COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 122/LM/Dec05
In the matter between:
Supreme Health Administrators (Pty) Ltd First Applicant
Network Healthcare Holdings Limited Second Applicant
Council for Medical Schemes Third Applicant
and
The Competition Commission First Respondent
Phodiclinics (Pty) Ltd Second Respondent
DJH Defty (Pty) Ltd Third Respondent
New Protector Group Holdings (Pty) Ltd (in liquidation) Fourth Respondent
Protector Group Medical Services (Pty) Ltd (in liquidation) Fifth Respondent
President Pharmacy (Pty) Ltd Sixth Respondent
Capstone 177 (Pty) Ltd Seventh Respondent
Blue Dot Properties 446 (Pty) Ltd Eighth Respondent
Limosa Investments 93 (Pty) Ltd Ninth Respondent
Capensis Investments 403 (Pty) Ltd Tenth Respondent
MediClinic Corporation Limited Eleventh Respondent
Phodiso Clinics (Pty) Ltd Twelfth Respondent
Phodiso Holdings Limited Thirteenth Respondent
Reasons for decision
_______________________________________________________________________
Introduction
1. On 20 April 2006 the Competition Tribunal (‘the Tribunal’) granted the
application brought by the first, second and third applicants in terms of the
provisions of section 53(1)(c)(v) of the Competition Act No. 89 of 1998 (‘the
Act’) for leave to be recognised as participants in the proceedings before
the Tribunal concerning the proposed merger between Phodiclinics (Pty)
Ltd and Protector Group Medical Services (Pty) Ltd (‘the merger’).
2. The merger was referred to the Tribunal by the Commission in terms of
section 14A of the Competition Act, 1998. The Commission has
recommended unconditional approval of the merger.
3. On 13 March 2006 Supreme Health Administrators (Pty) Ltd (“Supreme
Health”) and Network Healthcare Holdings Limited (“Netcare”) filed an
application in terms of section 53(1)(v) of the Act to be recognized by the
Tribunal as participants in the merger proceedings and to be allowed the full
scope of the intervention. On 12 April 2006 the Council for Medical
Schemes (“CMS”) brought its application to be recognized as a participant
in the merger proceedings before the Tribunal in terms of section 53(1)(v) of
the Act.
4. Phodiclinics (Pty) Ltd (“Phodiclinics”) is a joint venture between MediClinic
and Phodiso Clinics (“Pty) Ltd (“Phodiso Clinics”). Phodiso Clinics holds
49% of the issued shares in Phodiclinics while MediClinic holds 51%.
Phodiclinics purchased the Protector Group 1 on 21 December 2004. 2 The
Protector Group was placed in liquidation on 2 September 2004 and the
liquidator, together with IDC, the major creditor, accepted Phodiclinics’
offer. The Protector Group has among other business divisions four private
hospitals namely, Medivaal Hospital located in Vanderbijlpark, Maraphong
Hospital in Ellisras (Lephalala), Kathu Hospital in the Kalahari region in the
Hospital in Ellisras (Lephalala), Kathu Hospital in the Kalahari region in the
Northern Cape and the Kingsley Day Theatre in Pretoria. The most
contentious hospital is by far the Medivaal hospital, located in
Vanderbijlpark. The Commission has recommended that the merger be
approved without conditions. The applicants dispute the findings of the
Commission.
1 The interveners have submitted that New Protector Group Holdings (Pty) Ltd, the fourth
respondent is the holding company of the fifth to the tenth respondens. These companies are
collectively called the “Protector Group”. The Protector Group is the primary target firm in the
proposed merger. However, the liquidator has argued that though the fourth respondent assumed
control and acquired the businesses of the relevant companies as a going concern, transfer of the
relevant shares never took place because of a variety of reasons. See page 158 of the Supreme
Health record.
2 This was the date on which the offer by Phodiclinics was accepted by the liquidator.
2
5. The hearing of the application took place on 19 April 2006. It was agreed by
all parties that, to expedite the proceedings, the Tribunal could issue an
order separately from providing reasons. On 24 April 2006, the Tribunal
granted all three applicants the right to participate in the merger
proceedings. The reasons for the decision follow.
Submissions by the Council
6. CMS submitted that its application should be granted for a number of
reasons which amounted to two broad grounds. CMS is mandated in terms
of the Medical Schemes Act 131, 1998 (“the MSA”) to protect the interests
of members of medical schemes at all times. 3
7. First, CMS argued that the merger will lead to a higher degree of
concentration in the healthcare industry and will negatively impact on
medical schemes’ ability to pricecompete. In this regard CMS stated that it
intended to argue and lead evidence to show that the healthcare industry is
already highly concentrated, being dominated by three large players.
These three large chains are in the process of buying up independent
hospitals such as those of the target firm. The merger will lead to an even
higher degree of concentration and market power in the hands of the three
main players. This will negatively impact on medical schemes’ ability to
pricecompete by impacting on their ability to negotiate competitive prices
and product choices for their members. The merger will also undermine
the efforts by government to provide incentives for medical schemes to
pricecompete through the implementation of the Risk Equalisation Fund
(REF), which will be housed within CMS.
8. Secondly, CMS stated that it would challenge the Commission’s approval
of the transaction on the merging parties’ argument that Protector was a
of the transaction on the merging parties’ argument that Protector was a
failing firm, and CMS would lead evidence and argument in relation to this
issue.
Submissions by Supreme Health
9. Supreme Health submitted that two of its directors were the directors of
Tradeworx (Pty) Ltd, a BEE company that used to own 51% of the issued
shares in the Protector Health Group, prior to its liquidation. It further
3 See submissions on page 7 CMS’s paginated bundle. Section 7 of the MSA mandates CMS to
protect the interests of its members at all times and to “collect and disseminate information about
private health care.
3
asserted that it has knowledge of the private health sector being both a
small participant in the Healthcare market in SA as well as being a BEE
participant in this market. Supreme Health regards this knowledge as of
direct relevance to the assessment of competition law issues arising from
this merger. 4 Supreme Health further challenges the failing firm defence
advanced by the merging parties and the Commission. 5 It submitted that
the failing firm defence should not be upheld because there are less anti
competitive options available to the Tribunal 6 and that it itself was willing to
purchase the hospitals should the Tribunal accept a less anticompetitive
route.7 It also wished to lead evidence on offers that were made to the
liquidator by parties other than Phodiclinics in the course of the sale
negotiations.
Submissions by Netcare
10. Netcare made similar submissions to those advanced by Supreme Health.
In addition, Netcare stated that it should be allowed to intervene because,
as a large competitor of MediClinic (the ultimate acquiring firm), it has wide
knowledge of the private healthcare industry from a perspective different to
that of CMS or Supreme Health. It could assist the Tribunal in
understanding competitive conditions and the relevant market on a national
level and in the Vaal Triangle. Netcare submitted that it had a small
operation in the Vaal triangle called Vaalpark Hospital, which had
established a pattern of patient referral to the Protector facilities at
Medivaal. Hence it was specifically concerned about the impact of the
merger on its operations at Vaalpark. In its view the merger will lead to an
increase in concentration levels in the Vaal Triangle and that such
imbalance of market power in favour of MediClinic will result in the latter
imbalance of market power in favour of MediClinic will result in the latter
engaging in anticompetitive behaviour. 8
Submissions by the merging parties
11. The merging parties indicated that they did not oppose the application by
4 On page 16 of the founding affidavit Mr. Wotshela stated that he was involved in the restructuring
plan for the Protector Group. He later provided a copy of the New Protector Group Holdings
Restructuring Plan in his replying affidavit. See page 220 of the Supreme Health record.
5 See page 23 of the Supreme Health record.
6 See page 23 of the Supreme Health record.
7 On page 206 of the Supreme Health record Mr. Wotshela states that Supreme Health, or its
shareholders wish to acquire assets in the Protector Group should the Tribunal decide on a less
competitive route. In this regard Supreme Health is exploring funding opportunities from the
National Empowerment Fund.
8 See page 16 of the Netcare record.
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CMS. 9 However, they were opposed to the applications brought by
Supreme Health and Netcare on three broad grounds. Firstly, the merging
parties argued that the interveners do not have adequate substantive
information to aid the Tribunal in its truthseeking function save on a purely
generic level. Secondly, that the interveners will unnecessarily cause
prejudice to the merging parties by lengthening the time of the hearing. This
will add to the merging parties’ costs. Such prejudice is said to outweigh the
benefits of allowing the intervention. Lastly, the merger does not raise
serious competition concerns since it results in Medi Clinic raising its
market share by 1%on a national basis through the acquisition of four
hospitals spread throughout the whole of South Africa, from Kathu in the
Kalahari to Ellisras, to Vanderbijlpark to Pretoria. 10
12. The merging parties further argued that Supreme Health as a juristic person
did not have any interest in this matter because it had no knowledge of the
healthcare industry or the history of the transaction. It was only its
directors, Mr Wotshela and Dr Clarence Mini, in their personal capacities by
virtue of their association with Tradeworx who had the relevant knowledge
and information. Accordingly the Tribunal ought to dismiss Supreme
Health’s application.
Decision
13. Section 53(1)(c) deals with participation in merger proceedings. Section
53(1)(c)(v) and rule 46 specifically regulate an applicant’s rights to
participate in these proceedings. Rule 46 requires that a participant have a
material interest in the proceedings. The test for this Tribunal in deciding
whether parties, such as the applicants, should be permitted to participate
in a merger has been set out by the Competition Appeal Court in Anglo SA
in a merger has been set out by the Competition Appeal Court in Anglo SA
Capital (Pty) Ltd and Industrial Development Corporation of South Africa &
Another11 (“ Anglo/Kumba case”).
14. In that case the Court held that the language of section 53(1)(c)(v) was
clear in that it did not require a participant to have an interest in the merger
proceedings. Rule 46 could not be used to interpret or restrict the express
provisions of section 53(1)(c)(v) since the Minister of Trade and Industry
and not the legislature drafted it. The Minister of Trade and Industry was
only empowered by section 27(2) to make rules relating to the manner, form
and procedures for participation and not in respect of thresholds for such
9 See page 4 of the transcript where Mr. Van der Linde indicated that the merging parties will not
oppose the application brought by CMS.
10 In Gauteng the merging parties submitted that the market share will increase by 1.3%. See
page 44 of the Supreme Health record and page 34 of the Netcare record.
11 2004 (6) SA 196 (CAC) at 16.
5
participation. Furthermore the common law test for locus standi is not
applicable to merger proceedings of the Tribunal as these are not
adversarial in nature and not like ordinary litigation. Accordingly the Court
held that the Tribunal had a discretion to grant an application to participate
in merger proceedings since no grounds of participation were required in
terms of section 53(1)(c)(v). However such discretion had to be exercised
judicially. It held further that where a party is able to demonstrate that it has
a material and substantial interest then such party would fall into a class of
parties who may be admitted upon the exercise of the judicial discretion by
the Tribunal. A party who is unable to show a material and substantial
interest may well be admitted if it is able to provide evidence of its ability to
assist the Tribunal in “its consideration of the application of the various
purposes of the Act as contained in section 1 thereof to the relevant merger
transaction.”12 The position in the Anglo/Kumba case is reiterated in the
Community Healthcare Holdings (Pty) Ltd and Another and The
Competition Tribunal and Others 13 (at paragraph 28).
15. The Tribunal’s discretion, while being exercised judicially must serve to
promote the legislature’s policy of encouraging participation in the
deliberations of the Tribunal. In the case of The Competition Commission
and Others v American Natural Soda Ash Corp and Others 14 it was stated
that
“The legislature’s policy… seems to be to encourage as much
participation in deliberations as this is considered to be healthy for
arriving at optimal decisions. To understand what happens in a
market one must hear from its participants – customers, suppliers,
competitors, etc. To come to conclusions about market behaviour
competitors, etc. To come to conclusions about market behaviour
without their participation can only impoverish the process of
adjudication”
16. There is no basis for the Tribunal to deviate from this rationale when
considering whether the applicants should be permitted to intervene in the
present case.
17. CMS’ application to intervene was not opposed by the merging parties and
is accordingly granted. Even if it had been opposed CMS has a clear
material and substantial interest in the matter, as mandated by the MSA.
The relief granted to CMS is as contained in its notice of motion and in
paragraph 24 below.
18. In relation to Netcare, the Tribunal is of the view that Netcare, as a major
12 Anglo/Kumba page 118.
13 44 CAC Feb05 at page 11.
14 Case Number 49/CRApr00 and 87/CR/Sep00, decision of 30 November 2001.
6
competitor of the ultimate acquiring firm MediClinic, both at the national
level and in the Vaal Triangle has demonstrated that it has a material and
substantial interest in the outcome of this hearing. It was argued by the
merging parties that the founding papers of Netcare did not reveal any
specific concerns but were rather framed in a generic manner. At the
hearing Mr Norton explained that the application for intervention had been
filed before his client or its client’s legal representatives had had sight of the
Commission’s record. In the circumstances, he said, Netcare was unable
at the relevant time to provide more details in relation to the areas of
concerns identified in its founding affidavit.
19. In our view, Netcare, in its founding papers has sufficiently outlined a
material and direct interest as a large competitor of MediClinic at the
national and the regional level and will be able to assist the Tribunal in its
truthseeking functions.
20. In relation to Supreme Health, the Tribunal is of the view that both Mr
Wotshela and Dr Mini would be able to assist it in understanding the
Protector Group’s operations and its decline into liquidation. They would
also be able to assist the Tribunal in understanding the competitive
landscape of the industry from the perspective of a smaller competitor. The
interests of Dr Mini and Mr Wotshela are not identical to those of Netcare or
CMS. The Tribunal is of the view that Dr Mini’s and Mr Wotshela’s interests
would be better represented and relevant issues would be more fully
ventilated in the proceedings if they participated under the banner of
Supreme Health rather than being summoned as witnesses by either of the
Supreme Health rather than being summoned as witnesses by either of the
other parties or this Tribunal. However it is acknowledged that Supreme
Health may not have any direct interest in the proceedings beyond those of
Dr Mini and Mr Wotshela. Hence the Tribunal grants the application of
Supreme Health to participate in the proceedings for as long as Dr Mini and
Mr Wotshela remain directors and/or shareholders of Supreme Health. 15
Scope of the intervention
21. The respondents contended that the intervention should be limited to the
issues expressly stated in the papers of the applicants. The applicants, in
their papers, were especially concerned about the possible anticompetitive
effects of the transaction, in the Vaal Triangle region. A similar argument
was advanced in the Anglo/Kumba case. In that case the appellants wanted
the intervention of the respondents to be limited because, allegedly, the
respondents had shown no interest in other markets, which had been
referred to in the draft order. 16 The Competition Appeal Court stated that:
15 See paragraph 7 of the order, a copy of which is attached to these reasons as Annexure A.
16 See page 27 of the Anglo/Kumba case.
7
Furthermore, the purpose of the participation in the hearings is to
assist the Tribunal in its investigation. The Tribunal will consider all
the factors listed in Section 12A(2) and 12A(3) of the Act. If that is
the case, then I cannot see any logic in this Court limiting the basis
upon which the first respondent may participate. It is for the Tribunal
to decide as it deems fit. It is within the Tribunal’s discretion. 17
22. It is certainly problematic to limit in advance the participation of applicants,
in a matter when it is unclear what evidence will be led by the merging
parties in relation to any number of issues. In this particular transaction,
CMS has indicated that it intends opposing the merger on a number of
grounds. The Tribunal, in its truthseeking function, can only benefit from
hearing the view of the competitors of the merging parties, large and small,
on a number of aspects such as the relevant market, impact of the merger
on the industry in general and in the Vaal Triangle specifically, and on more
competitive alternatives. Moreover, setting limits on the extent of a party’s
participation could lead to further delays if parties in the proceedings
differed in their interpretation of the limits set by the Tribunal. To limit the
participation of the applicants is not appropriate in the circumstances of this
matter. At the hearing of the merger, there is no doubt that the parties will
concentrate on issues that are of primary concern to them and are not
common to the industry. In addition, the Tribunal will ensure, as it has
always done, that unnecessary duplication is avoided by requiring the
participants to coordinate their evidence and the crossexamination of
witnesses as far as this is possible.
Confidentiality
23. The intervening parties have asked to be provided with a nonconfidential
Confidentiality
23. The intervening parties have asked to be provided with a nonconfidential
version of the Commission’s recommendation. They have further asked for
their legal counsel to be provided with the confidential version of the
Commission’s recommendation. The Tribunal is guided by the decision of
the Competition Appeal Court in the case of Competition Commission v
Unilever plc & others (the “Unilever” case).18 In the light the principle
established in the Unilever case, we grant the interveners’ legal experts
access to the confidential version of the Commission’s recommendations
subject to the provision of the appropriate confidentiality undertakings. 19
17 Page 28 of the Anglo Kumba case.
18 CAC 13/CAC/Jan02,14.2.2.2002.
19 In the Unilever case the Competition Appeal Court held that the applicants’ legal experts should
be given access to the confidential information, subject to adequate confidentiality undertakings, to
enable them to advise their clients fully and protect their rights.
8
Conclusion
24. We allow the intervention by Supreme Health, Netcare and the Council for
Medical Schemes in the merger proceedings before the Tribunal. The
intervention is allowed without any limitation to the scope of the
intervention. The relevant orders are attached hereto as appendix A and
appendix B.
26 May 2006
Y. Carrim Date
Concurring: M Mokuena and L Reyburn
APPENDIX A: ORDER ISSUED ON 24 APRIL 2006
Order in relation to Supreme Health and Netcare’s Application
ORDER
Further to the Applicants’ submissions to intervene, the Tribunal makes the following
order:
1. The Applicants are granted leave to intervene in the merger proceedings before
the Tribunal in relation to the acquisition of control by Phodiclinics (Pty) Ltd and
DJH Defty (Pty) Ltd of the Protector Group of companies under Case No: 122/LM/
Dec05, in terms of section 53(c)(v) of the Competition Act, 1998;
2. The Applicants are permitted to participate in the hearing in relation to the
following matters:
9
2.1 the factors that the Tribunal must take into account in respect of section 12A(2)
of the Act read with section 12A(1)(a)(i); and
2.2 the factors that the Tribunal must take into account in respect of section
12A(3).
3. The Applicants are permitted to adduce oral and documentary evidence and cross
examine witnesses in relation to these matters in the course of making their
representations to the Tribunal.
4. The Applicants’ legal representatives are permitted access to the Commission’s
record which has been referred to the Tribunal within 5 (five) business days
hereof, subject to providing appropriate confidentiality undertakings.
5. The Respondents are to provide the Applicants with a nonconfidential version of
the Commission’s record within 10 (ten) business days of date hereof.
6. A further prehearing is to be arranged with the Registrar on a date suitable to all
parties after the Applicants have had sufficient opportunity to consider the record.
7. Furthermore, the intervention of Supreme Health Administrators (Pty) Ltd is
subject to the following conditions:
7.1 That Supreme Health Administrators will participate in the merger proceedings
before the Tribunal in terms of orders 16 above only as long as Dr Clarence
Mini and Mr Kevin Wotshela continue to serve as directors and/or remain
shareholders of that company; and
7.2 That Dr Clarence Mini and Mr Kevin Wotshela testify as witnesses at the
instance of Supreme Health Administrators (Pty) Ltd in the merger proceedings
before the Tribunal.
8. No order is made as to costs.
10
APPENDIX B: ORDER ISSUED ON 24 APRIL 2006
Order in relation to the CMS application
ORDER
Further to the Applicant’s submissions to intervene, the Tribunal makes the following
order:
9. The Applicant is granted leave to intervene, in terms of section 53(1)(c)(v) of the
Competition Act, 1998, in the merger proceedings before the Tribunal in relation to
the acquisition of control by Phodiclinics (Pty) Ltd and DJH Defty (Pty) Ltd of the
Protector Group of companies under Case No: 122/LM/Dec05.
11
10. The Applicant is permitted to participate in the hearing in relation to the following
matters:
10.1 the factors that the Tribunal must take into account in respect of section 12A(2)
of the Act read with section 12A(1)(a)(i);
10.2 the factors that the Tribunal must take into account in respect of section
12A(3); and
10.3 the factors that the Tribunal should consider in either the prohibition of the
merger or its approval with or without conditions.
11. The scope of the Applicant’s participation in the hearing shall include, without
limitation, the right:
11.1 to attend prehearing conferences;
11.2 to adduce oral and documentary evidence;
11.3 to present argument;
11.4 to request the Tribunal to direct, summon and/or order any person to appear at
the hearing;
11.5 to crossexamine any of the witnesses led by any of the other participants in
the hearing;
11.6 to inspect any books, documents and other items filed by any of the other
participants in the merger proceedings, including inspection by Applicant’s
legal representatives, subject to appropriate confidentiality undertakings, of
any information filed by any participants subject to a claim of confidentiality;
12
11.7 to have access to the Commission’s record that has been referred to the
Tribunal in this matter, including access by the Applicant’s legal
representatives, subject to appropriate confidentiality undertakings, to any
information contained in the record which is subject to a claim of confidentiality;
and
11.8 to participate in any interlocutory proceedings related to the issues referred to
in paragraph 2 above.
12. The Applicant’s legal representatives are permitted access to the Commission’s
record that has been referred to the Tribunal within 10 (ten) business days hereof,
subject to appropriate confidentiality undertakings.
13. The Respondents must provide the Applicant with a nonconfidential version of the
Commission’s record within 10 (ten) business days of date hereof.
14. A further prehearing is to be arranged with the Registrar on a date suitable to all
parties after the Applicant has had sufficient opportunity to consider the record.
15. No order is made as to costs.
13