COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 18/LM/Feb06
In The Large Merger Between
Growthpoint Properties Ltd Acquiring firm
And
Tresso Trading 119 (Pty) Ltd Target firm
Reasons for Decision
Approval
1. On 17 May 2006, the Tribunal unconditionally approved the proposed
merger transaction between the abovementioned parties. The reasons for the
decision follow.
Parties
2. The acquiring firm is Growthpoint Properties Ltd (“Growthpoint”) a variable
rate stock company listed on the Johannesburg Stock Exchange in the real
estate sector.1 Growthpoint is not controlled by any entity. The primary
target firm is Tresso Trading (Pty) Ltd (“Tresso”) an unlisted property loan
stock company. 2
Transaction
3. The transaction involves Growthpoint acquiring twentyfour immovable
properties (“Tresso Properties”) as well as all the rights, title, interests, lease
agreement, service and maintenance contracts in respect of each of the
Tresso Properties. 3 At the hearing Ms Gaigher appearing for the merging
parties informed the Tribunal that one of the Tresso properties the Umhlanga
Hospital was subject to a preemptive right by the lessee of that property and
that the preemptive right was exercised and it is not part of the transaction
anymore.
1 A list of all the firms that hold more than 5% of the issued capital of Growthpoint can be found on
page 3 of the Commission’s Report. A list of companies controlled by Growthpoint appears on page21
of the Record.
2 Details of subsidiaries and associated companies of Tresso appear at page 124 of the Record.
3 A detailed list of the properties to be acquired can be found on pages 4 of the Commission’s Report.
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Rationale of the transaction
4. From Growthpoint’s perspective, the Tresso property portfolio will increase
its property asset base as well its absolute exposure in the Western Cape, a
region where it has been traditionally difficult to find good commercial
properties. Growthpoint also considers that the proposed acquisition will
increase its exposure to the Gauteng, Western Cape and KwaZulu Natal
commercial, retail and industrial sectors, all of which are expected to provide
attractive returns over the medium term. The proposed transaction will also
improve the overall quality of Growthpoint’s portfolio without significantly
changing the sectoral or regional composition of the portfolio. For Tresso the
transaction is motivated by its shareholders decision to divest from the
property industry entirely.
The merging parties activities
5. Both Growthpoint and Tresso are loan stock companies. Both derive their
income primarily on the rentals received from tenants in properties owned by
them.
Relevant Market
6. The Commission defines the relevant markets as the markets for the
provision of grade A office space in Bryanston/Epsom Downs, Rosebank/
Hyde Park, Bellville/ Goodwood and Midrand/Olifantfontein nodes and the
provision of industrial warehousing space in the Meadowdale node. The
Commission also found that there is an overlap in the activities of the merging
parties as they operate in the property market. According to the Commission
in the narrow product market category they overlap in respect of Grade A and
Grade B office property as well as industrial warehousing, industrial light
manufacturing, industrial mini and midi unit, regional shopping centre and
community shopping centres and other property types in particular medical
property.
community shopping centres and other property types in particular medical
property.
Competition Evaluation of the Merger
Grade A Office space in Rosebank/ Hyde Park node
7. The Commission’s investigation revealed that the merging parties would
enjoy a combined post merger market share of 14.62% in the market for
Grade “A” office space in the Rosebank and Hyde Park nodes. We agree
with the Commission that the combined market share is not significant so as
to raise competition concerns. Premerger Growthpoint had an estimated
market share of 13.67% and Tresso had 0.96% of the identified relevant
market share.
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Grade A office space in Bryanston/ Epson Downs node
8.The Commission’s investigation revealed that the merging parties would
enjoy a combined post merger market share of 8.49%. According to the
Commission this is unlikely to raise any competition concerns, as the market
shares remain low. We agree with this conclusion. Premerger Growthpoint
had a market share of 1.71% whilst Tresso had approximately 6.78% of the
identified relevant market share.
Grade A office space in the Midrand/ Olifantfontein node
9. The Commission’s investigation revealed that the merging parties would
enjoy a combined post merger market share of 33.48%. At the hearing it
turned out that although this was a high market share a further segmentation
of the Midrand node could be made between the East and the West side of
the highway. Ms L Steynberg, a representative of Tresso, also indicated that
rentals do differ from one side to the other side. She also indicated that there
is a difference in the market demand for properties on the one side of the
highway versus properties on the other side of the highway. If Ms Steynberg
were correct in this assertion there would be no overlap as the merging
parties properties in Midrand fall on either side of the highway. We agree with
the Commission that since the accretion in the market is only 1.6% it is
unlikely to raise any competition concerns. Premerger Growthpoint had a
share of 31.87% and Tresso 1.6%. It is therefore not necessary for us to
determine whether the Midrand market can be further segmented between the
East and West sides of the highway.
Grade A office space in Bellville/ Goodwood node
10.The Commission’s investigation revealed that in this market Growthpoint
would have a combined market share of 4.1%. According to the Commission
would have a combined market share of 4.1%. According to the Commission
no market data was available for the Bellville area, it only determined the
parties market shares using data presented in the Goodwood area only. The
Commission was of the view that should broader regional analysis
incorporating the Bellville area be considered the market share is likely to be
further diluted. According to the Commission no serious competition
concerns are likely to arise in this market. We agree with the Commission’s
conclusion, as this merger does not lead to a significant market share for the
merging parties.
Industrial warehousing space in the Meadowdale area
11.The Commission’s investigation revealed that the merging parties would
have a combined post merger market share of 2.4%. The Commission found
that the market share would remain low and therefore unlikely to raise any
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serious concerns. We agree with this conclusion because, premerger
Growthpoint had a market share of 1.8% and Tresso had 0.6% of the
identified relevant market, therefore Tresso is not an effective competitor as
its market share in the defined market is minimal.
Public interests
12.No public interest issues arise from this merger.
Conclusion
13. Based on the above, the transaction will not result in a substantial
lessening or prevention of competition in the identified markets and is
accordingly approved.
_______________ 26 May 2006
N Manoim Date
Concurring: U Bhoola and M Holden
For the Merging Parties: Ms I Gaigher (Jowell Glyn & Marais)
For the Commission: Seema Nunkoo and Mogalane Matsimela (Mergers and
Acquisitions)
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