COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 54/LM/Jun05
In the large merger between:
Business Venture Investments No. 976 (Pty) Limited
and
SAGE Group (Pty) Limited
Reasons for Decision
APPROVAL
1. On 24 August the Tribunal approved the proposed acquisition by Business
Venture Investments No. 976 (Pty) Ltd of Sage Group Ltd subject to the condition
that:
1. Any compulsory retrenchments resulting from the merger will be effected
in such a manner as is substantially no less favourable to employees
than that contained in the submission made by Momentum Group Ltd to
the Competition Commission dated 29 July 2005 attached hereto as
“Annexure A”.
1.2 for the purpose of subparagraph 1.1, “ substantially” means no more
than a 10% variation.
The Merging Parties
2. The acquiring firm is Business Venture Investments No. 976 (Pty) Ltd (“BVI 976”),
a special purpose vehicle created by Momentum Group Ltd (“Momentum”), a wholly
owned subsidiary of FirstRand Ltd (“FirstRand”). Momentum owns a variety of
subsidiaries.1
3. The target firm is Sage Group Ltd (“Sage”). None of its shareholders has control
over Sage. 2
The merger transaction
4. The proposed transaction entails the acquisition by Momentum, through BVI 976,
of the entire issued share capital in Sage other than those held by Sage Life Ltd.
1 See Annexure “A” to the Form CC4(1) of the merging parties.
2 The major shareholders of Sage (holding in excess of 5% of the issued share capital of Sage) are
ABSA Group Ltd (21.3%), Financial Securities Ltd (17.7%), Mines Pension Funds (16.5%), Transnet
Retirement Fund (8.3%) and Sagecor (7.7%).
Rationale for the transaction
5. The merging parties asserted that the proposed merger would give Momentum the
opportunity to expand its distribution reach and achieve greater economies of scale.
From Sage’s perspective, the deal would give Sage a capital injection to service the
debts Sage incurred from its venture into the United States. The parties asserted
further that Sage’s failure to meet its debt obligations could result in the closure of all
or most of Sage’s business operations hence the proposed merger.
The relevant product market
6. Momentum is responsible for certain of the insurance, investment and multi
management activities of the FirstRand group. Momentum also markets and
distributes a variety of products of other financial and related institutions, such as risk
insurance (life and disability), investments (retirement annuities, endowments, linked
unit trust investments, etc), employee benefits (pension funds, provident funds and
group lifer and disability cover), and medical aid cover.
7. FirstRand comprises a large group of companies that operate in the financial
services sector. It owns a number of subsidiaries that provides, amongst others, the
following: longterm insurance products to individuals and groups; shortterm
insurance products, property rental services and unit trusts.
8. Discovery Holdings Limited (“Discovery Holdings”), which is also a FirstRand
subsidiary, is the holding company for a group of companies that market and
administer healthcare funding and life insurance products.
9. Sage is a life insurance and investment organisation controlling and managing
assets and is also involved in related property services. It holds 100% of the issued
share capital in two of its operating companies, viz., Sage Life Ltd (“Sage Life”) and
share capital in two of its operating companies, viz., Sage Life Ltd (“Sage Life”) and
Sage International Finance Ltd (“Sage International”). Sage Life in turn owns a
number of subsidiaries. 3
10. The product overlap between the activities of the merging parties is in the
provision of longterm insurance products (to individuals and groups), shortterm
insurance products, unit trusts, and property rental services.
11. We need not confine ourselves with what the relevant product market is as the
transaction is unlikely to prevent or lessen competition substantially irrespective of
any market definition adopted.
The relevant geographic market
12. The Commission’s view is that since both parties and their competitors provide
longterm and shortinsurance products as well as unit trusts throughout the country,
the geographic domain is national. It further appears that the geographic areas with
3 These include companies such as Sage Unit Trusts Ltd (“Sage Unit Trusts”), Sage Specialised
Insurances (Pty) Ltd (“Sage Specialised Insurances”), Town Homes (Pty) Ltd and SMH Land
Development (Pty) Ltd.
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respect to property rental services can be segmented into different nodes as per the
classification of the South African Property Association. The Commission’s market
enquiries revealed that the merging parties carry on their property rental services in
geographic areas such as Johannesburg, Sandton, Durban and Cape Town. We
agree with this approach.
Effect on competition
13. The merging parties market shares will remain low postmerger. The merging
parties will enjoy no more than 15.15%, 5.7%, 5.59%, and 13.5% with regarding to
longterm insurance, shortterm insurance, unit trusts and property rental services
respectively.
14. We are furthermore persuaded by the reasons advanced by the Commission and
the merging parties that Momentum and Sage’s vertical integrated relationship would
not lead to customer foreclosure and/or input foreclosure postmerger. 4 This is also
necessitated by factors such as Sage’ relatively low premerger market shares, the
merged entity’s low combined market shares as well as a significant number of large
and small competitors in the respective markets.
The effect of the merger on employment
15. The merger filing reflected that the proposed merger would result in negative
effect on employment. From a worstcase scenario the merging parties estimated
fourhundred (400) job losses. In its recommendation the Commission concluded that
“although the merger will result in approximately 400 job losses, the Commission is
of the view that no significant employment concerns would arise from the transaction,
as the retrenchment process would be implemented systematically.” On the other
hand, the merging parties noted that “ although specific employees might become
redundant, the effect of the proposed transaction on employment is a positive one
since a failure to implement the proposed transaction would probably have a worse
since a failure to implement the proposed transaction would probably have a worse
effect on employment.” 5 However, the merging parties’ correspondence with the
Commission during its investigation process indicated that the parties where, willing
to, amongst others, facilitate redeployment within the FirstRand group, engage in
voluntary retrenchment process, assist staff with reskilling and retraining, etc. To this
end, the parties had also set up a timetable setting out how retrenchment process will
unfold.
16. It was not clear from the papers whether any employee representatives or their
respective trade unions indicated their desire to participate in the hearing of this
merger. A certain Ms. Gizelle Conradie, a representative of SASBO, attended the
hearing of this merger. Upon questioning by the members of the Tribunal she
asserted that SASBO is opposed to the retrenchments, but requested that some form
of conditions be imposed permitting consultation in terms of the Labour Relations
Act by the parties with the trade union pertaining to the retrenchment process. 6 We
4 Page 14 of the Commission’s Merger Competitiveness Report.
5 See page 891, paragraph 12.2.5, of the record.
6 See pages 24 of the transcript of 24 September 2005.
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were told that SASBO was not a recognised trade union, that there was no
recognised trade union and that no collective bargaining unit exists within the
merging parties.
17. Notwithstanding the above, our major concern was that the merging parties might
retrench as they deem fit particularly because there was no recognised trade union
or at the very least a collective bargaining unit in the merging parties who will look
after the employees’ interests and to see to it that the merging parties comply with
their proposed retrenchment timetable. In his argument, the merging parties’ legal
representative was initially opposed to the imposition of conditions on structured
retrenchments saying that only 400 employees will be affected and which might even
be lesser than 400.
18. Notwithstanding the merging parties’ assertion and undertaking that they would
engage in a staff consultation process regarding the integration of Sage with
Momentum,7 we nevertheless considered it necessary that such a plan be made
available to the public domain so as to ensure that the retrenchment process gets
monitored, given the lack of employee representation at the merged firm. Note that
the condition imposed requires no more of the parties than that they adhere to
retrenchments in accordance with the plan they had proposed to the Commission.
19. Such a retrenchment undertaking or a plan by the merging parties was
incorporated into our Order of 24 August 2005 and is therefore unnecessary to
reproduce here.
Conclusion
20. We found that the merger will not substantially lessen or prevent competition in
any market. However, the merger itself may have an adverse effect on employment
hence we are satisfied that the condition imposed will obviate any substantial public
interest concern.
interest concern.
_______________ 29 November 2005
Norman Manoim Date
Concurring: M. Moerane, M. Mokuena
For the merging parties: Gareth Driver, Werksmans Attorneys
For the Commission: Odie Strydom, Mergers & Acquisitions
For SASBU: Ms. Gizelle Conradie (SASBU)
7 See Mr Meyer’s testimony, pages 1213 of the transcript of 24 September 2005. See also pages 1719
of the transcript. Mr Meyer is the Director of Momentum.
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