COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 24/LM/Mar06
In the matter between:
Growthpoint Properties Ltd Acquiring Firm
And
Metboard Properties Ltd Target Firm
______________________________________________________________
Panel : M Moerane (Presiding Member), M Mokuena (Tribunal
Member), and U Bhoola (Tribunal Member)
Heard on : 14 June 2006
Decided on : 14 June 2006
REASONS FOR DECISION
Approval
[1]. On 14 June 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 on
the Financial Services: real estate holding and development sector. 1 No
entity directly or indirectly controls Growthpoint. The primary target firm is
Metboard Properties Ltd (“Metboard”) which is also a variable rate property
loan stock company listed in the Johannesburg Stock Exchange real estate
1 A list of all the firms that hold more than 5% of the issued capital of Growthpoint can be found on
page 2 of the Commission’s Report. A list of companies controlled by Growthpoint appears on page2
of the Commission’s Report.
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holding and development sector. 2
Transaction
[3]. The transaction involves Growthpoint acquiring the Metboard linked units
other than those already held by Growthpoint. 3 After the merger, Growthpoint
will own and control Metboard.
Rationale of the transaction
[4]. From Growthpoint’s perspective, the acquisition will provide it with a
unique opportunity to acquire industrial properties of a decent size and will
contribute to an increased market capitalisation for Growthpoint. Secondly,
the enlarged Growthpoint will provide a better platform to acquire future retail
and commercial property. Thirdly, within an enlarged Growthpoint there will be
continuity of asset management and property management skills to ensure
continued focus on industrial assets.
[5]. From Metboard perspective the combined portfolio should be able to
attract better debt funding rates than those of Metboard and increase
competitiveness of the combined portfolio to acquire further industrial
property. According to Metboard, the combined portfolio will provide
Metboard linked unit holders with exposure to other property sectors. The
acquisition also presents Metboard linked unit holders with an upfront capital
premium without diluting their future distributions.
The merging parties activities
[6]. Both Growthpoint and Metboard are loan stock companies. Both derive
their income primarily on the rentals received from tenants in properties
owned by them. Growthpoint’s property portfolio consist of 168 properties
located throughout South Africa consisting of retail property, commercial
property, industrial property, hotel, hospital and vacant land. Metboard’s
property portfolio consists of 159 industrial properties located throughout
South Africa.
2 Details of subsidiaries and associated companies of Tresso appear at page 124 of the Record.
2 Details of subsidiaries and associated companies of Tresso appear at page 124 of the Record.
3 Before this transaction, Growthpoint holds 17.69% of the issued linked units in Metboard. For a list
of properties to be acquired, see pages 39 of the Commission’s Report.
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Relevant Product Market
[7]. According to the Commission, when dealing with different types of
properties, a distinction can be drawn between properties depending on the
uses of the property and this includes retail, office space and industrial space.
We accept the parties and the Commission’s submission that both the
merging parties operate broadly in the property market and in the narrow
product market category they overlap in respect of industrial properties only.
Industrial property can further be subdivided into categories according to
nature of their use. The Commission refrained from defining the relevant
product market for industrial property, as it is uncertain to what extent
warehousing space can be used for manufacturing purposes. However in
considering the impact of the transaction on a narrow basis the Commission
considered in its assessment that the industrial property market may be
defined into the following categories: warehousing space, light industrial,
heavy industrial, industrial parks, mid and mini units and motor trading. In its
broader product assessment, the Commission took into account that the IPD
and SAMCO only have data for broad industrial property market and that the
extent to which various properties can be substituted for each other is
uncertain.
Relevant Geographic Market
[8]. We accept the Commissions and the parties submission that the
geographic markets for the purposes of this assessment is the zoned
industrial areas by municipalities and as depicted in the Rode Report
contained in the merger filing. Geographic overlap exists in respect of both the
narrow and broad product market in the following nodes:
Gauteng:
• Linbro Park node (Sandton);
• Eastgate node (Sandton)
Gauteng:
• Linbro Park node (Sandton);
• Eastgate node (Sandton)
• Meadowdale node (Germiston)
• Spartan Ext2/Aeroport (Kempton Park)
• Isando node (Kempton Park)
• Robertville node (Roodepoort)
• City Deep (Johannesburg)
• Strijdom Park node (Randburg)
• Midrand node
• Silvertondale node (Pretoria)
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KwaZulu Natal:
• Isipingo node (Durban)
• New Germany node (Durban)
• Pinetown (Durban)
Eastern Cape
• New Brighton node (Port Elizabeth)
Western Cape
• Epping node
• Milnerton node
Competition Analysis of the Merger
[9]. In its competition analysis, the Commission relied on the market share
data supplied by the merging parties for its assessment. The Commission in
its assessment firstly considered the narrow product categories, then the
broader industrial property market, and the areas of geographic overlap in
respect of each product category. We will now consider both products
markets.
A. Narrow Assessment
[10]. Post the merger Growthpoint’s market share in each of the narrow
product market will be as follows:
In the Linbro Park, it will be 1.6%; in Meadowdale 2.9%; in Spartan Ext 2/
Aeroport node 1.4%; in Midrand 5.9%; in Epping node 4.4%; in Milnerton
10.4%; in New Germany node 4% and in Pinetown it will be 1.3%. According
to the Commission, this is unlikely to raise any competition concerns, as the
market shares remain low. We agree with this conclusion.
Market for the provision of industrial warehousing in the Isipingo node
[11]. In this node, the Commission found that there is no estimated number
of industrial stands available for this node. The merging parties had provided
the Commission with estimated total size of the area 4 000 000m ². The
Commission used the estimated total size in this node and found that the
acquisition of only one warehousing space in this node is unlikely to raise any
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serious competition concerns. Premerger both the merging parties had one
warehousing space each in this node. We agree with this conclusion.
Market for the provision of industrial warehousing space in the New
Brighton node.
[12]. In this node, the parties were unable to provide the Commission with the
number of stands located in this node. However, the Commission found that
Growthpoint has only one property in this node and Metboard only has one as
well.
Conclusion on the narrow assessment
[13]. We agree with the commission that this transaction is unlikely to raise
any serious competition concerns. The Commission also found that in the
seven of the eleven markets assessed, Growthpoint is only acquiring one or
two properties within the nodes identified.
B. Broad Assessment
[14]. Post the merger Growthpoint’s market share in each of the broad
product market will be as follows:
Below is a table reflecting the combined market share of the merged
entity for industrial property
Area Market Share
Linbro Park node 3.3%
Eastgate node (Sandton) 2.9%
Meadowdale node (Germiston) 5.8%
Spartan Ext2/ Aeroport node
(Kempton Park)
2.3%
Isando node (Kempton Park 7.9%
Robertville (Roodepoort 3.75%
City Deep node 3%
Strijdom Park node (Randburg) 2.7%
Midrand node 7.2%
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Pinetown node 17%
Isipingo 2%
New Germany node 4%
Epping node 3.9%
Milnerton 10.4%
[15]. In the Silvertondale node, (Pretoria) both Growthpoint and Metboard
have only one industrial property each in this node. According to the
Commission, any accretion in the market share is unlikely to raise any serious
competition concerns. In the New Brighton node post merger, Growthpoint
will only hold two properties. According to the Commission if the total size of
the relevant node is considered, Growthpoint’s market share is insignificant.
[16]. Based on the above analysis we agree with the Commission that no
serious competition concerns are likely to arise in any of the markets above.
The Commission found that the highest combined market share would be
17% in the broader industrial property market in Pinetown node. The
Commission further found that of the sixteen considered, in nine of these,
there is an acquisition of just two or less properties. In the remaining seven
markets, other than the Midrand node, Growthpoint has a small presence.
Public interests
[17] .No public interests issues arise from this merger.
Conclusion
[18]. We conclude that the merger will not lead to a substantial lessening or
prevention of competition in the identified markets and is accordingly
approved.
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M. Mokuena 16 August 2006
Date
M Moerane and U Bhoola concurring
Researcher: J Ngobeni
For the Merging Parties: Ms I Gaigher (Jowell Glyn Marais)
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For the Commission: Seema Nunkoo (Mergers and Acquisition)
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