   shareholding   of  
approximately 2% in the issued capital of Sanlam.
2. On 1 January 2005, Sanlam acquired 55% of the issued share capital of  
Safrican Insurance Company Limited (“Safrican”). The activities of Safrican  
will be counted along with those of Sanlam for the purpose of this merger  
analysis.
3. The primary target firm is African Life Assurance Company Limited (“African  
Life”).  This is also a listed company in the life assurance sector of the JSE.

The   two   principal   shareholders   of   African   Life   are   Sanlam   Group,   as   to  
20.5%, and Momentum, as to 33.4%. 1
The Merger Transaction
4. In terms of this transaction, Momentum is selling its 33.4% stake in African  
Life   to   a   new   majority   shareholder   to   be   owned   by   African   Life's  
management     and   Sanlam   Limited.   The   new   entity   is   buying   the   entire  
issued   ordinary   share   capital   of   African   Life   (other   than   those   ordinary  
shares   already   held   by   Sanlam   Limited   in   its   shareholders’   funds,   the  
African Life ordinary shares held by the African Life Employee Shareholders  
Scheme Trust and the African Life ordinary shares held as treasury shares  
by subsidiaries of African Life).
5. The   transaction   is   being   implemented   in   terms   of   section   311   of   the  
Companies Act, No. 61 of 1973. Post­merger, African Life will de­list from  
the JSE  and become  a wholly­owned subsidiary of Sanlam Limited. The  
merging parties state that their initial intention is to retain the African Life  
brand and run this as a separate operation within the life insurance cluster,  
with a focus on the entry­level market. 2
Rationale for the Transaction 
6. Sanlam wishes to penetrate the entry­level or emerging market and  
is attracted by African Life’s existing distribution channel into this market.  
The   transaction   will   enable   it   to   offer   its   products   to   a   broader   base   of  
clients.   This   transaction   further   provides   a   diversification   opportunity   for  
Sanlam   throughout   Africa.   Furthermore,   Momentum   seeks   to   exit   its  
investment in African Life. African Life will in turn use Sanlam’s financial  
resources   to   accelerate   the   growth   of   its   business.   The   merging   parties  
describe their activities as complementary to each other.
The relevant product and geographic markets

The relevant product and geographic markets
7. Sanlam’s activities can be divided into four groupings or “clusters”.  
The  activity   that   concerns us  in  this  merger  is the  life  insurance  cluster.  
Within this cluster, Sanlam provides long­term insurance.
8. Safrican’s activities are described as being complementary to those of  
African Life. According to the merging parties, Safrican is a small player  
with a small proportion of annual premiums. It offers “compulsory” or group  
1  In a separately notified transaction, African Limited is selling its shares in African Health to Momentum  
Group Limited.
2  See record page 432

scheme cover, whereas African Life offers individual cover. The parties  
state that post­merger, Safrican will retain its separate identity.
9. Both   parties   offer   individual   and   group   life   assurance  
products.3  The   parties   therefore   offer   the   following   long­term  
insurance   products   and   services   which   are   provided   on   a   national  
basis:
 Assistance policies
 Disability policies 
 Fund policies
 Health policies 
 Life policies 
 Sinking fund policies 
 Linked policies
 Endowments 
 Annuities
 Combinations of any of the above
10. The merging parties state that insofar as they focus on distinct customer  
segments, they do not compete. African Life is a smaller insurer, offering  
cover   to   low­income   consumers,   whereas   Sanlam   offers   this   product   to  
medium to high­income consumers. However, in their merger documents,  
the parties state that post­merger, Sanlam will cross­sell its products to the  
African Life client base. 4 It therefore appears that this differential according  
to income level is likely to be eroded to some extent. 
11. The merging parties assert that the relevant market is that for the provision  
of individual policies on the one hand, and for the provision of group policies  
on   the   other. 5  As   in   previous   mergers,   the   Commission   has   raised   the  
argument of supply side substitution so as to justify a broader market for the  
provision of long­term insurance. 6  The Commission asserts that since the  
insurer   is   issued   with   a   license   to   provide   both   group   and/or   individual  
cover, it can render either type of cover. 
12. It   is  accepted  by  the Commission  that   the  merging  parties’   products  are  
offered throughout South Africa and hence that the relevant geographical  
market is national.
3  The parties describe individual products as insurance and investment products offered to individuals,

including but not limited to linked policies, life, sinking fund and health policies. Group products include  
insurance and investment products offered to retirement funds and other groupings. 
4  Record page 437
5  Record page 636
6  See  Liberty Group Limited and Capital Holdings Limited  – 04/LM/Jan05

13. Previously, in similar mergers involving this industry, we have not made a  
definitive   finding   on   the   relevant   market   where   it   appears   that   no  
competition concerns are raised. This is also the approach we adopt here.  7 
Effect on Competition
14. Using  data  received  from   the  Financial   Services  Board,   the  Commission  
analysed   the   parties’   combined   post­merger   shares   in   the   long­term  
insurance   market,   for   both   individual   and   group   business,   based   on   net  
premiums received, value of assets and value of liabilities. The resultant  
market shares are set out below:
Basis of  
market share
Sanlam 
Life
Safrican African Life Total 
Combined
Net Premiums  
Received
12.09% 0.10% 0.99% 13.08%
Value of Assets 18.91% 0.01% 0.68% 19.60%
Value of  
Liabilities
18.40% 0% 0.56% 18.96%
Source: FSB 2003 Report
15. On each basis of calculation of market shares, the target firm is adding less  
than   2%   to   the   merged   entity’s   share.   The   accretion   in   market   share   is  
minimal.
16. Furthermore, there are a number of other competitors in this market. The  
major players are Old Mutual, Liberty Group, Momentum Group, Investment  
Solutions   and   Metropolitan.   There   is   also   a   category   entitled   “other”,  
accounting for between 17% and 30% of the market under each heading  
used above to indicate market share.
Conclusion
We conclude that the merger will not lead to a substantial lessening or prevention  
of competition. There are no public interest concerns which would alter this  
conclusion.
The Tribunal therefore approves the transaction unconditionally. 
__________
31 October 2005
7  See  Liberty Group Limited and Capital Holdings Limited  – 04/LM/Jan05

L. Reyburn    Date
Concurring: M. Mokoena, T. Orleyn 
For the merging parties:   Jowell, Glyn and Marais Attorneys
For the Commission:  O. Strydom, Mergers and Acquisitions