COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:100/LM/Nov06
In the matter between:
ABSA Capital Limited Acquiring Firm
And
Thebe Investment Corporation (Pty) Ltd Target Firm
Panel : DH Lewis (Presiding Member), N Manoim (Tribunal
Member), and Y Carrim (Tribunal Member)
Heard on : 17 January 2007
Decided on : 17 January 2007
Reasons Issued: 30 January 2007
Reasons for Decision
APPROVAL
1] On 17 January 2007, the Tribunal unconditionally approved the merger
between ABSA Capital Limited and Thebe Investment Corporation (Pty) Ltd.
The reasons for the approval follow.
THE PARTIES
2] The primary acquiring firm is ABSA Capital Limited (‘ABSA Capital’), a division
of ABSA Bank Limited (‘ABSA Bank’). ABSA Bank is a wholly owned subsidiary
of ABSA Group, a public company incorporated in the Republic of South Africa.
ABSA Group is held by the following shareholders in the proportions set out
hereunder:
[2.1] Barclays Plc (56.6%);
[2.2] Old Mutual Asset Managers (Pty) Ltd (5.4%);
[2.3] Allan Gray Limited (4.5%);
[2.4] Investec Asset Management (Pty) Ltd (4.2%);
[2.5] Public Investment Corporation Limited (4.0);
[2.6] Coronation Fund Mangers Limited (2.3%);
[2.7] Sanlam Investment Management (Pty) Ltd (2.1%);
[2.8] Bernstein Investment Research Management (1.7%);
[2.9] Stanlib Asset Management Limited (1.0%);
[2.10] T. Rowe Price Associates Inc. (0.9%); and
[2.11] Other (17.3%).
3] The primary target firm is Thebe Investment Corporation (Pty) Ltd, a private
company incorporated in terms of the laws of the Republic of South Africa.
Thebe is owned by the following shareholders in the following proportions:
[3.1] Batho Batho Trust (49.88%);
[3.2] Sanlam Life Insurance Limited (8.473%);
[3.3] Old Mutual Life Assurance Company (South Africa) Limited (8.473%);
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[3.4] Investec Employee Benefits Limited (8.473%);
[3.5] Thebe Investment Corporation Share Trust (3.435%); and
[3.6] Main Street 223 (Pty) Ltd (21.24%).
4] Thebe controls a number of subsidiaries. 1
THE TRANSACTION
5] ABSA Capital has entered into two linked but not interdependent agreements
for the acquisition of shares in Thebe. The first agreement involves ABSA
Capital’s acquisition of Investec’s 8,473% shareholding in Thebe and its 1000 A
preference shares representing 100% of the issued A preference share capital
of Thebe. 2
6] A second share sale agreement with Old Mutual in terms of which ABSA
Capital will purchase of a further 7% of the issued share capital of Thebe.
7] The net result of this transaction is that ABSA Capital will own 15,47% of the
issued share capital of Thebe. The existing agreements between the
shareholders of Thebe will have the effect that ABSA Capital will acquire joint
control of Thebe. 3
RATIONALE FOR THE TRANSACTION
8] ABSA Capital views this transaction as a good medium to longterm private
equity investment which has a lot of growth potential. ABSA Capital believes it
is acquiring the stake in Thebe at a discount to fair value.
1 See Schedule 3 to form CC4(2) on p470 of the record for a complete list of Thebe’s
subsidiaries.
2 The amount of any dividends in respect of the preference shares, which have not been
declared and/or paid at the date of implementation of this transaction is payable along with the
purchase price.
3 Clause 10 of shareholders’ agreement, read with clause 11.6.1 and 11.6.3 (Record p421).
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9] Both Investec and Old Mutual entered into the transaction in order to realise
their investments in Thebe, thereby disposing of their shareholding.
THE PARTIES’ ACTIVITIES
10] ABSA Capital is an integrated financial services group that provides a wide
range of products and services. Its products include retail banking, commercial
banking, insurance, investment, brokerage services and asset management.
11] Thebe is a black empowerment investment holding company. Thebe’s
investments are held in financial services, tourism, and strategic investments.
Financial services cover all of Thebe’s investments in the financial services
industry. Tourism covers Thebe’s investments in travel coordination and
adventure activities. Strategic investments relate to all strategic investments
held by Thebe and these include Thebe’s investment in Shell Marketing (South
Africa) (Pty) Ltd.
Nonoverlapping activities
12] The merging parties’ nonoverlapping activities include investment research,
healthcare administration services, financial management services, consumer
credit collection and risk management, tax advisory and property
management.4
Overlapping activities
13] The merging parties’ activities overlap minimally in the areas of longterm
insurance, short term insurance brokerage, corporate finance, personal finance
facilities or microlending, administration, consultancy and brokerage services
for employers. 5 As shall be shown below, these product overlaps are minimal
4 Record pp1519.
5 Record pp1015. In addition to these activities, Thebe owns 21.05% of Intsika Capital (Pty)
Ltd (‘Intsika’), whose major business will relate to the provision of collective investment
products. Intsika is not yet active in this market. The acquiring group is involved in the
provision of collective investment products market, with a market share of approximately 11%.
Given that Intsika is not yet active in the relevant market, the transaction is not likely to have
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and do not raise serious competition concerns.
RELEVANT MARKETS
14] Both the merging parties are active in the shortterm brokerage market. The
Short Term Insurance Act No. 53 of 1998 classifies shortterm insurance
products into eight classes of insurance. These are health and accident,
engineering, guarantee, miscellaneous, liability, property, motor and
transportation.6 The Commission submitted that due to the parties’ low post
merger market shares it is not necessary to explore the market definition
further.
15] With regards to long term insurance, stock brokerage, corporate finance,
personal finance facilities, microlending, administration, consultancy and
brokerage services for employers, the Commission submitted that it is not
necessary to define the relevant market since the merger will have minimal
effects on those markets and the parties’ postmerger market shares are very
low.
16] The parties are also active in the vertical market of provision of IT systems. In
this upstream market they are active in of the provision of IT systems for
payment and electronic money transfer services. They are also active in a
downstream market of providing IT systems for the administration of home
loans, personal loans and debit cards
Horizontal Effect
17] The Commission and the parties submitted that the relevant geographic market
is national since the products offered by the parties are offered largely on a
national basis.
any negative effect in such market. It is thus not necessary to assess this overlap further.
6 The Financial Services Board has also classified this broad market as the primary shortterm
market that is made up of the different segments including transportation, property, motor,
market that is made up of the different segments including transportation, property, motor,
miscellaneous, liability, health and accident, guarantee and engineering. (Registrar of Short
Term Insurance Anuual Report for 2004).
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Table 1: Market shares for merging parties in other overlapping services
Market ABSA (%) Thebe (%) Post
merger (%)
Long term insurance 0.86 0.16 1.02
Short term insurance brokerage 8.3 6.5 14.8
Stock brokerage 2.5 <1 <3.5
Corporate finance 8.5 0.2 8.7
Personal finance facilities or micro
lending
1.2 <0.1 1.3
Administration, consultancy and
brokerage services for employers
8 0.04 8.04
18] The highest postmerger market share will be in the shortterm brokerage
market with a total market share of 14.8%, which is relatively low. There are
several other players that will compete with the merged entity and these include
Alexander Forbes, Glenrand and FirstLink.
19] In other overlapping activities ABSA Capital and Thebe will have a combined
postmerger market share of less than 15% in all identified markets. These
market shares are relatively low and do not raise serious competition concerns.
Vertical Effect
20] IT services are provided to banks for the administration of home loans,
personal loans and debit card. The parties and the Commission opted to
segregate the administration of the downstream market of home loans,
personal loans and debit cards as separate and distinct markets.
21] In the upstream market for the provision of IT systems for payment and
electronic money transfer services on an outsourced basis, Emid, a subsidiary
of Thebe, is currently the only service provider in South Africa. Most banks
currently have their own internal IT services. At the hearing of this matter, the
parties confirmed that Emid does not have any of the major banks as its clients
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other than a particular service provided for a division of First National Bank. 7
The major banks have internal departments performing their own IT services. 8
Any bank that outsources its IT services is required to fulfil the requirements in
the Banks Act Circular 14/2004, dealing with outsourcing functions within
banks.9 A service provider who intends providing IT services to a bank does not
need regulatory approval from the Reserve Bank. All that the Reserve Bank
requires is that bank itself fulfil the requirements of Circular 12/2004. The
parties submitted that the barriers to entry in this market are not high and there
is potential import competition.
22] There is no need to analyse the downstream market for the administration of
home loans, personal loans and debit card, since most banks, with the
exception of a division of First National Bank, provide their own IT services and
do not rely on Emid to administer these products.
23] The Commission and the parties concluded that the relevant geographic market
in the upstream and downstream market is at least national since services
offered by both merging parties are largely offered on a national basis.
24] The Tribunal finds the competition effect of the transaction in the horizontal
market is likely to be relatively low since the market share accretion is small
and the merged entity will face competition from several large players. In the
vertical market, there seem to be no competition effect since most banks
provide their own IT services and there are no regulatory barriers fro service
providers who intend providing IT services to banks.
PUBLIC INTEREST
25] There are no public interest issues.
CONCLUSION
26] This transaction does not raise serious competition concerns. There are no
7 Transcript p2.
8 Transcript p2.
9 Transcript pp34.
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public interest issues. The transaction is approved accordingly.
________________ 30 January 2007
Y Carrim DATE
Tribunal Member
DH Lewis and N Manoim concur in the judgment of Y Carrim
Tribunal Researcher: R Kariga
For the merging parties: J Roodt and S du Toit, Roodt Incorporated.
For the Commission : S Maphumulo (Mergers
and Acquisitions)
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