Phodiclinics (Pty) Ltd & Others and Protector Group Medical Services (Pty) Ltd & Others (122/LM/Dec05) [2007] ZACT 17 (21 February 2007)

COMPETITION TRIBUNAL OF SOUTH AFRICA
                                                                                     Case No:  122/LM/Dec 05 
In the matter between:
Phodiclinics (Pty) Ltd 
DJF Defty (Pty) Ltd 
Medi­Clinic Corporation Ltd
Phodiso Clinics (Pty) Ltd
Phodiso Holdings Ltd Acquiring firms
and 
Protector Group Medical Services (Pty) Ltd (in liquidation)
President Pharmacy (Pty) Ltd
Capstone  177 (Pty) Ltd
Blue Dot Properties 446 (Pty) Ltd
Limosa Investments 93 (Pty) Ltd
Capensis Investments 403 (Pty) Ltd 
New Protector Group Holdings (Pty) Ltd (in liquidation) Target firms
and
Supreme Health Administrators (Pty) Ltd
Network Healthcare Holdings Ltd
Council for Medical Schemes Intervening parties
                                                        
______________________________________________________________
Panel : Y Carrim (Presiding Member) M Mokuena (Tribunal
Member) and L Reyburn (Tribunal Member)
Heard on : 04­08 September 2006 and 17­20 October 2006
Decided on : 31 October 2006
Reasons released: 21February 2006
Reasons [ Non­confidential version ]
1

Introduction
1. On 31 October 2006 the Tribunal unconditionally approved the large  
merger   involving   the   acquisition   by   Phodiclinics   (Pty)   Ltd   and   DJF  
Defty (Pty) Ltd of the assets of New Protector Group Group Holdings  
(Pty)   Ltd   together   with   assets   of   the   other   target   companies.     The  
reasons for the Tribunal’s order are set out below.
The transaction
2. Phodiclinics (Pty) Ltd (“Phodiclinics”) together with DJH Defty (Pty) Ltd  
(“Defty”)   are   acquiring   the   assets   owned   by   New   Protector   Group  
Holdings (Pty) Ltd (“New Protector”), a company that was placed under  
provisional liquidation on 2 September 2004. 1   The assets consist of  
four hospitals: the Medivaal Hospital in Vanderbijlpark, Kathu Hospital  
in   Kathu,   Marapong   Hopital   in   Marapong   and   Kingsley   Hospital   in  
Pretoria,   and   the   respective   pharmacies   that   operate   within   these  
hospitals,   namely   Grootgeluk   Pharmacy   (Marapong),   Employees  
Dispensary Pharmacy (Vanderbijlpark), Ferrochem Pharmacy (Kathu)  
and President Pharmacy (Kingsley Centre Pretoria). 2  Upon conclusion  
of the transaction Phodiclinics will control these businesses. 
3. Medi­Clinic Investments (Pty) Ltd, a wholly owned subsidiary of Medi­
Clinic Corporation Ltd (“Medi­Clinic”), owns 51% of Phodiclinics. The  
remaining 49% is owned by Phodiso Clinics (Pty) Ltd, a wholly owned  
subsidiary   of   Phodiso   Holdings   Ltd,   which   is   a   94.4%   black   owned  
company.   Medi­Clinic   through   its   various   subsidiaries   operates   and  
controls   numerous   hospitals   throughout   South   Africa.   Medi­Clinic  
1  New Protector or NPGH was placed in liquidation on 2 September 2004.  Its subsidiary companies,  
in which all of its trading assets were housed, namely Protector Group Medical Services (Pty) ltd and  
President Pharmacy (Pty) Ltd were placed in liquidation soon thereafter. For a complete list of the

primary target firms see File 1, page 127 of the record.
2  The subsidiaries that own the properties upon which the various hospitals are situated are also  
included in the transaction. These are Capstone 177 (Pty) Ltd, Blue Dot Properties 446 (Pty) Ltd,  
Limosa Investments 93 (Pty) Ltd and Capensis Investments 403 (Pty) Ltd.
2

controls   Defty   in   terms   of   section   12(2)   (g)   of   the   Competition   Act.  
Defty  owns most  of the pharmacies in  the Medi­Clinic  hospitals  and  
provides pharmaceutical services to and on behalf of the Medi­Clinic  
hospitals.3   For ease of reference I will refer to the acquiring firm as  
Medi­Clinic or Phodiclinics.
Background to the transaction
4. New Protector was established when Glenrand MIB sold its 65% stake  
in   old   Protector   Group 4  to   an   empowerment   consortium   named  
Tradeworx.   Tradeworx consisted of seven black individuals of whom  
one is Dr Clarence Mini of Supreme Health. The shareholders in New  
Protector   were   Tradeworx   owning   51%   of   the   shares   and   Freefall  
Trading 65 (Pty) Ltd with 49%. The shareholders of Freefall Trading 65  
included two directors from the old Protector Group namely Leon van  
Rensburg and Marc Seelenbinder. The BEE transaction was funded by  
the   IDC   and   was   valued   at   R130   million. 5  This   transaction   was  
approved by the Competition Commission (“the Commission”) in June  
2004. 
5. No sooner had New Protector obtained its approval certificate than it  
was hit by a series of misfortunes, which led ultimately to its liquidation  
and   its   arrival   before   this   Tribunal   as   the   subject   of   the   proposed  
acquisition.   
3  The structured separation of the hospital and pharmaceutical services offered by private hospitals is  
prescribed by regulation.
4  The words new and old are used to denote the differences between the Protector group of companies  
after Glenrand MIB disposed its interests in the group.   In that transaction New Protector was formed  
as a holding company in which Tradeworx and Freefall Trading would be joint shareholders.  The  
operating companies were to be transferred into the new holding company.
5  The Industrial Development Corporation of South Africa (“IDC “) is a self financing, national

Development Finance Institution. It was established to promote economic growth and industrial  
development in South Africa and is a public entity as contemplated in Chapter 6 of the Public Finance  
Management Act 1 of 1999.
3

6. On 3 March 2006 the Commission recommended to the Tribunal that  
the   proposed   transaction   be   approved   without   conditions.   A   pre­
hearing   was   held   on   13   March   2006   during   which   Network   Health  
Holdings   Ltd   (“Netcare”),   Supreme   Health   Administrators   (Pty)   Ltd  
(“Supreme Health”) and the Council for Medical Schemes (“the CMS”)  
indicated to the Tribunal that they wanted to intervene in this matter.  
The   Tribunal   granted   them   leave   to   intervene   on   24   April   2006.     A  
further pre­hearing took place on 9 July 2006 during which a timetable  
was agreed upon, setting hearing dates for interlocutory applications  
and the hearing of the main matter. 6 
7. The   merger   hearing   took   place   on   4   to   8   September   2006   and  
continued   on   17   to   20   October   2006.     The   CMS, 7  Netcare 8  and  
Supreme Health 9 opposed the merger on a number of grounds which  
are dealt with below.  
8. The   following   witnesses   were   called   during   the   hearing   of   the   main  
matter:
Witnesses called by the merging parties
1) Mr Johan du Plessis, Head of Workout and Restructuring at the  
Industrial Development Corporation (“the IDC”)
2) Ms Sonja Keulder, Senior Account Manager at the IDC
3) Mr TW van den Heever, Insolvency Practitioner and Managing  
Director of D&T Trust (Pty) Ltd
6  On 21 August 2006 the Tribunal heard an application for discovery brought by Network Health  
Holdings Ltd and Supreme Health Administrators (Pty) Ltd in terms of section 54 of the Competition  
Act.
7  The Council for Medical Schemes is a statutory body established by the Medical Schemes Act to  
provide regulatory supervision of private health financing through medical schemes.
8  Netcare is a national participant in the private hospital market in South Africa. It is one of Medi­
Clinic’s main competitors and is also present in the Vaal Triangle.

Clinic’s main competitors and is also present in the Vaal Triangle.   
9  Supreme Health is a BEE controlled, medical aid administrator, whose directors were former  
shareholders of Tradeworx Clinical and Financial Risk (Pty) Ltd, the BEE majority shareholder of New  
Protector. Tradeworx and its shareholders were also involved in a number of consortia that bid for the  
assets of the Protector Group after it was placed in liquidation.
4

4) Mr G Swiegers, Financial Director of Medi­Clinic Corporation Ltd
5) Dr N Theron of Econex
Witnesses called by Netcare and Supreme Health
1) Dr   Clarence   Mini,   Director   of   Supreme   Health   Administrators  
(Pty) Ltd
2) Ms Petro Bester, Hospital Manager, Vaalpark Hospital
Witnesses called by the CMS
1) Mr   Alex  van  den  Heever,   Senior  Advisor,   Council   for   Medical  
Schemes
2) Dr   Jonathan   Bloomberg,   General   Manager   of   Strategy   and  
Health Policy at Discovery Holdings Ltd
3) Mr Mbasa Mxenge, Principal Officer of Polmed Medical Scheme
Commission’s recommendation
9. The   Commission   recommended   that   the   transaction   be   approved  
unconditionally, on the basis that it was unlikely to lead to a substantial  
lessening of competition.   The Commission noted that New Protector  
was in liquidation and considered it to be a failing firm for purposes of  
merger analysis but expressed concern about a likely increase in tariffs  
at each of the hospitals to be acquired because, post­merger, Medi­  
Clinic   would   implement   its   national   tariffs. 10    (The   Commission   had  
found that Protector’s tariffs were generally lower than those of Medi­
Clinic.)  The Commission also expressed concern about the increasing  
concentration   occurring   in   the   hospital   industry. 11  The   Commission  
10  It was common cause in this transaction that if Medi­Clinic acquired the Protector hospitals, it  
would implement its national tariffs, which would result in fee increases at these hospitals.
11  Commission’s Recommendation page 30.
5

however found that the strong countervailing presence of the medical  
schemes   in   this   industry   ­   90%   of   all   patients   using   the   Medivaal  
hospital belong to medical schemes ­ and the fact that New Protector  
was   a   failing   company   substantially   lessened   the   anti­competitive  
effects   of   the   transaction.   It   therefore   recommended   that   the  
transaction be approved.
Netcare’s contentions
10. Netcare and Supreme Health (which we refer to below collectively as  
Netcare12)  contended  that  the  transaction  ought  to  be  prohibited  on  
several grounds. Netcare argued that the Tribunal should have regard  
not only to the national market shares of the merged entity but also the  
local   market   shares,   especially   in   the   Vaal   Triangle   and   Kathu.     It  
submitted,   inter alia , that  Medi­Clinic would  become dominant in the  
Vaal Triangle if it acquired the Medivaal hospital.  
11. Such dominance, Netcare contended, would have an adverse effect on  
the referral patterns of specialists and would provide Medi­Clinic with  
an   incentive   to   deny   patients   emanating   from   Netcare’s   hospital   in  
Sasolburg   access   to   the   ICU   facilities   at   the   Medivaal   hospital   in  
Vanderbijlpark   and   access   to   Medi­Clinic’s   hospital   in   Veereniging.  
Medi­Clinic would also be in a better position to attract specialists away  
from the hospitals of its rivals at which these specialists had rooms,  
and   thereby   attract   more   patients   away   from   rival   hospitals.  
Furthermore, by acquiring the Protector hospital in Kathu, Medi­Clinic  
intended to keep Netcare out of the Northern Cape in order to maintain  
its   dominance   in   that   province.   Moreover,   Netcare   contended,   the  
12  Both parties were represented by the same legal team.
6

merging   parties   had   failed   to   discharge   the   onus   identified   by   this  
Tribunal   previously 13  which   falls   on   those   who   wish   to   rely   on   the  
failing firm doctrine.  
12. Netcare claimed that there were a number of alternative options to the  
proposed   merger,   including   an   acquisition   by   Netcare   itself   of   the  
Protector assets, which would lead to a less anti­competitive outcome  
in the Vaal Triangle and elsewhere.   
The CMS’ contentions
13. The CMS asserted that the acquisition of the Protector assets by Medi­
Clinic   ought   to   be   prohibited   because,   in   its   view,   the   extent   of  
concentration   in   the   hospital   industry,   brought   about   by   progressive  
acquisitions   of   independent   hospitals   by   the   three   large   groups,  
Netcare,   Medi­Clinic   and   Life   (previously   Afrox),   had   resulted   in   an  
unacceptably   high   increase   in   hospital   costs   over   time.     The   CMS  
contended   that   the   three   major   hospital   groups   had   been   acquiring  
independent   hospitals   in   a  succession   of   “creeping   mergers”   over   a  
number   of   years.     While   a   particular   transaction,   or   many   of   these  
transactions on their own, might not have given rise to any competition  
concerns,   the   cumulative   effect   of   these   transactions   was   a   high  
degree of concentration in the private hospital market, with these three  
players having the lion’s share of it.   14     According to the CMS, the  
three hospital  groups  enjoyed market power  at a national  level, and  
had exercised it. This was evident from the sharp increase in hospital  
13   Iscor Ltd and Saldanha Steel (Pty) Ltd, Case No: 67/LM/Dec01. 
14The market shares of the three major private hospital groups in South Africa are: 
Netcare 30.4%
Medi­Clinic 24.5%
Life Healthcare 27.7%   
7

costs during the time in which these creeping mergers had occurred.  
Medical schemes did not have countervailing power. In the CMS’ view  
the three major hospital groups ought not to be allowed to acquire any  
more independent hospitals.  
14. A second argument advanced by the CMS was that the Tribunal should  
be concerned about  local   or regional  markets in the private hospital  
market.   It argued that regional dominance for a hospital group was  
important because it provided the group with national leverage in its  
tariff   negotiations   with   medical   schemes.     Regional   dominance   also  
constrained   the   ability   of   medical   schemes   to   negotiate   preferred  
provider agreements.  
15. Finally, the CMS argued that even if Protector was a failing firm, which  
it   denied,   the   Protector   hospitals   ought   to   have   been   sold   by   the  
liquidator and the IDC to another independent hospital group 15.   The  
CMS supported Netcare’s definition of the relevant market. 
Merging parties’ contentions
16. Medi­Clinic contended that, according to its definition of the relevant  
market,   the   transaction   would   not   lead   to   a   substantial   lessening   or  
prevention of competition at a national level.   Nor was it Medi­Clinic’s  
intention to deflect referrals by specialists away from its rivals’ facilities  
in   the   Vaal   Triangle.     Medi­Clinic   had   never   denied   the   use   of   its  
facilities   to   patients   referred   to   them   by   doctors   practising   at   its  
competitors’ hospitals, and had no intention or incentive to do so in the  
future.  While the transaction would lead to an increase in tariffs at the  
15  The CMS contends that the market should be opened up to other players besides the three large  
hospital groups. Although it does not support Netcare as a less anti­competitive buyer it does seem to  
favour the notion of a consortium which includes one of the major players as a minority partner buying

the target hospitals. See transcript page 1834.
8

Protector   hospitals,   this   would   only   affect   patients   who   were   not  
members   of   medical   schemes   and   these   constituted   only  
approximately 10% of all private hospital patients.   The tariff increase  
would be in the region of 10%. 16   A tariff increase would be inevitable  
if any one  of the three  major  hospital  groups acquired the  Protector  
assets because Protector’s tariffs were generally lower than those of  
the three main groups.   
17. In the event that the Tribunal found that the relevant market was the  
local market (as opposed to the national market) and that Medi­Clinic  
would   have   a   relatively   high   market   share   in   the   Vaal   Triangle,   this  
would   not   lead   to   a   substantial   lessening   of   competition   because  
Protector   was  a  failing  firm.     After   it  had  been  placed  in  provisional  
liquidation the liquidator had attempted to obtain as many unconditional  
offers as possible for Protector’s assets as a going concern, but at the  
date of conclusion of the sale had received only one such offer, namely  
that from Phodiclinics. 
18. The hearing in this matter was preceded by an aggressive discovery  
process, and encompassed a large amount of documentary evidence  
and witness testimony. 
Tribunal’s findings
19. This Tribunal considers that new Protector  was a failing firm – or more  
precisely   a  failed   firm   ­­   within   the   meaning   of   the   Competition   Act,  
1998 (“the Act”) at the time of the merger transaction, and considers  
further that the failing firm consideration outweighs any potential loss to  
competition that may arise as a result of this transaction.
16  See transcript page 880.
9

20.   We have therefore approved the merger.   In these reasons for that  
decision, we find that the merging parties have discharged the onus  
required Act in relation to what is often called the failing firm defence,  
also   satisfying   the   criteria   applicable   in   the   USA   in   relation   to   that  
defence.       Having considered the extent of competitive harm alleged  
by the intervenors, we have concluded that such harm as exists was  
overstated   by   the   intervenors,   and   is   outweighed   by   the   failing   firm  
factor. 
Competition Analysis
The relevant product market
21. The Commission identified the relevant product market as the market  
for the provision of private hospital services. These consist of a range  
of specialist hospital services, also referred to as a cluster of services,  
such   as   obstetrics   and   gynaecology,   neonatal   intensive   care   unit,  
paediatrics, general surgery and urology. 17
22. In addition to the specialist services above, both parties to the merger  
provide emergency units, including intensive care, high care, theatre  
facilities and pharmacies, although, not all of these facilities exist at all  
of the Protector hospitals .
23. In the case of Protector the above services are offered mainly by the  
Medivaal   hospital,   with   the   Marapong,   Kathu   and   Kingsley   hospitals  
offering limited facilities that can be regarded as catering for primary  
services   rendered   by   general   practitioners.   Marapong,   Kathu   and  
Kingsley do not have ICU units.  At Kathu some minor procedures are  
rendered by specialists, mostly travelling from Kimberley.   
17  For a comprehensive list of specialist services see the Commission’s report.
10

24. It was not contested by any party to the proceedings that the relevant  
product   market   was   the   market   for   the   provision   of   private   hospital  
services.
The relevant geographic market 
25. The Protector hospitals are situated in: 18
 The Vaal Triangle: Medivaal hospital with 155 beds
 Northern Cape Province: Kathu hospital with 25 beds
 Limpopo Province: Maropong hospital with 12 beds
26. Medi­Clinic owns 44 private hospitals in eight provinces in South Africa.  
Those closest to the target hospitals are:
 Vaal triangle:  Vereeniging Medi­Clinic with 237 beds
 Northern Cape province: Kimberley Medi­Clinic with 234 beds,  
Upington Medi­Clinic with 40 beds
 Limpopo province: Limpopo Medi­Clinic with 193 beds, Tzaneen  
private   hospital   with   64   beds   and   Curamed   Thabazimbi  
hospital19 with 19 beds.
27. According  to  Medi­Clinic, 86% of its income is derived from medical  
schemes and less than 10% from private patients, the balance being  
derived from government medical funds. Medi­Clinic has contracts with  
all   of   the   medical   schemes   in   the   country.   Tariffs   charged   by   Medi­
18  Kingsley Medical Centre is a day hospital and thus not considered within the same product market..  
Netcare indicated in its opening statement that although its main focus was on the effect on competition  
in the Vaal Triangle it was also concerned about Kingsley and Kathu. These concerns were in relation  
to certain network effects which came into play as a result of the transaction. 
19  This hospital is 51% controlled by Protector and managed by Medi­Clinic. This hospital does not  
form part of this transaction. The Commission, in its analysis, considered it as part of the Med­Clinic  
group because of the pre­emptive right that the other shareholders have to acquire the Protector shares.  
This will be a separate transaction.  See Exhibit 8 par 2.6 on page 31.  
11

Clinic  vary  from  one  medical   scheme  to  the  next.  For  each  medical  
scheme   it   has   a   single   tariff   that   operates   nationally.   It   therefore  
considers the market serving medical scheme patients to be national.  
In   its   view   a   local   market   definition   is   relevant   only   in   the   case   of  
patients who are not funded by medical schemes. 
28. Hospitals compete with one another at several levels.  While they may  
compete on price (tariffs) at a national level in their negotiations with  
medical schemes, at a local level they tend to compete for patients on  
a non­price basis. Hence hospitals may compete on the quality of their  
facilities, the quality of care provided in these facilities, the location of  
the hospital, and the nature of the specialist services available at the  
hospital.   The   Commission   therefore   followed   a   multi­perspective  
approach in defining the geographic market. It considered the effect of  
the transaction firstly within a national geographic market and then in a  
local market.
29. In this analysis, the Commission relied on previous Tribunal decisions,  
which   have   held   that   the   market   is   national,   based   on   the   fact   that  
hospital   groups   adopt   a   centralised,   national   pricing   policy. 20    At   a  
national level, the Commission found that this transaction would lead to  
market   share   accretion   of   0.8%   for   Medi­Clinic   and   that   any   price  
increases following from the merger would be absorbed with minimal  
premium   cost   increases  by  medical   scheme   patients,   who  represent  
90% of the market.
30. However   the   Commission   was   cognisant   of   the   fact   that   a   relevant  
national   market   may   not   adequately   address   the   impact   of   such   a  
transaction on competition in a local or regional market.  According to  
the   Commission,   local   or   regional   markets   are   important   because

the   Commission,   local   or   regional   markets   are   important   because  
dominance   by   a   particular   hospital   group   in   a   particular   region   may  
20  See the Commission’s Recommendation page 14.
12

have a negative impact on the ability of medical schemes to negotiate  
preferred provider agreements with such a group.  This would have an  
impact   on   pricing   and   would   limit   the   ability   of   medical   schemes   to  
deliver affordable products to the consumer.  
31. The Commission defined local or regional markets by utilising a fixed  
radius test.  This involved taking into account the alternatives available  
to patients in each area within a fixed radius of 60km (“the fixed radius  
test”).     On  the   basis   of   this  test   the  Commission  identified   the  Vaal  
Triangle as a relevant geographic market in which the merging parties  
competed.  
32. In Kathu, situated in the Northern Cape, the  Commission  found that  
1.7%   and   1.9%   of   all   admissions   to   Kimberley   Medi­Clinic   and  
Upington Medi­Clinic respectively were from Kathu. Given the distance  
of   more   than   100   km   between   Kathu   and   other   towns   such   as  
Upington,   Kimberley,   Vryburg   and   Bloemfontein,   the   Commission  
found   that   there   was   no   geographic   overlap   between   the   merging  
parties in this area on the basis of a fixed radius of 60km. 
33. The   Commission   also   concluded   that   that   there   was   no   geographic  
overlap between Morapong Private Hospital and Limpopo Medi­Clinic  
because of the distance of more than 200 km between Lephalale and  
Polokwane, both situated in the Northern province. 
34. The merging parties did not accept the Commission’s definition of the  
Vaal Triangle market and argued that they competed in two separate  
markets, Vanderbijlpark and Vereeniging. Dr Theron of Econex, who  
gave   expert   economic   testimony   on   behalf   of   the   merging   parties,  
agreed that the merger had both a national and local dimension but  
refrained from defining the geographic market conclusively.   Dr Theron  
13

utilised a number of tests to determine the relevant market, the primary  
one being the Elzinga­Hogarty Test (“E­H test”) which she applied to  
patient flow data.   21 She argued that based on both versions of the E­H  
test,   the   weaker   75%   and   the   stronger   90%   patient   flow   test,   no  
competition implications arose from this merger. She submitted that if  
the   75%   E­H   test   is   applied   then   the   Medivaal   hospital   at  
Vanderbijlpark   and   the   Medi­Clinic   hospital   at   Vereeniging   are   in  
separate geographic markets and do not compete. If the 90% E­H test  
is applied, the Medivaal and the Medi­Clinic hospitals would fall into the  
same geographic market which should then also include hospitals from  
areas   such   as   Sasolburg   (9%   of   patients   are     from   Sasolburg),  
Vereeniging (7% of patients are from this town) and Sebokeng (1% of  
the patients are from this town).  
35. Netcare did not lead an expert witness.  However, by cross­examining  
a number of witnesses, it sought to define the geographic market as  
the Vaal Triangle – a view it sought to base on the opinions of market  
participants, internal documents of Medi­Clinic, and the close proximity  
of the hospitals to each other. Netcare also criticized the use of the E­H  
test and said that it was not clear that the E­H test could ever be used  
in hospital merger analysis because of the “silent majority” fallacy. 22 It  
also pointed out that the economists who developed the E­H test had  
observed that it was not readily applicable to heterogeneous products  
such as hospital services. 
21  The test was designed to analyse commodity movements or trade flow patters. In hospital mergers  
this means that the movement of patient X who resides within geographic market A to a facility outside  
of that geographic area for hospital services is considered an  importation of hospital services  into

market A – measured as LIFO (“Little In From Outside”). The movement of patient X who resides  
outside of geographic market A to a facility inside geographic market A is considered as  exporting of  
hospital services  outside of A, measured as LOFI (“Little Out From the Inside”).  A geographic  
market is usually described as “strong” if less than 10% of discharged patients from the merging  
hospitals’ area come into or out of the area. If more than 10%, but less than 25% of patients migrate in  
or out of the hospitals’ core geographic area for in­patient services, the market definition is considered  
“weak”.
22  Patient flow does not measure price sensitivity. Patient flow can show existing hospitalisation  
patterns but offer no insight into what patients will do in response to a price increase by the merged  
hospital.   
14

36. The CMS argued that the geographic market of a hospital should be  
defined by considering the hospital’s catchment area. 23 It regarded the  
Vaal Triangle, Marapong, Kathu, Kimberley and Upington as separate  
catchment areas. 
37. Patient flow data has been criticised by some scholars on the basis  
that   it   could   lead   to   an   overestimation   of   the   geographic   market   by  
ignoring   relevant   factors   such   as   specialist   referral   patterns.     The  
Federal   Trade   Commission   (“FTC”)   and   the   Department   of   Justice  
(“DoJ”) of the USA, in a joint report on healthcare recommend that the  
delineation   of   relevant   markets   in   an   industry   as   complex   and  
differentiated as hospital services should not rely on tests such as E­H  
test,  which   are  designed  primarily   for  homogenous  product   markets.  
Instead, regard should be had to a number of indicators such as the  
testimony of key witnesses, strategic internal documents of the parties,  
industry views, and location.   24
38. Such an approach has been utilised by this Tribunal in other mergers  
involving product markets with a high degree of differentiation. 25 In our  
view,   there   is   no   need   for   us   to   decide   whether   the   E­H   test   is   an  
appropriate or accurate tool in this transaction. At best, in this matter, it  
represents an initial and tentative view of the relevant market, which  
needs to be supported by other tests. 26  
39. In   our   view   the   close   proximity   of   the   hospitals   and   documentary  
evidence   as   well   as   the   testimony   of   certain   witnesses   strongly  
23  See File 5 page 94 of the record.
24  See the report by the FTC and the DoJ on “Improving Health Care: A dose of Competition”, July  
2004.
25  Merger between Massmart and Moresport, Tribunal Case No: 62/LM/Jul05.
26  It may be that the E­H test is useful tool to arrive at a prima facie determination of a relevant market

which is supported by other indicia as suggested by Dr Theron.  However we make no such finding  
here.
15

suggests that Medi­Clinic regards Medivaal as a rival within the same  
local geographic market. 27 The hospitals are within short distances of  
each   other. 28  Moreover,   the   hospital   manager   of   Medi­Clinic’s  
Vereeniging Hospital clearly sees his hospital as operating within the  
Vaal Triangle. 29  Handwritten notes by Mr Heyns also refer to the fact  
that should Medi­Clinic increase the rates at Medivaal, patients would  
be able to turn to Midvaal and Vereeniging Medi­Clinic. 30    This leads  
us to conclude that the relevant local market is the Vaal Triangle.  
40. Kathu   and   Marapong   hospitals   have   limited   facilities   and   are   not  
regarded as significant competitors of Medi­Clinic at a national level.  
However some competition concerns were raised by Netcare in relation  
to Medi­Clinic’s acquisition of Kathu.   We thus accept for purposes of  
considering Netcare’s  contentions  that Kathu is also  a  relevant  local  
market.  
Market shares
41.   Post   merger,   Medi­Clinic   will   be   the   only   private   hospital   group   in  
Kathu.
42. The following hospitals operate in the Vaal Triangle area:
 Vereeniging Medi­Clinic with 165 beds
 Medivaal (Protector) with 155 beds
 Midvaal Vereeniging (independent) with 92 beds
 Netcare Sasolburg with 68 beds
27For example:  In a note by Mr Heyns of Medi­Clinic he refers to the options that medical schemes  
would have should Medi­Clinic increase its prices, namely Midvaal or Vereeniging. See Exhibit 8,  
handwritten notes, page 325 onwards. 
28  The distances between the hospitals range from 5km to 26km.  
29  See exhibit 8, page 59 in which he states “ the acquisition would increase our already dominant  
position in the Vaal Triangle .”   
30  Exhibit 8 page 324.
16

43. In addition to the four listed above, the merging parties had also listed  
Clinix Private Hospital in Sebokeng.  Smaller rivals such as Cormed (a  
day   clinic)   were   also   included   in   the   Commission’s   list   of   market  
participants although the Commission did not regard them as providing  
the   same   range   of   services   as   those   provided   by   the   merging  
parties.31 
44. With regard to Clinix in Sebokeng, Dr Theron conceded that she did  
not   have   any   data   indicating   that   patients   living   outside   Sebokeng  
would travel to Clinix’s hospital. 32   
45. If   we   were   to   consider   Cormed   and   Clinix   as   competitors,   then   the  
market shares in the Vaal Triangle would be: 33
Hospital No of Beds
Pre­merger
Market share
Post –merger
Market share
Medi­Clinic
(Vereeniging) 237 32% 53%
Midvaal
(Vereeniging) 92 12% 12%
Vaalpark
(Netcare 
Sasolburg)
68 9% 9%
Clinix
(Sebokeng) 160 22% 22%
Cormed
(Vd Bijlpark)  20 2% 2%
Medivaal 
Protector 155 21% ­
TOTAL 732 100 100
31  This was confirmed by Dr Theron under cross examination.  See transcript 1115
32  See transcript page 1113
33  We used the number of beds as indicated by Econex on page 20 of Exhibit17 to calculate the market  
shares in the Vaal Triangle.
17

46. Excluding Cormed and Clinix, the market shares would be:
Hospital
No
of 
Beds
Pre 
­merger
Market 
share
HHI
Post­
merger
Market 
share
HHI
Vereeniging
Medi­Clinic 237 43% 1849 71% 5041
Midvaal 92 17% 289 17% 289
Vaalpark
(Netcare) 68 12% 144 12% 144
Medivaal
(Protector) 155 28% 784 ­ ­
TOTAL 552 100 3066 100 5474
47. If   we   exclude   Clinix   and   Cormed   on   the   basis   that   they   were   not  
effective competitors, then, based on the number of beds, the merged  
entity will, after the transaction, hold a market share of 71% in the Vaal  
Triangle with an HHI of 5041 and a change in HHI of 3192.  A market  
share of 71%, with an accretion of 3192, will clearly be of concern to  
any competition agency.  Medi­Clinic will by far be the largest player in  
the Vaal Triangle with its closest rivals having relatively small market  
shares   in   comparison.     Midvaal   Vereeniging,   an   independent   group,  
will   have   a   market   share   of   17%   and   Netcare   Sasolburg   12%.   The  
stark figures are however mitigated by a number of factors to which I  
return later in this decision.
Failing Firm
48. The   Act   requires   this   Tribunal   to   evaluate   the   competition   effect   of  
mergers and acquisitions taking into account a number of factors, one  
of these being “  whether the business or part of the business of a party  
18

to the merger or proposed merger has failed or is likely to fail .”34
49. The   Tribunal,   in   Iscor   Ltd   and   Saldanha   Steel   (Pty)   Ltd ,   Case   No  
67/LM/Dec01,   found   that:     “ a   merger   would   not   be   regarded   as  
lessening competition if the conditions laid out in the more stringent EU  
test   can   be   satisfied. ”35  However   it   also   considered   that   one   could,  
depending on the anti­competitive effect of the transaction, use the less  
stringent US test if a party fell short of the “market share would have  
gone to us” requirement.   The merging parties submit that while they  
have not been able to discharge the onus of the EU requirement of  
“market share will go to us”, they have been able to discharge the onus  
pertaining in the US test.
50. The US failing firm defence provides for the following: 36
“A merger is not likely to create or enhance market power or facilitate  
its exercise if the following circumstances are met: 
1) the allegedly failing firm would be unable to meet its financial  
obligations in the near future; 
2) it would not be able to reorganize successfully under Chapter II  
of the Bankruptcy Act; 
3) it has made unsuccessful good­faith efforts to elicit reasonable  
alternative offers of acquisition of the assets of the failing firm  
that would  both keep its tangible and intangible assets  in the  
relevant market and pose a less severe danger to competition  
than does the proposed merger; and 
4) absent the acquisition, the assets of the failing firm would exit  
the relevant market.” 37
34  See s12A and s12A (2) (g).
35  See page 15 of the decision.
36  See page 14 of the decision.
37  Paragraph 5.1 of the Revised Guidelines April 8, 1997 issued by the U.S. Department of Justice and  
the Federal Trade Commission.
19

51. The Tribunal  also pointed out that when the competitive loss is low,  
one may be less exacting in requiring a showing of all the elements of  
the traditional failing firm defence. It noted in par 105 of the decision  
that:
“If   the   failing   firm   concept   was   a   defence,   in   the   sense   that   the  
efficiency   defence   is,   then   this   type   of   flexibility   would   be  
impermissible and one would have to satisfy all the elements of a  
test that the legislature had provided before it could be invoked.”
52. Netcare submits that the Protector hospitals, as business units, were  
not failing but that the Protector group was failing as a result of factors  
explained in the evidence ­­ fraud by its erstwhile managers and the  
loss   of   its   medical   scheme   administration   contract   and   the   losses  
incurred by its pharmacies. 38  Hence, Netcare contended, the hospitals  
ought   not   to   have   been   liquidated   at   the   instance   of   the   IDC.  
Furthermore,   Netcare   contended   that   the   merging   parties   had   not  
discharged the onus described by this Tribunal in   Iscor and Saldanha  
Steel (Pty) Ltd,  cited above. 
53. Let us consider the circumstances of Protector’s failure.  
Unable to meet its financial obligations and reorganise successfully
54. On 25 November 2003, the IDC Board approved a leveraged buy­out  
of   Protector   Group   Holdings   (i.e.   Old   Protector),   a   holding   company  
with   trading   subsidiaries,   which   was   owned   by   Glenrand   MIB   Ltd,  
holding   65%   and   Protector   Group   Management   Company   (“Manco”)  
holding 35% of the ordinary shares.   As a result of the transaction a  
new   holding   company,   New   Protector   Group   Holdings   (I,e,   New  
38  This was also argued by the CMS.
20

Protector)   was   formed   to   hold   the   same   trading   subsidiaries,   with  
Tradeworx owning 51% and a new Manco, Freefall Trading 65 (Pty)  
Ltd, holding 49%.
55. The   core   business   of   New   Protector’s   subsidiaries   comprised   4  
hospitals,   34   pharmacies   and   two   medical   scheme   administration  
businesses.  The funding of the LBO transaction involved R70 million  
cash in order to purchase the shares and claims of Glenrand MIB and  
a further R60 million in guarantees.   The transaction was hailed as a  
BEE transaction effected by Glenrand.   Marc Seelenbinder, the chief  
operating officer of the group, and Dr Mini, who had been a member of  
the   Old   Protector   board,   were   seemingly   the   central   figures   in   the  
transaction.
56. In February 2004, the IDC paid over approximately R70 million, as part  
of the purchase price, into New Protector’s bank account.   This money  
was never seen again.  The only persons who had signing powers over  
New Protector’s accounts were the two directors of Freefall, Leon van  
Rensburg and Marc Seelenbinder, whose whereabouts now seem to  
be unknown. 39    In July 2004 one of New Protector’s subsidiaries lost  
its administration contract with the Protector Health medical scheme to  
another administrator, Medscheme, and in doing so New Protector lost  
its   major   cash­generating   business,   then   earning   revenue   of   R5.4  
million per month.  
57. A   short   time   before   the   IDC­funded   transaction   was   completed,   Old  
Protector   had   acquired   or   was   in   the   process   of   acquiring   another  
entity   called   The   Medicine   Chain   (“TMC”)   for   R1,00   (one   rand)   with  
liabilities   of   R42   million.     The   IDC’s   valuation   took   into   account   the  
possible   acquisition   of   TMC.     However,   it   later   emerged   that   the  
39  A forensic and criminal investigation into the disappearance of these funds is ongoing.  
21

acquisition   was   done   without   a   proper   due   diligence   having   been  
conducted by Old Protector.   TMC required additional working capital  
by way of cross­subsidy from the other business units.  New Protector  
was not able to turn around the businesses in time.  On 23 July 2004  
the major banks exercised their securities and froze the bank accounts  
of   New   Protector   and   its   subsidiaries.     None   of   these   banks   were  
willing to extend any further facilities to these companies. 
58. New   Protector   therefore   had   no   cash   flow   or   overdraft   facilities  
available for its subsidiaries’ trading operations. It had no money to pay  
salaries of staff, to buy food or provisions for patients, to pay its rent, or  
to service its debt.   The situation was aggravated by the departure of  
Messrs Seelenbinder and Van Rensburg, 40  leaving the company with  
very few, if any, people on its board who were skilled and experienced  
in the management of a business of that size or nature. 
59. New Protector turned to the IDC, its major creditor, for assistance. The  
IDC settled some debts with the banks, thus increasing its exposure,  
and   then   attempted   to   find   a   durable   solution   to   New   Protector’s  
difficulties.41   The IDC attempted to facilitate negotiations with Clinix  
Hospital Group 42  in the hope that Clinix could rescue New Protector.  
Both the IDC and Tradeworx explored the possibility of bringing in an  
experienced   partner   such   as   Clinix   or   Medi­Clinic. 43  Attempts   were  
made  by  the  IDC’s   personnel   to   engage  with  the  managers  of   New  
Protector and its subsidiaries and develop a rescue plan for the group.  
A   rescue   plan   was   proposed   by   New   Protector   which   contemplated  
40  Amidst the fallout caused by the missing funds, Marc Seelenbinder resigned in July 2004.  Leon van  
Rendburg seems to have followed soon thereafter.

Rendburg seems to have followed soon thereafter.
41  See Jean Du Plessis’ witness statement page 8 par 23 as well as transcript page 170.
42  See IDC 3 page 1280.
43  Some   efforts   were   made   by   Tradeworx   to   engage   Medi­Clinic   as   a   possible   partner   in   New  
Protector  during this period   Prior to the  liquidation, Medi­Clinic had  been involved  in talks with  
Tradeworx, some information had been exchanged and a limited due diligence had been conducted . 
The IDC’s attempts at bringing in Clinix were unsuccessful .
22

cost   savings   in   the   long   run   but   which   in   the   short   term   required   a  
capital   injection  from  IDC   for  retrenchments,   the  restart   of business,  
and working capital.   The extent of this cost had not been calculated  
but was expected to be high. 44   The rescue plan did not provide for  
any repayments to the IDC while requiring an increase in exposure for  
the IDC.   The IDC was also expected to take an equity stake in the  
business, which would have increased its exposure further. 45  
60. In the meantime, the IDC  had already advised New  Protector that it  
was   seeking   to   protect   its   own   interests   as   a   creditor   and   was   not  
willing   to   increase   its   exposure   any   further. 46      During   this   time,  
another   smaller   creditor   of   New   Protector   applied   for   its   liquidation.  
While   the   company   defended   the   action,   the   liquidation   application,  
together with the exercise by the banks of their securities, served as a  
trigger for action by several other creditors. Furthermore New Protector  
had been evicted from some of the TMC pharmacy premises because  
it   was   unable   to   pay   its   rent. 47    New   Protector   was   indeed   in   dire  
circumstances. Though it seems that the IDC’s original intention was to  
restructure   New   Protector   and   assist   it   in   trading   out   of   its   financial  
difficulties48 this was abandoned because, according to the IDC, it was  
uncertain that New Protector would be ever able to service the level of  
additional debt that such a rescue operation required. Events were in  
any case overtaken by the actions of other creditors. 49 
61. At   that   point   New   Protector’s   major   creditors   were   Nedbank   (R59.5  
million), ABSA (R27 million), FNB (R23 million), the IDC (R72 million)  
44  IDC 1 page 151
45  According to a Business Day report of 8 September 2006 the IDC stated:”  its intention was not to

sink the company, but rather to save it by placing it in provisional liquidation, restructuring it, and  
then pulling it out of liquidation. The IDC together with Tradeworx and other stakeholders are  
working on a restructuring plan to revive the group… .” See file IDC1 on page 505.
46  IDC1 file, page 453
47  See evidence of   the liquidator, witness statement  page 3  and IDC 1 page 150
48  The IDC considered placing the company under judicial management as one of the possible options.
49  See evidence of Du Plessis and IDC 2 page 151.  
23

and SARS (R16.86 million). Trade creditors were owed R48.23 million  
of   which   R19.37   million   was   in   arrears   for   90   days   or   more.   The  
group’s   total   assets   were   approximately   R35   million   while   its   total  
liabilities were approximately R250 million. The group employed about  
800 people and was unable to pay salaries at the end of August 2004  
or buy food and essential provisions for its hospitals. 
62. On   2   September   2004   New   Protector   was   placed   in   provisional  
liquidation at the instance of the IDC, and liquidation of its subsidiaries  
followed soon thereafter.   The IDC agreed to provide New Protector  
with a loan of R27 million as liquidation expenses which would in that  
capacity   be   secured   from   other   creditors. 50    At   the   hearing   the  
intervenors   suggested   that   the   IDC   had   placed   the   company   in  
liquidation simply to protect its R27 million against the claims of other  
creditors.  51  This does seem to have been a factor that the IDC had in  
mind when it decided to liquidate the company.  But it was not the only  
one.52   The evidence clearly indicates that the IDC was not confident  
that New Protector would be able to repay its existing debts, let alone  
service any additional funding that it obtained from the IDC. Liquidation  
proceedings by a number of creditors were pending, none of the banks  
were willing to extend any further overdraft facilities and there was no  
money to pay its rent, buy food or pay salaries, it had been evicted  
from   some   of   its   pharmacy   premises,   it   was   continuing   to   trade   in  
insolvent   circumstances,   and   its   directors   were   at   risk   of   incurring  
personal liability.   
63. A liquidator, Mr Theo van den Heever, was appointed on 2 September  
2004.  He set about trying to assess the extent of the financial distress,  
conducted   a   valuation   process   and   ensured   that   the   hospitals

conducted   a   valuation   process   and   ensured   that   the   hospitals  
50  See evidence of Mr Du Plessis, witness statement on page 11 par 32
51  The R27m would be secured claim as it was advanced to Protector as liquidation expenses.
52  See evidence of Du Plessis and IDC 1 pages 146­153, IDC 3 pages 1279­1280.
24

continued operations.   He found that the company‘s financial records  
were in total  disarray.   There were no financial  statements available  
after 30 June 2003.   Trading results until 28 February 2005 showed a  
loss for the group of about R8 million.  If interest to the IDC, which was  
owed but not paid, was taken into account then the group had made a  
loss of R16 million. 53  Moreover, post liquidation rent owed to the IDC  
but not yet paid over amounted to R22.6million.
64. Continued trading was only made possible by the injection mentioned  
above of R27 million in cash by the IDC.  Moreover, it transpired during  
an   investigation   by   chartered   accountants   SAB&T   that   the   sale   of  
Glenrand’s   65%   stake   in   Old   Protector   had   initially   been   made   to  
Freefall, a company owned and controlled by Messrs Seelenbinder and  
Van   Rensburg,   and   not   to   TradeWorx,   as   Glenrand   had   claimed   in  
press announcements. The investigation also revealed that the shares  
of the operating companies that ought to have been transferred to New  
Protector had not in fact been transferred.  The effect of this  was that  
New   Protector   did   not   have   any   control   over   Old   Protector   or   the  
subsidiary companies in which all the trading assets were held. 54   A  
transfer   of   shares   could   therefore   not   be   effected   to   any   interested  
buyer, nor could the group pursue any outstanding awards granted to  
Old Protector without protracted and costly litigation since ownership  
did not vest in New Protector. 55  The companies in which the hospitals  
were   located   were   all   sureties   of   each   other’s   and   the   pharmacies’  
debts.   Hence each of the companies was liable for the accumulated  
liabilities of the group and a loss in the one would attach to another  
even if the other was operationally in better financial health.  
53  See IDC 3 page 1281
54  See File IDC3, page 1282.

53  See IDC 3 page 1281
54  See File IDC3, page 1282.
55  Old Protector was awarded a damages claim in litigation arising out the termination of the medical  
scheme administration contract.  However, while it had won on the merits, the amount of damages had  
not been determined. New Protector was not able to pursue this claim without more costly litigation,  
and in the end the claim was settled for approximately R6 million. (transcript page 1558)
25

65. What is evident from the above is that significant efforts were made by  
the   IDC   to   assist   New   Protector.     The  company   itself,   and   its   other  
shareholder, Tradeworx, clearly lacked the experience and expertise to  
reorganise its structure and operations without the ongoing assistance  
of the IDC. 56  
66. In our view, there is no doubt that New Proteector was already a failed  
firm and was unable to reorganise itself successfully by the time it was  
provisionally   liquidated.     Subsequent   to   the   liquidation   it   became  
apparent that New Protector’s finances and ownership structure were  
in greater disarray than initially anticipated.   57       As the liquidator put  
it:58
“So I don’t know what the definition is of a failing firm, I just know  
this   company   is   in   liquidation,   it   is   badly   in   liquidation   and   post  
liquidation we are making massive losses because that’s just the  
way it is.”
Good faith effort and reasonable alternatives
67. Netcare argued that the liquidator had not been able to show that good  
faith efforts had been made to find reasonable alternatives posing a  
less   severe   danger   to   competition   than   did   the   proposed   merger.  
According   to   Netcare   there   were   offers   on   the   table   from   other  
interested   parties,   including   Netcare,   which   were   reasonable  
56  Netcare and Supreme Health   made much of alleged early undertakings by the IDC to Tradeworx  
that the IDC would rescue New Protector or place it in judicial management in order that it could be  
refinanced without pressure from other creditors and then taken out of judicial management.  Whether  
or not the IDC made any such undertakings would have been better dealt with in another forum, and  
that question is certainly not relevant to these proceedings.  The fact remains  that New Protector was  
insolvent and in dire straits.

insolvent and in dire straits.
57  See Du Plessis at page 317 where he explains that had there been a rescue plan on the table they  
would have accepted it.  
58  Transcript page 545.
26

alternatives to  the Phodiclinics offer and which would lead to  a less  
anti­competitive outcome.  The CMS argued that the liquidator ought to  
have designed a process, in consultation with the IDC, to find a buyer  
independent of the three major groups. 59
68. Let   us   consider   the   liquidator’s   efforts   and   the   offers   he   received,  
bearing in mind that New Protector and its subsidiaries were already in  
provisional liquidation. 60
69. The liquidator was appointed on 2 September 2004.     In accordance  
with   his   mandate   and   with   the   support   of   the   IDC   he   embarked   on  
finding a buyer for the assets of the group as a going concern, rather  
than selling them in a fire sale. 61   He ensured that the hospitals and  
pharmacies continued trading, using the liquidation funds advanced by  
the IDC,  while  he attempted  to find  a purchaser for the  businesses.  
Information   packs   were   made   available   on   20   October   2004   and  
collected by various interested parties, including Medi­Clinic, Netcare  
and Dr Mini. 62 
70. On   9   December   2004   Phodiclinics   submitted   a   cash   offer   of   R120  
million,   which   was   acceptable   to   the   IDC   and   was   subsequently  
accepted by the liquidator.  (Phodiclinics had submitted an earlier cash  
offer   of   R90   million   through   Chestnut   Hill,   a   Medi­Clinic/BEE  
consortium,   for  all   the  businesses   dealt  with  in  the  information  pack  
excluding the Kingsley hospital and pharmacy, and the liquidator had  
sought to improve on that offer.) 63
59  It was understood by all parties that any potential purchaser would involve a BEE partner.
60  Areeda, in Antitrust Law, Vol. IV page 249 says that:”A failing firm cannot reasonably be asked to  
canvass any substantial fraction of the entire universe of potential acquirers….Time alone imposes  
some constraint on the opportunities for search.”

some constraint on the opportunities for search.”
61  A fire sale is a sale of assets that are not being used in trading.  The liquidator decided to sell the  
assets as a going concern so as to ensure the highest possible value for the creditors of the company.
62  A copy of the Offer document was given to eleven interested parties. See record File 4 page 400.
63  The “for sale valuation” by Aucor Auctioneers of the Protector group was estimated as R43 million.  
27

71. Prior to that, on 15 November 2004, the liquidator had received an offer  
from   Tradeworx   (“the   first   Tradeworx   offer”).     Tradeworx   offered   to  
purchase  the  assets  for  R44  739  076 64  plus  80%  of  the  total   stock  
value.  However the structure of this offer required the IDC to provide  
further funding or guarantees, over and above its current exposure, of  
approximately R60 million.   The liquidator testified that such an offer  
would not be approved by the Master of the High Court, as the final  
voice   in   the   liquidation   process,   unless   there   was   certainty   that   a  
majority of creditors would agree to the offer and there was certainty  
that the condition would be fulfilled. 65  The IDC declined to support the  
offer as it was not willing to increase its exposure. 66   
72. The merging parties argue that the offer was also unreasonable in that  
the  amount   offered  was  less   than   half  of   what   had  been   offered   by  
Phodiclinics.  Certainly the cash portion of the offer was approximately  
that   of   the   fire   sale   valuation   of   the   assets   of   the   company. 67      Of  
critical importance, however, was that the offer was conditional upon  
the   IDC’s   agreement   to   provide   further   funding.   The   offer   collapsed  
when the IDC declined to provide such further funding.    
73. On   30   November   2004   Tradeworx   submitted   a   revised   offer   (“the  
second Tradeworx offer”) in a letter addressed to the IDC directly and  
not to the liquidator, to purchase,   inter alia , the IDC’s claim of R157  
million against NPGH for R90 million, which apparently was later orally  
64  An amount approximately equal to the fire sale valuation that had been done by the liquidator.
65  According to Henochsberg on the Companies Act “ The Court must be satisfied that the statutory  
provisions have been complied with that the classes of creditors or members were fairly represented by

those who attended and that the statutory majority approving the compromise or arrangement is acting  
bona fide in the interests of the relevant class; the compromise or arrangement should also be such as  
a man of business would reasonably approve… The fact that a majority of creditors or members, as the  
case may be, has agreed to a compromise or arrangement is of course, an indication that it is fair and  
reasonable...”  Henochsberg Vol 1 page 622 ­ 623.
66  See Keulder’s evidence,  transcript page 358.
67  The “fire sale” value of the company was R43 million.
28

increased   to   R95   million   in   cash   and   R10   million   in   preference  
shares.68  Although the liquidator was informed of this offer by the IDC,  
it was never submitted to him for consideration. Of critical importance is  
that this offer required the IDC to provide an even greater amount of  
finance to Tradeworx than had the first Tradeworx offer: the IDC was  
expected to guarantee an overdraft of R16 million and pay R64 million  
for 49% of the equity. 69   Once again, the offer was conditional upon  
the IDC providing funding or guarantees which it declined to give. Once  
again the offer – if it was that – collapsed.  
74. Mr van den  Heever testified  that  despite  the fact that the liquidation  
was well advertised no other potential bidders registered any interest in  
the   separate   hospitals   or   the   assets   as   a   whole   even   after   he   had  
actively pursued and invited other potential bidders, including Netcare,  
to submit offers. 70     He informed all the creditors towards the end of  
November  that  an  offer  of  R90  million  was  on  the  table but  that  he  
believed, based on past experience, that this offer could be increased  
to R120 million. 71
75. Early   in   December   2004   Nulane   Investments, 72  a   Netcare/BEE  
consortium, submitted an unsigned offer to the IDC (“the Nulane offer”)  
and not to the liquidator, to purchase the claims of the IDC against New  
Protector   and   Clinix   for   R90   million   ­­   not   the   business   of   New  
Protector   as   a   going   concern.     Clinix   was   not   the   subject   of   the  
liquidation   process.       The   price   of   R90   million   was   not   allocated  
between   New   Protector   and   Clinix.   Hence   the   offer   was   considered  
68  See page 399 of File CD1.
69  See IDC2 File, page 847.
70  See transcript of 6 September 2006, page 642. (This part of the hearing was held in camera as the

information being aired was confidential.) Also see a letter to the IDC on page 425 of file CD1 where  
the liquidator gave a synopsis of the communications with potential purchasers.  
71  See letter to creditors, page 325, file IDC1.
72   It emerged during the cross examination of Dr Mini that Tradeworx was not part of the Nulane  
consortium but that Dr Mini (and not Tradeworx) joined the Netcare consortium  after the Nulane  
consortium had submitted its offer. See transcript page 1647.
29

vague and indeterminable in relation to New Protector.  
76. The Nulane offer was also subject to various conditions precedent.  It  
stated that Nulane would only be able to purchase the assets of New  
Protector   it   after   it   had   obtained   a   definitive   opinion   from   its   tax  
advisors on certain matters.  No indication was provided by Nulane of  
the amount which it would be prepared to offer for these assets.   Then,  
it required the IDC to warrant that a dividend on its (the IDC’s claim)  
against   New   Protector   would   be   at   least   R90   million,   less   the  
realisation costs contemplated in s89 of the Insolvency Act.  However,  
the   size   of   the   dividend   the   IDC   would   get   was   dependent   on   how  
much Nulane itself was prepared to pay for Protector’s assets.  
77. Of significance once again was that the offer was conditional upon the  
IDC’s   involvement   through   commitments   which   the   IDC   declined   to  
provide.     This   offer   was   never   submitted   to   the   liquidator   for   his  
consideration.  Even if it had been, the offer was not capable of being  
accepted by him since the IDC had refused to grant the undertaking to  
Nulane on which it was dependent.
78. The   IDC,   acting   on   the   liquidator’s   advice,   indicated   that   it   would  
accept   an   offer   of   R120   million   from   Phodiclinics.     On   9   December  
2004 Chestnut Hill, the Phodiclinics vehicle, increased its offer to R120  
million. The liquidator informed Tradeworx of the increased offer but Dr  
Mini indicated orally to the liquidator that Tradeworx would never offer  
R120   million. 73    A   letter   was   also   sent   to   Mr   Dewald   Dempers   of  
Nulane Investments to ascertain if it was still interested in making an  
offer but he indicated that Nulane was not interested. 74 
73  See transcript page 528
74  Netcare indicated to the Commission in a letter dated 13 December 2005 that is was never interested

in making an offer independently. (See File 5, page 76 of the record.)
30

79. On   20   December   2004   the   IDC   indicated   its   acceptance   of  
Phodiclinic’s offer of R120 million. However, during February 2005, the  
IDC invited Nulane Investments and Tradeworx to submit further and  
final proposals to purchase the assets of NPGH.   The IDC embarked  
on this extended invitation after it had received a letter from Tradeworx  
complaining about the process that had been followed by the liquidator  
and referring to an earlier restructuring  plan  it had suggested to the  
IDC.75    The IDC indicated in a letter dated 4 February 2005 that the  
final   proposals  had  to  be   submitted   by  the   close   of   business  on   25  
February 2005.   In the same letter the IDC stated that the proposals  
should   include   irrevocable   commitments   from   the   offerors’  
shareholders and financiers for the financing of the proposal.   It also  
stated that should any of the offerors wish to take New Protector out of  
liquidation and propose a scheme of arrangement, a detailed proposal  
including offers to creditors should be included in the proposal. 76
80. The   IDC   had   made   it   abundantly   clear   when   rejecting   all   of   the  
conditional   offers   that   it   did   not   wish   to   increase   its   exposure,   and  
reinforced this stance by requiring irrevocable undertakings of financing  
from   offerors. 77    It   had   provided   the   other   two   interested   parties,  
Tradeworx   and   Netcare   (whether   or   not   in   a   consortium)   a   further  
opportunity   to   submit   offers   and   also   an   opportunity   to   take   New  
Protector out of liquidation.
81. On  25  February 2005,  a restructured  offer by Grand Bridge Trading  
(“the Grand Bridge offer”), consisting of the shareholders of Tradeworx,  
a BEE healthcare group named Community Hospital Group (Pty) Ltd,  
and   Netcare,   was   submitted   to   the   IDC.   The   Grand   Bridge   offer  
consisted of a purchase price of R130 million of which R90 million was

consisted of a purchase price of R130 million of which R90 million was  
75  According to the IDC this process was rejected by management.
76  See IDC 2 file page 925
77  See IDC3 file page 1285, par 2.4.6
31

a cash portion to be provided by Netcare.  The balance of R40 million  
was   to   be   paid   by   the   IDC   by   abandoning   the   R27   million   of   post­
liquidation funding it had provided and abandoning R13 million of any  
rights to a dividend paid on its claim.    
82. This offer too required the IDC to maintain if not increase its exposure.  
The IDC requested Grand Bridge to guarantee a return of R40 million  
for the proposed equity stake of 10%, which it declined to provide. 78 In  
the   liquidator’s   view,   this   offer   was   not   capable   of   being   accepted  
because   it   was   conditional   upon   the   IDC   paying   the   balance   of   the  
purchase price, which the IDC declined to do. 79 
83. The   offers   made   by   Tradeworx,   Nulane   and   Grand   Bridge   were   all  
conditional   upon   the   fulfilment   of   a   condition   that   the   IDC,   in   some  
manner   or   other,   whether   through   equity,   guarantee,   cash,  
abandonment or waiver, contribute towards the purchase of the group  
by the offeror.   None of these offers stated that should the conditions  
be   unfulfilled   by   the   IDC,   the   cash   portion   of   the   offer   should   be  
considered as a cash offer for the assets of New Protector.  Once the  
IDC rejected the condition, the offer was no longer capable of being  
fulfilled   and   was   therefore   not   capable   of   being   accepted   by   the  
liquidator.  The offers simply became void. 
84. No   evidence   was   led   that   any   of   these   offerors   returned   to   the  
liquidator,  after  being  notified of the IDC’s rejection of the  condition,  
with  a  revised  offer   excluding  the  involvement  of   the   IDC, 80  even   if  
lower in value than the Phodiclinics offer.  Nor did the IDC receive any  
proposals   amounting   to   a   re­organisation   of   New   Protector   which  
would allow it to be taken out of liquidation.
78  See IDC3 file page 1288.

would allow it to be taken out of liquidation.
78  See IDC3 file page 1288.
79  See liquidator’s witness statement page 12 par 33 and 34
80  Or conditions that may have been more acceptable to the IDC and which did not involve it  
increasing its exposure.
32

85. If these offerors intended to make such offers they could have done so  
easily.   There was ample time to do so and they were provided with  
many opportunities to do so. 
86.   Instead,  the offerors, despite  being aware that the IDC wished to limit  or  
decrease  its   exposure   rather   than  increase  it   and  that   it   was  not   willing   to  
accept such conditions, 81   persisted in submitting proposals conditional  
upon the IDC’s involvement and all having the effect of increasing or  
maintaining   the   IDC’s   exposure.     Hence   there   was   only   one   offer  
capable   of   being   accepted   by   the   liquidator,   namely   the   final  
Phodiclinics offer.
87. In fact, Mr Du Plessis of the IDC also explained that in the IDC’s mind  
there was only one offer, and that even at the late stage when it arrived  
the IDC would have welcomed a feasible rescue plan: 82
“Let me repeat myself, we never decided to abandon. We’ve been  
waiting for a plan, which we never got and then all that we could do  
was to look at offers on the table, and there was the cash offer and  
therefore we proposed that eventually to go with that offer. If at any  
point in time there was a rescue plan that would’ve made sense, we  
would definitely have considered that, but it was never there…...”
88. The liquidator in consultation with the IDC thus decided to accept the  
R120   million   cash   offer   of   the   Medi­Clinic   consortium   on   31   March  
2004.
81  Dr Mini would have been aware of this at the earliest when he received the letter from the IDC  
advising him that the IDC was acting as a creditor and seeking to protect its interests . This was on 22  
September 2004 (see IDC1 file page 550). However, as early as 30 August 2004 Dr Mini was informed  
at a meeting that the restructuring plan was not acceptable (see IDC1 file page 4530)) and again when  
the IDC rejected the first Tradeworx offer.  Netcare may have been aware of this earlier but at the latest

was aware of the IDC’s attitude when the Nulane offer was rejected.  All of them were aware of the  
IDC’s requirement of irrevocable funding from the letter of 4 February 2005.
82  See transcript page 317.
33

89. In our view the circumstances explained to us by Messrs Du Plessis  
and   Theo   Van   den   Heever   at   the   hearing,   and   summarised   above,  
clearly demonstrate that the liquidator took great pains and made more  
than reasonable efforts in good faith to elicit interest in the sale of the  
hospitals and to contact all potential buyers he could identify. 83
Assets will exit the market absent the acquisition
90. According to the Commission a representative of the IDC confirmed in  
a telephone conversation with it that it was highly likely that the New  
Protector assets would be broken up and disposed of piecemeal if the  
merger transaction did not proceed. 84
91. At the time that New Protector was liquidated it was losing experienced  
staff   and   specialists   and   was   facing   declining   patient   admissions. 85 
But for the IDC’s liquidation funding it would have been unable to pay  
salaries and rent and provide food for its patients. It had been evicted  
from some of its pharmacies.  Its accrued debts were unpaid. In short,  
it was unable to run its hospital business.  Furthermore, it is clear that  
New   Protector   lacked   not   only   the   financial   resources   but   also   the  
operational   expertise   to   run   a   hospital   business   successfully.  
Tradeworx   and   Dr   Mini   also   lacked   the   requisite   experience   to   turn  
around   the   business. 86  The   IDC   is   an   investor   and   is   not   in   the  
83  Netcare’s attempts to show that the liquidator had manipulated the sale process in order to favour  
Medi­Clinic are completely unfounded.  In fact the liquidator had called whom he considered to be a  
Netcare representative and other interested parties on more than one occasion to awaken interest and  
elicit an offer. See transcript 528   
84  See Recommendation page 32.
85  As indicated by Dr Broomberg , when specialists turn their back on a hospital, for whatever reason,

the hospital might just as well close its doors. Transcript pages 1496 to 1498 and 1504.
86   See in this regard the cross examination of Dr Mini by Mr Rogers, transcript 1621, in which Mr  
Rogers suggests that Dr Mini, who was a member of the Protector board at the time of the acquisition  
of the TMC, contributed to the demise of the Group. Dr Mini conceded that he was opposed to that  
transaction largely because he did not understand how the TMC could be bought for R1,00.  He did not  
realise that Protector was purchasing  liabilities of R42million .
34

business of managing the operations of a hospital.  It is not surprising,  
therefore, that the IDC attempted to find an experienced partner such  
as Clinix to rescue NPGH.  When that attempt failed, it sought to find a  
purchaser on a going­concern basis as a final rescue attempt.     The  
liquidator described the situation as follows: 87
“… so they are not viable as they stand right now. I mean I’ve been  
following the argument with regard to the rise in prices if another  
medical   group   takes   it   over.   Protector   at   its   current   level   is   not  
viable and had it not been for the Medi­Clinic   in 2004 we would  
have most probably closed the business down long ago, because  
its only the fact that we had realised R 80 million more than fire sale  
value, that has vindicated us in saying let’s keep these businesses  
operational.”  
92. The IDC stated on various occasions that it was not prepared to invest  
more funds in the business or to increase its exposure, and that it was  
merely keeping the business afloat because it wanted to preserve the  
hospitals   as   much   as   possible,   since   these   were   essential   services,  
and only until it found a willing buyer for the businesses as a going  
concern.   The liquidator indicated that he had been willing in the last  
resort to sell the assets piecemeal or in a fire sale. 88
93. Medi­Clinic testified that it would have to spend R 14.5 million in order  
to   upgrade   the   infrastructure   and   to   buy   new   equipment   for   the  
Protector   hospitals,   of   which   R   13.71   million   related   to   essential  
upgrading of medical equipment and infrastructure and a further R800  
000 to the adoption and upgrading of IT systems. 89 
87  See transcript page 544.
88  See evidence of Van den Heever, transcript page652.
89  See page 32 of his witness statement.
35

94. It is thus reasonable to conclude that, in order to keep these assets in  
the hospital market and to attract future referrals from specialists, New  
Protector   urgently   required   operational   expertise   and   a   substantial  
capital   injection.     Only   Medi­Clinic   had   offered   unconditionally   to  
provide both. 
   
95. The CMS argued that if the Tribunal were to prohibit this transaction  
the   IDC   would   continue   to   fund   Protector   through   a   fresh   round   of  
negotiations.     However   there   was   no   evidence   that   the   IDC   would  
agree   to   continue   funding   Protector   through   any   further   round   of  
negotiation, let alone the process which the CMS would wish to see,  
involving the building of consortia in which independent stakeholders  
would   be   predominant.     Indeed   the   evidence   suggests   quite   the  
opposite, namely that the IDC was not prepared to continue funding the  
company.  In his witness statement Mr Du Plessis of the IDC described  
its position, should the merger be prohibited, as follows: 90
“I do not know whether there would in fact be alternative offers for  
the businesses if the current merger were prohibited. If there were,  
and   if   Netcare   were   to   be   involved,   I   anticipate   that   merger  
approval might be contested. I can foresee that the IDC would be  
reluctant to continue funding the Protector group where the duration  
and outcome were uncertain. And, of course, there is the risk of  
staff losses, migration of doctors and loss of patient loyalty. ” 
96. The   liquidator   puts   it   equally   strongly   in   his   witness   statement,  
indicating that it is doubtful that the hospital could be kept afloat for  
another round of negotiations and competition approval: 91
90  See page 30 of his witness statement. 
91  See witness statement page 19 par 46.21. 
36

“…Upon rejection of the current merger there is a real prospect that  
the businesses will immediately close down (as they would have  
done nearly two years ago had the IDC not provided crises funding)  
and the assets will be sold off piecemeal by the liquidators.”
97. In   fact   the   IDC,   as   early   as   September   2004,   was   contemplating  
whether   New   Protector   should   continue   trading   under   the   dire  
circumstances it found itself in or whether the assets should be sold. 92 
98. We are satisfied that, absent the acquisition by Phodiclinics, the assets  
of NPGH are likely to exit the private hospital market. 93
99. Counsel for Netcare argued that it would be better for competition had  
the IDC accepted the Grand Bridge offer.    
100.While   both   Netcare   and   the   CMS   urge   us   to   consider   alternative  
scenarios,   this   Tribunal   can   only   assess   this   transaction   on   its   own  
merits.     We   have   found   that   Protector   was   a   failing   firm   as  
contemplated in the Act and that but for the Phodiclinics offer, there  
were no other offers capable of being accepted by the liquidator. But  
even   if   we   were   to,   for   arguments   sake,   consider   the   Grand   Bridge  
offer  as capable  of being accepted by  the  liquidator, from  the CMS’  
point of view the competition outcome would be much the same if any  
of the three, Medi­Clinic, Netcare or Life, had acquired Protector.
101.In any event this is speculation rather than evaluation.  There was no  
other offer on the table capable of being fulfilled and accepted by the  
liquidator at the time when the liquidator accepted Medi­Clinic’s offer  
(“the liquidation stage”).  This brings us to the proposal or offer tabled  
by   Netcare   and   Tradeworx   in   the   course   of   the   hearing   (“the  
92  IDC1 file page 194 and 503.
93  They might continue to exit in other markets such as the market for specialist rooms absent the

acquisition but it seems likely that the assets would exit the hospital market absent the acquisition. 
37

competition evaluation stage”).
102.At the commencement of the proceedings in September 2006, Dr Mini  
advised the Tribunal in his witness statement that in the event that this  
transaction   was   prohibited,   he   had   with   the   assistance   of   Netcare,  
obtained funding from Imperial Bank of R90 million to purchase New  
Protector’s business. In the course of the proceedings a document was  
put   up   to   the   Tribunal   by   Netcare   indicating   that   the   funding   had  
increased to R100 million.  No reasons were provided by either Dr Mini  
or Netcare why such an offer had not been made to the liquidator at the  
time when the Medi­Clinic offer was accepted.   
103.In   our   view   the   existence   and   the   terms   of   this   belated   offer   are  
irrelevant to these proceedings 94 and the Tribunal does not regard it as  
a   valid   offer   existing   at   the   time   when   the   merger   transaction   was  
concluded.     “Reasonable   alternatives”   as   contemplated   in   the   Iscor  
case must exist at the time when offers are procured by the liquidator  
and a transaction is concluded, not at some indeterminate time in the  
future. 
 
104.The EU and US guidelines require that a failing firm demonstrate, at  
the   time   when   the   transaction   is   being   evaluated   for   competition  
implications,   to   the   competition   authority   that   it   “ has   made  
unsuccessful   good­faith   efforts”.     The   word   “has”   is   the   singular  
present  tense of the word “have”.  In the context of the requirement that  
the merging parties prove the elements of the failing firm doctrine, the  
parties are required to show,   at the time at which they seek approval  
from   the   Competition   Authorities ,   that   they   “have   made”   good   faith  
efforts to find reasonable alternatives to the offer they have accepted  
and for which they seek approval. The Act does not require parties to

and for which they seek approval. The Act does not require parties to  
94  But serves to confirm that had Netcare and its partners intended to make a cash offer to the IDC at  
the liquidation stage, they would have been able to do so.
38

provide an undertaking that they “will continue to make” efforts to find  
reasonable   alternatives.   Such   an   interpretation   would   lead   to   an  
absurdity,   since   the   authority   would   never   be   able   to   approve   a  
transaction   to   which   a   party   must   continuously   strive   to   find   an  
alternative offer.    
105.If   Netcare   and   Dr   Mini   had   been   desirous   of   submitting   an   offer  
capable of being accepted by the liquidator (and not conditional upon  
the   involvement   of   the   IDC)   they   had   ample   opportunity   and  
information at their disposal to do so during the period June 2004 to  
April 2005.     They elected not to do so. Their failure to do so then,  
linked   with   the   tabling   of   the   belated   offer   in   these   proceedings,   is  
nothing more than a cynical attempt to manipulate both the liquidation  
proceedings and the proceedings of this Tribunal. 
106.At the time that the Phodiclinics offer was accepted by the liquidator  
there was no other offer capable of being accepted by the liquidator on  
the   table,   let   alone   an   offer   that   was   a   reasonable   alternative   that  
would   pose   a   less   severe   danger   to   competition   than   does   the  
proposed merger.   
107.We   accordingly   find   that   New   Protector   was   a   failing   firm   as  
contemplated in s 12A(2)(g)  of the Act  and that  the merging parties  
have discharged the onus as required of them in the US test. We find  
further   that   there   was   only   one   offer   that   was   capable   of   being  
accepted by the liquidator.
Effect on Competition in the Vaal Triangle and Kathu
39

108.In this section we deal with the concerns raised by Netcare first and  
thereafter consider those of the CMS.  
109.Netcare   alleges   that   Medi   Clinic   would   engage   in   a   number   of  
exclusionary   acts   which   would   have   an   anti­competitive   effect   on  
Netcare specifically, as a competitor, and on competition in general in  
the local markets.  We turn to consider each of these concerns.  
Closure of Specialised units at Medivaal
110.Netcare   submitted   that   Medivaal   Hospital   and   Medi­Clinic   were   the  
only   two   hospitals   in   the   Vaal   Triangle   that   offered   a   range   of  
specialised care facilities.  
111.Ms   Bester   on   behalf   of   Netcare   explained   the   concern   as   follows.  
There   was   currently   a   referral   practice   amongst   specialists   in   the  
region by which patients would be referred from a hospital which does  
not   have   adequate   specialised   facilities   to   another   which   has   these  
facilities.   Many patients from Vaalpark (Netcare) were referred to the  
Medivaal hospital because of its specialised care facilities and because  
it was, she testified, 16km closer than Medi­Clinic Vereeniging. Once  
the merger was implemented, and if the specialised care facilities at  
Medivaal were closed or rationalised in any way, she was concerned  
that doctors who currently admitted patients at the Vaalpark Hospital  
(Netcare) with the knowledge that they could be referred to Medivaal  
may   cease   doing   so   because   of   the   cost   and   risk   of   transporting  
ventilated   high   care   and   ICU   patients   over   a   greater   distance,   to  
Vereeniging.   The   essential   concern   seems   to   be   that   that   Vaalpark  
would suffer a decline in admissions and will be left out of the loop.  
Patients would be referred directly to Medi­Clinic Vereeniging.
40

112.Mr   Swiegers   on   behalf   of   Medi­Clinic   testified   that   there   was   no  
intention to close any facilities at Medivaal.   In fact Phodiclinics had  
already committed itself to upgrading some of the facilities at Medivaal  
at a cost of R14.5 million. 95   No further evidence was put to us that  
there was any such intention on the part of Medi­Clinic.  Even if Medi­
Clinic did rationalise or close down any of specialised units at Medivaal  
we   cannot   see   how   any   of   the   competition   concerns   raised   by   Ms  
Bester   would   arise.   An   evaluation   of   the   distances   between   the  
hospitals shows that Medi­Clinic is not 16km further from Vaalpark than  
Medivaal   but   only   8km. 96    Patients   would   only   be   travelling   an  
additional 8km and not 16km from Vaalpark to Medi­Clinic Vereeniging,  
thus reducing the risk foreseen by Ms Bester by half.  In addition, some  
specialists already refer patients from both Medivaal and Vaalpark to  
the   Medi­Clinic   Hospital   in   Vereeniging. 97    Hence   if   a   specialist  
decided to leave Vaalpark or Medivaal out of the referral loop he or she  
could do so now, prior to the merger.  
Patient referrals
113.A   second   concern   raised   by   Ms   Bester   was   that   Medi­Clinic   would  
refuse to admit Vaalpark patients who are referred to Medivaal.  In our  
view, there is no basis for such a concern. Medi­Clinic already accepts  
referrals of patients from Vaalpark to its Vereeniging hospital.   There  
seems   to   be   no   commercial   rationale   for   it   to   refuse   referrals   to  
Medivaal in the future. Mr Swiegers confirmed that Medi­Clinic would  
welcome   any   referrals   since   this   was   a   source   of   revenue   for   the  
hospital   and   it   was   Medi­Clinic’s   intention   to   ensure   that   Medivaal  
became a profitable operation on its own. 98 
95  See Swiegers’ witness statement page 32, par 53 and transcript page 720.
96  See exhibit 5.

95  See Swiegers’ witness statement page 32, par 53 and transcript page 720.
96  See exhibit 5.
97  See Bester witness statement par 4.13, transcript page 1710 and exhibit 6.
98  See transcript page720.
41

Refusal to Co­operate
114.Ms Bester’s further concern revolved around the impact this merger  
would have on the extent of co­operation between Vaalpark and Medi­
Clinic.   She testified that hospitals assist each other in various ways,  
either by making equipment or nursing capacity available to each other.  
She   was   concerned   that   post­merger   Medi­Clinic   may   refuse   to   co­
operate with or assist Vaalpark.  However under cross­examination she  
could only point to two incidents upon which this concern was based,  
once when her staff requested a harmonic scalpel and the other when  
they requested a shaver for an ear, nose and throat procedure. 99  The  
obstructiveness perceived by Ms Bester in these incidents was credibly  
dispelled by Mr Swiegers. 100   Interestingly both Ms Bester’s and Mr  
Swiegers’   testimony   suggests   that   there   is   a   large   degree   of   co­
operation,   communication   and   assistance   on   a   professional   level  
between hospitals in the Vaal Triangle. 101
115.In response to a question from the Tribunal panel, Mr Swiegers stated  
that   there   was   no   policy   within   Medi­Clinic   to   refuse   to   assist   other  
hospitals on a professional level, and the Tribunal views his testimony  
as an undertaking that there would be no such refusal, post merger, to  
assist Vaalpark or any other hospital in times of need. 102 
Competition for specialists
99  See ttranscript page 1703
100  See transcript page 720.
101  Counsel for Netcare was at pains to prevent the Tribunal from viewing such practices as anti­
competitive behavior. See transcript page 910.
102  See transcript page 909. At this point Mr Unterhalter tried to argue that Medi­Clinic was obliged to  
assist Vaalpark with equipment and other requests because it was a dominant player in that region.  We  
do not deal with this issue and make no such finding.  
42

116.Ms Bester explained that at present some specialists had facilities at  
both   Vaalpark   and   Medivaal.     She   was   concerned   that   post­merger  
Medi­Clinic might make it unattractive for specialists to continue having  
facilities at both Vaalpark and Medivaal.  
117.This   concern   stems   from   the   basis   of   competition   in   the   private  
hospital   market. 103    Price   competition   between   hospitals   is   virtually  
non­existent or, short of a major and focussed enquiry, very difficult to  
assess.   Hospitals   tend   to   compete   on   non­price   factors   such   as  
location, quality of  care and the range  and  experience  of  specialists  
they can attract to their hospitals. 104     The intervenors argue that the  
more specialists a hospital can attract to its premises the more likely it  
is that  patients who consult  these specialists will  be admitted  to the  
hospital at which the specialists practice. 105  
118.However   the   picture   that   emerges   from   cross­examination   of   Ms  
Bester, and which is supported by Mr Alex van den Heever’s witness  
statement, shows that specialists in the Vaal Triangle often work at two  
if   not   three   hospitals. 106    Some   specialists   even   travel   between  
Vereeniging and Sasolburg. 107     No evidence was led by any of the  
parties that these specialists were prevented by any of the hospitals  
from working at competitive hospitals.
103  The basis of competition between hospitals has been a vexed subject in many a merger case, not  
excluding  these proceedings.
104  See CMS’ Heads of Argument page 4 par 3.4.6, Afrox Healthcare Ltd and Amalgamated Hospitals  
Ltd, Tribunal Case No: 53/LM/Sep01, and Business Venture Investments 790and Afrox Healthcare  
Ltd, Tribunal Case No 105/LM/Dec04.
105  Hospitals may use a number of mechanisms to attract specialists.  The nature of the incentives  
offered by hospitals is somewhat controversial. It has been alleged in various proceedings before this

Tribunal and elsewhere that some hospitals may be providing specialists with incentives which  
encourage them to contravene their professional ethics.  
106  See Bester’s witness statement page 1, also confirmed by Alex van den Heever’s witness  
statement.
107  See transcript page 1674.
43

119.Dr   Broomberg,   on   behalf   of   the   CMS,   seemed   to   think   that   this  
transaction may, in the long­term, impact on competition for specialists  
in   the   Vaal   Triangle.   However,   in   his   view   the   impact   would   be   the  
same   whether   Netcare   or   Medi­Clinic   acquired   the   Medivaal  
hospital.108      Medi­Clinic   is   already   the   largest   player   in   the   Vaal  
Triangle.   If   Medi­Clinic   wanted   to   discourage   any   specialists   from  
practising at the hospitals of any of its competitors in the Vaal Triangle,  
as suggested by Ms Bester, then it could have done so already.  There  
seems to be no reason, commercial or strategic, why it should do so  
post­merger when it already has the opportunity to do so.  
120.Mr   Swiegers,   on   behalf   of   Medi   Clinic,   confirmed   the   competitive  
dynamics regarding specialists in the Vaal Triangle and provided the  
Tribunal with assurances that Medi­Clinic would not interfere with the  
prevailing dynamics post merger but that it would abide by its normal  
policies of non­interference with specialists. 109 
Effect of transaction on prices
121.A   major   concern   raised   by   the   Commission   was   that   if   Medi­Clinic  
acquired   Medivaal   there   would   be   an   increase   in   prices   (tariffs)  
because Medi­clinic is in general 10% more expensive than Protector.  
Medi­Clinic agreed that there would indeed be an increase in tariffs at  
the   Protector   hospitals   because   Medi­Clinic   intended   to   apply   its  
national price strategy post merger. Medical aid members would be not  
affected since the rates that Medi­Clinic had agreed with medical aid  
schemes nationally would apply.  Only those patients who were not on  
medical aid, namely private patients, who constituted only 10% of the  
Medivaal patients, would be affected and only to the extent of between  
108  See transcript 1504.
109  See Dr Swiegers’ testimony in general, transcript page 909 ff.
44

NHRPL+19% and NHRPL+20%, not taking into account discounts. 110 
However, the parties disagreed on the size of the increase in prices.  
Netcare   attempted   to   show   that   the   increase   would   be   much   larger  
than that claimed by Medi­Clinic. According to the CMS, an increase in  
tariffs   would   occur   at   Medivaal   if   any   of   the   three   hospital   groups  
acquires the NPGH hospitals.
122.In   our   view   it   is   unnecessary   for   us   to   conclusively   decide   on   the  
actual size of the increase.  We accept that this transaction will lead to  
an increase in tariffs at the Protector hospitals.   For patients who are  
members of medical schemes this increase is unlikely to affect their  
contributions   since   Medi­Clinic’s   tariffs   have   been   agreed   nationally  
with their respective medical schemes.   
123.Even if the increase in tariffs did result in an increase in the premium  
for some medical aid patients, this increase would be minimal because  
Protector has less than 1% of the national private hospital market. 111 
For   private   patients,   who   constitute   only   approximately   10%   of   the  
patient population at Medivaal, an increase in tariffs of at least NHRPL  
+19%  will   take  place.   However   these  private  patients   have  between  
three or five hospitals to choose from in the Vaal Triangle. 112 
Barriers to Entry 
124.The Commission submitted that barriers to entry in the hospital market  
were high.  
125.The private hospital industry is highly regulated.  Prospective entrants  
110  See Dr Theron’s witness statement page 53.  NHRPL is the National Health Price List which is  
meant to reflect benchmark tariffs for specialists, based on costing studies.
111  See Commission’s recommendation, page 33.
112  Depending on whether Clinix and Cormed are included or excluded in the market.
45

are   obliged   obtain   licenses   in   order   to   commence   business. 113  The  
license is specific as to the number of beds that the operator may offer  
and as to the type of services that the licensee may offer.   114  These  
authorisations   are   also   associated   with   specific   premises.     Hence   a  
licence  cannot   be   transferred  from   one  entity   to  another  without   the  
premises   being   transferred   to   the   transferee.       At   present,   the  
Department of Health has placed a moratorium on the issuing of any  
new   licenses.     Until   this   moratorium   is   lifted   the   number   of   private  
hospitals in the country will not increase.  New entrants are only able to  
enter the market through acquisitions of existing hospitals.  The extent  
of regulation in this industry clearly places a high barrier to entry for  
new   players   and   contributes   to   high   levels   of   concentration   in   the  
industry.  Other factors which contribute to high barriers to entry are the  
costs involved in constructing hospitals and the operational expertise or  
specialised skills required to run hospitals successfully.
Countervailing power
126.The   CMS   alleges   that   the   increase   in   concentration   in   the   hospital  
market   over   the   years   has   removed   any   countervailing   power   from  
medical schemes. 
127.A second related argument put forward by both Netcare and the CMS  
is   that   that   regional   dominance   by   a   hospital   confers   on   it   national  
leverage   in   the   bargaining   process.     If   a   particular   hospital   enjoys  
regional dominance in a particular region, then such region becomes a  
“must have” for the medical aid scheme (since it is the largest or only  
hospital in that area) and confers on hospitals greater bargaining power  
at a national level.
113  The licensing of private hospitals, including the transfer or amendments of such licenses, is  
regulated by the Department of Health.

regulated by the Department of Health.
114  For example high care, ICU, general services.
46

128.[ Confidentiality claimed but not decided]
  
129.Over   the   last   few   years,   some   changes   have   occurred   in   the  
landscape   for   tariff   negotiations   between   medical   aid   schemes   and  
hospitals.     Prior   to   2003,   tariff   negotiations   were   done   by   medical  
schemes through the Board of Healthcare Funders (“the BHF”).   The  
hospitals on their part negotiated as national groups, either as the three  
large   players   or   through   the   National   Hospital   Network   (“the   NHN”).  
The   BHF   was   held   to   be   anti­competitive   by   the   Competition  
Commission and was subsequently disbanded in 2004.  
47

130.The   evidence   of   Dr   Broomberg   and   Mr   Mxenge   suggests   that   the  
negotiation landscape between medical schemes and hospitals has not  
changed in substance.  
131.Large   medical   schemes   and   administrators   negotiate   with   large  
hospital   groups   on   a   national   basis.   Smaller   medical   schemes  
negotiate in a group or mandate their administrators to negotiate tariffs.  
Independent   hospitals   such   as   Medivaal   negotiate   with   schemes  
through the NHN. 115
132.In our view medical schemes do enjoy some countervailing power.   At  
times the power balance favours the hospitals and at other times the  
medical   schemes.     For   instance,   when   Discovery   Health   and   Medi­
Clinic could not agree on a tariff increase for 2006, Discovery Health  
reported as follows in a letter: 116 
“In the disappointing event of us not being able to agree on either  
structure or price, we would assume that Medi­Clinic would choose  
to   increase   its   tariffs   by   an   amount   that   it   deems   appropriate.  
Discovery would increase its benefit tariffs by an amount that we  
deem appropriate.  Should these  two amounts differ, the member  
would   experience   a   shortfall   and   Discovery   would   reimburse   the  
benefit value to the member.” 
133.After   lengthy   negotiations   during   which   Medi­Clinic   in   return  
threatened  to  treat  Discovery  patients  as private patients   should  the  
parties not agree on an increase, Discovery concluded the process by  
informing Medi­Clinic:
115  See the evidence of Dr Broomberg, Mr Mxenge, Mr Swiegers and Mr Alex van den Heever.
116  See the confidential document at page 25 of Exhibit 21.
48

[confidential]
134.During   cross­examination   Dr   Broomberg,   acknowledged   that  
Discovery has some countervailing power: 117 
Adv Rogers : ….I would put it to you that the picture that is painted  
in the limited time we’ve had available of the negotiations in 2005  
and 2006, and the results achieved with the big hospital groups is  
indicative not of one of the private hospitals [being] dominant and  
being   price   setters,   but   rather   that   of   a   balanced   negotiation  
between powerful parties.
DR Broomberg : [confidential.]
 
135.   We are also not persuaded, as alleged by the CMS, that this transaction will  
lead to an erosion of the bargaining power of medical schemes at a national  
level.    The   market  share  accretion  as a  result  of  this  transaction   will  raise  
Medi­Clinic’s national market share by a mere 0.8%.  It is difficult to see how  
this would confer an increased bargaining power on Medi­Clinic in relation to  
tariff   negotiations   with   medical   schemes.     Indeed,   as   confirmed   by   Dr  
117  See transcript page 1455. [This was held in camera.] 
49

Broomberg,118  such   a   small   accretion   would   not   impact   on   existing  
power relations between medical schemes and the three major hospital  
groups.
 
136.Evidence led by Mr Mxenge on behalf of Polmed 119 tends to support a  
conclusion   that   smaller   schemes   are   not   completely   without  
countervailing   power.     Mr   Mxenge   explained   that   in   general   smaller  
schemes   do   not   negotiate   separately   but   negotiate   as   a   group   with  
hospitals.120   In addition, very few medical schemes negotiate tariffs  
directly  with  hospitals.    Administrators 121  are mandated  to negotiate  
with hospitals and service providers. The larger the administrator the  
greater its bargaining power. 
137.In   our   view   the   evidence   led   in   this   matter   does   not   support   the  
contention  that   the  countervailing  power  of   medical   schemes  will   be  
adversely   affected   by   this   transaction,   or   that   the   acquisition   of   the  
Medivaal hospital in the Vaal  Triangle will  confer on Medi­Clinic any  
negotiation advantages with medical schemes, small or large. For all  
practical purposes the power relations will remain unaffected.
138.As far as national leverage through regional dominance is concerned,  
Dr Broomberg seemed little concerned about this transaction having an  
impact of that kind on national negotiations.  Indeed, according to him  
the three larger hospital groups already enjoy regional dominance. 122  
Kathu
118  See below Dr Broomberg’s evidence in relation to countervailing power.
119  However, Polmed is actually the third largest scheme n the country, with approximately 145 000  
members nationwide.
120  See transcript page 1516.
121  In this case the managed care organization of Medscheme.
122  See transcript 1503.
50

139.Some   documentary   evidence   presented   to   the   Tribunal   during   the  
hearing indicates that one of Medi­Clinic’s considerations in acquiring  
NPGH   is   the   fact   that   both   Kathu   and   Medivaal   hospitals   are  
considered   as   important   referral   hospitals.   Medi­Clinic   is   the   only  
private hospital group active in the Northern Cape.  It has a hospital in  
Kimberly   and   Upington.   Netcare   argued   that   by   acquiring   Kathu   the  
already   high   barriers   to   entry   in   Kimberley   and   Upington   would   be  
raised even higher. 123   It argued that Medi­Clinic’s sole rationale for  
acquiring Kathu was to keep Netcare out of the province.
140.Mr   Swiegers,   in   his   affidavit,   referred   to   a   report   by   one   of   Medi­
Clinic’s hospital managers in Kimberley, Ms Resa van der Merwe, who  
urged   that   Medi­Clinic   should   consider   buying   Kathu   because   of   its  
strategic   importance.   He   pointed   out   that   Ms   Van   der   Merwe   was  
concerned that should Netcare acquire Kathu it would influence referral  
patterns   to   favour   Netcare’s   new   Bloemfontein   facilities,   resulting   in  
Medi­Clinic loosing patients: 124
“Both   Medi­Clinic   and   Netcare   have   hospitals   in   Bloemfontein.  
Netcare’s   hospital   in   Bloemfontein   was,   as   at   October   2004,  
relatively   new.   The   success   of   these   Bloemfontein   hospitals   is  
partly   dependent   on   specialist   referrals   from   country   areas,  
including   the   Northern   Cape   and   North­West.   Historically,   most  
referrals   from   Kathu   have   taken   place   in   favour   of   Medi­Clinic’s  
hospitals   in   Kimberley,   Upington   and   (to   a   lesser   extent)  
Bloemfontein.”
141.Dr Theron argued that although it was important for Medi­Clinic to buy  
Kathu   in   order   to   maintain   the   levels   of   referrals   to   its   hospitals   in

123  A rival would need to obtain regulatory approval for establishing a hospital and would need to  
demonstrate that there was a need for an additional hospital.  However its decision to enter would also  
be informed by whether there was sound business case for it. 
124  See Witness statement par 35.2, page 22.
51

Kimberley   and   Upington,   this   did   not   lead   to   a   competition   concern  
since   currently   specialists   already  refer   to   Kimberley   and   Upington.  
Post merger the current referral patterns would not change. Moreover,  
since only 2% of the total patients treated at the two large hospitals are  
from   Kathu   the   merger   will   not   exert   any   competitive   pressure   on  
Upington and Kimberley. 
142.The intervenors did not submit any documentary evidence nor were  
any witnesses led to explain how the referral patterns from Kathu to  
Medi­Clinic   post   merger   might   affect   Netcare’s   ability   to   enter   the  
Northern Cape successfully. 125    
143.Kathu   is   roughly   209   km   from   Kimberley,   roughly   195   km   from  
Upington, 184 km from Vryburg and some 400 km from Bloemfontein.  
It is not surprising that the referrals to Bloemfontein are to a “lesser  
extent”.126  If we are to assume that Kathu would remain very much as  
it is and that there was no commercial rationale to justify establishing a  
fully equipped hospital offering all types of specialised facilities 127 then  
it is very difficult to conclude, simply on the basis of legal argument,  
how this transaction will affect referral patterns. It seems unlikely that  
any doctor who is bound by his or her professional ethics would refer a  
patient to a hospital some 400km away rather than to a hospital 100km  
away unless of course the nearer hospital did not provide the required  
services.    
144.But   let   us   for   the   moment   consider   the   extent   of   the   harm   being  
complained about.     In the first instance only 2% of the total patients  
treated   at   the   three   Medi­Clinic   hospitals   are   from   Kathu   and   all   of  
them are currently being referred to Medi­Clinic’s hospitals. 128     On  
125  Both relied on arguments submitted by their legal representatives.
126  See Econex report page 20.

126  See Econex report page 20.
127  There was no evidence that either Medi­Clinic or Netcare intended to do this post acquisition.
128  Assuming at the time of this transaction there were no Netcare or Life hospitals in the Northern  
52

Netcare’s own argument, entry  barriers  are high  in that province.    If  
post­merger the referral patterns would remain the same, i.e. the Kathu  
patients would still be referred to the Medi­Clinic hospitals, the barriers  
would remain the same and not be increased, since no change can be  
expected in the referral pattern.  
145.Even if we were to find in favour of Netcare and assume that somehow  
entry barriers were increased in the Northern Cape by this transaction,  
the revenue   from Kathu referrals that a hospital 129 could lose to Medi­
Clinic is only in the region of 2% of patients spread over two or three  
cities.  
Preferred provider agreements
146.The CMS argued that regional dominance of a hospital would affect  
the   ability   of   medical   schemes   to   conclude   preferred   provider  
agreements.     Medical   schemes   conclude   preferred   provider  
arrangements with health providers by which a member is obliged to  
utilise   the   preferred   provider.     If   a   member   utilises   a   non­preferred  
provider then he or she would become liable for a co­payment. This is  
one of the managed care mechanisms utilised by medical schemes to  
manage costs of healthcare and risk to the fund.    At the time that the  
transaction was concluded Medi­Clinic did not have preferred provider  
agreements with any medical schemes.
147.In the Vaal Triangle, Discovery used to have Medi­Clinic as a preferred  
provider on its Key Care option.   Medivaal, an independent hospital,  
was never part of this network.  At the time of the hearing, Medi­Clinic  
was   no   longer   on   the   network.     Currently   Discovery   has   preferred  
Cape.
129  Whether independent or owned by one of the two other large groups.
53

provider arrangements with Midvaal, Netcare and Clinix Sebokeng. 130 
148.Evidence led by Dr Broomberg in relation to the Vaal Triangle did not  
support the concern that this acquisition by Medi­Clinic would lead to  
any more difficulty for a medical scheme to conclude preferred provider  
agreements.131  
149.In relation to Kathu, it would make no difference to medical schemes  
whether   Kathu   was   owned   by   one   of   the   three   large   groups   or   an  
independent.  There is only one hospital in Kathu.
The level and trends of concentration
150.According to the CMS, consolidation of ownership of private hospitals  
has   increased   since   1996   when   the   three   largest   private   hospital  
groups only controlled 50.9% of acute hospital beds, compared to the  
current 82%. This increase in concentration has led to an increase in  
market   power   in   relation   to   medical   schemes   and   independent  
hospitals,   which   in   turn   has   removed   any   countervailing   power   from  
medical   schemes. 132    Furthermore   this   increase   in   concentration  
coincides with a trend break in hospital costs which is detectable from  
1998 onwards and which can be attributed to a systematic change in  
the market power of hospitals in relation to medical schemes from that  
period onward. 133 The CMS submitted that hospital costs (as a result  
of increased utilisation) have increased disproportionately to CPI and  
130  See transcript page 1408. [Held in camera]
131  In fact Dr Broomberg had very little to say about the impact of this transaction on competition in  
the Vaal Triangle.  Understandably his main concern was the increased national costs of hospital  
services to medical aid schemes.
132  See our discussion on countervailing power.
133  See figure 8.1 on page 29 of van den Heever’s supplementary witness statement dated October  
2006.
54

all other related health costs. 134
151.Hospital   costs   are   a   function   of   price   and   utilisation.     A   significant  
component   of   the   change   in   costs   results   from   utilisation   and   not  
price.135   Mr Alex van den Heever, testifying on behalf of the CMS,  
submitted that over the period of six years, from 1998 to 2004, hospital  
costs had increased by 67.9%.  Over this same period a large number  
of independent hospitals had been acquired by the three large groups,  
resulting in a highly concentrated market.
152.In   support   of   its   arguments,   the   CMS   relied   to   a   large   extent   on  
statistics   obtained   from   the   Discovery   Health   medical   scheme.     The  
Discovery Report:  Cost,  Quality and Value at Hospitals: 2000 – 2005,  
Report   to   the   Trustees   of   Discovery   Health   Medical   Scheme   and  
Discovery   In­House   Schemes   13   December   2005   was   a   study  
conducted by the Discovery Health medical sheme over a period of 5  
years into hospital utilisation and costs.  136  
153.The merging parties did not agree with the CMS and asserted that the  
increase   in   costs   attributable   to     utilisation   could   be   due   to   various  
factors such as an increase in demand for hospital care by an ageing  
population, increased intensity of care due to acuity of cases and/or  
increase   in   co­morbidity,   increased   burden   of   disease,   the   HIV  
pandemic,   improvements   in   technology,   less   invasive   procedures,  
better   outcomes,   and   lower   risk   as   specialists   are   more   willing   to  
perform   procedures   on   older   patients,   and   not   necessarily   to   an  
increase in market power.  Increased utilisation could also be attributed  
to the treatment prescribed by health providers, over which Medi­Clinic  
134  For instance such as surgicals,ethicals or doctors fees.
135  See Mr Alex van den Heever;’s witness statement dated 31 August par 13.

135  See Mr Alex van den Heever;’s witness statement dated 31 August par 13.
136  We refer to it as the Discovery Report.   
55

claims it has no influence. 137   Health service providers are all subject  
to professional ethical rules and their discretion to prescribe particular  
treatment   for   their   patients   has   to   be   exercised   in   accordance   with  
those rules. It is doctors who refer patients to hospitals and patients are  
treated in accordance with the doctors’ instructions, whether they relate  
to prescribed procedures, medication, or duration of stay.   
154.However,   patient   and   heath   provider   behaviour   are   not   insignificant  
contributors to utilisation.   From a medical scheme perspective, both  
patient   behaviour   and   health   provider   behaviour,   assuming   price  
remains constant, if not managed well, represent enormous risk to the  
funds.  Because members of medical schemes have improved access  
to healthcare 138 through a common funding pool, schemes run the risk  
of members and service providers over­utilising the benefits provided  
by   the   schemes.   Apart   from   emergency   admissions,   occupancy   in  
hospitals and utilisation are a function of referrals by specialists and  
doctors along a vertical supply chain. Doctor networks also provide a  
source of referrals to hospitals. 139
155.Medical   schemes   strive   to   manage   their   risk   by   managing   over­
utilisation on the part of both patients and service providers.   This is  
evident   by   the   number   of   managed   care   mechanisms   that   medical  
schemes have put in place to ensure that patients do not engage in  
over­utilisation   and   to   lower   risk   to   the   fund. 140      Mechanisms   to  
ensure that service providers  do not  over­service patients have also  
137  The conduct of health providers is the subject of much debate.  The competition for specialists is  
also a recurring topic in the health sector.  See also for instance Prime Cure and Medicross.
138  Funding is provided by the scheme in return for a monthly premium.
139  See Prime Cure and Medicross

139  See Prime Cure and Medicross
140  Most medical aids have savings accounts, require pre­authorisation for hospital admission, and  
place limits on various costly benefits.  Some even require motivations from doctors for certain blood  
tests to be conducted. Managed care organisations have sprung up everywhere to assist members  
manage their benefits better so as to reduce risk to the fund.  
56

been put in place by many medical schemes. 141   In their experience,  
specialists’ costs and hospital costs are the most difficult to manage  
and constitute a large percentage of the cost of heathcare. 142 
156.Indeed Mr Van den Heever himself confirmed that specialists are the  
key drivers of hospital  utilisation and  cost. 143     He argued that  it is  
generally   assumed   that   they   generate   around   70%   to   80%   of   the  
hospital   costs   incurred.     In   his   view   hospitals   and   specialists   are  
involved   in   co­ordinated   or   collusive   relationships   which   account   for  
such high utilisation rates.  He submits that hospitals go to great pains  
to   obtain   the   favours   of   specialists.     These   favours   are   obtained  
through  the  granting of  discounted  rent  for  practices,  loans,  practice  
support and shares in hospitals.  Kickback arrangements also exist but  
are not practiced by all hospital groups. Moreover, it seems that the  
three   hospital   groups   have   different   policies   in   relation   to  
specialists.144  It   is   alleged   that   some   of   these   groups   may   provide  
greater incentives for specialists than the others in order to encourage  
referrals to their hospitals. 145 
157.The Discovery Report was obtained by the CMS under subpoena. It  
contains a detailed technical assessment of costs and service quality at  
the three main hospital groups, identified as hospital A, B and C. The  
analysis  was  based  on  a  100% sample  over  a  six  year  period from  
2000 to 2005.   According to Mr Van den Heever, the data collated in  
the Discovery Report supports the proposition that increased hospital  
141  Various options such as capitated medical options aid and preferred provider agreements have  
been put in place.
142  See evidence of Dr Broomberg.  See also evidence of Mr van den Heever of the CMS, page 17 of  
his witness statement,  in which he explains that the Southern JV which was an attempt to form a

preferred provider network across the vertical supply chain failed because specialists were reluctant to  
agree to reduced  rates.
143  See paragraph 22 of Mr Van Den Heever’s witness statement of 31 August 2006.
144  See in this regard Mr Swiegers’ testimony in relation to Medi Clinic’s policies in relation to  
specialists.  
145  See Mr Van den Heever’s witness statement supra at pages 16­26.
57

consolidation, coupled with the establishment of financial relationships  
between hospitals and specialists explains the trend break in hospital  
costs   from   1998   to   the   present. 146    He   also   submitted   that   some  
hospital practices may also contribute to costs, although referrals by  
specialists still account for the majority of those costs.  Accordingly he  
argued   that   the   transaction   should   be   prohibited   because   any  
acquisition   (no   matter   how   small,   and   irrespective   of   the  
circumstances)   by   any   of   the   three   groups   will   lead   to   increased  
utilisation costs.
158.According to the CMS, the trends reflected in the Discovery Report  
suggest that all of the three large groups are expensive.  On the CMS’s  
own version the competition outcome at a national level would be same  
if any of the three groups acquired the Protector hospitals.  
159.At   a   regional   level,   Mr   Van   den   Heever   computed   four   different  
scenarios,   based   on   data   obtained   from   Discovery.     While   his  
calculations showed that the worst competition outcome at a regional  
level   would   occur   if   Medi­Clinic   acquired   the   Medivaal   hospital,   the  
CMS argued that the “now scenario” in the Vaal Triangle, namely the  
Medivaal hospital remain in independent hands, was the best outcome  
for competition. 147   
160.Dr Broomberg was of the view that this transaction would not have  
any substantial effect on the competitive landscape for specialists at a  
national or regional level.  In any event, according to him, the outcome  
would   be   the   same   if   any   of   the   three   large   groups   acquired   the  
Protector   hospitals   despite   the   fact   that   the   Discovery   Report   had  
ranked Netcare as the most expensive of the three groups.
146  Paragraph 52.4 of witness statement.
147  See Van den Heever’s witness statement supra at paragraph 59.
58

161.A fair amount of econometric evidence was led by both the CMS and  
the   merging   parties   to   demonstrate   the   effect   of   age,   co­morbidities  
and pandemics such as HIV on utilisation costs. We find it unnecessary  
to   canvas   the   various   computations   and   differences   between   the  
parties for the reasons outlined below.  In any event, it seems that the  
factors influencing increased utilisation of hospitals and the increases  
in hospital costs experienced by medical schemes is clearly a topic of  
such complexity and intricacy that a quantitative analysis on its own,  
without   an   extensive   and   focussed   enquiry,   going   far   beyond   the  
confines   of   this   merger   hearing,   might   not   provide   complete   and  
conclusive answers.  
162.Given that the contribution to hospital costs by specialists is assumed  
to be in the region of 70­80%, and in order to move from the general to  
the specific ­ in other words from the industry trend to the specifics of  
this   transaction   ­   we   would   have   expected   to   hear   more   about   the  
nature of the relationship between Medi­Clinic and specialists, and the  
nature of any incentives offered by Medi­Clinic to specialists at both  
national   and   regional   level.   148  This   lack   of   evidence   is   hardly  
surprising and may be symptomatic of the nature of the problem. In an  
industry,   structured   as   it   is   with   opaque   vertical   relationships   and   a  
guaranteed   source   of   funding   from   medical   schemes,   in   which   the  
quality of care rendered to a consumer is often a question of life and  
death, it would be extremely difficult for anybody to distinguish, except  
in the most  obvious  cases,  between a provider who over­services a  
patient and a provider who errs on the side of under­servicing. 149  
163.It appears that the question of over­utilisation will continue to persist

163.It appears that the question of over­utilisation will continue to persist  
148  The quantitative analysis done by Mr Van der Heerden at a regional level does not provide us with  
sufficient insights into the extent of influence Medi­Clinic has over specialists.
149This difficulty may be the reason why legislative interventions, rather than anti­trust scrutiny, could  
be the more appropriate remedy to the possible negative consequences of the vertical relationship  
between hospitals and specialists. 
59

irrespective of the levels of concentration in the hospital market.  Over­
utilisation could be due to a specialist who errs on the side of caution.  
Arguably, even an independently owned hospital in which specialists  
have vested interests could over­service patients and could contribute  
to   an   increase   in   costs.     As   long   as   specialists   and   hospitals   are  
permitted   to   exist   in   an   overlapping   vertical   relationship   as   they  
currently do, increased costs as a function of utilisation will continue to  
be a concern for the CMS, medical schemes and consumers.  
164.Mr Van den Heever’s impressive review of the many entities, including  
the   Department   of   Health,   which   have   raised   concerns   about   the  
vertical   relationship   between   specialists   and   hospitals   does   indeed  
raise the question whether a review of the structure of the industry as a  
whole   is   not   required   with   a   view   to   seeking   appropriate   legislative  
interventions.150 Mr Van den Heever himself identified the problem as  
an   “ethical   one   rather   then   a   competition   one”   when   he   stated   that  
specialists should operate independently of hospitals irrespective of the  
financial arrangements that may be in place between them. 151 
 
165.Even if we were to agree with the CMS that this merger was likely to  
lead to an increase in costs due to utilisation, we would have to take  
heed of Dr Broomberg’s view that the anti­competitive outcome of the  
merger would be relatively low. Moreover, on both the CMS’ and Dr  
Broomberg’s   version   the   competition   outcome   would   be   the   same   if  
any of the three large hospital groups acquired the Protector hospitals. 
166.We   turn   to   consider   the   remedy   that   the   CMS   seeks   from   this  
Tribunal. 
150  Some interventions of this nature, namely legislation to facilitate the conclusion of preferred

provider agreement between medical schemes and hospitals are already in the pipeline, 
151  See witness statement paragraph 22.  This again supports the notion that anti­trust remedies may  
not be appropriate in addressing this problem.
60

167.Counsel for the CMS argued that the liquidator should not have sold  
the   Protectors   hospital   to   any   of   the   three   large   hospital   groups.  
Instead, he should have embarked on a process by which the assets  
should  have  been  sold  only  to  an  independent   hospital   group.    The  
CMS argued that the IDC ought to have used this as an opportunity to  
espouse the formation of another independent hospital group.     While  
the sentiments expressed by the CMS are laudable, this may be easier  
said than done.  
168.The hospital services industry is a highly complex one and it requires  
expertise to manage hospitals profitably.   One only needs to consider  
the   difficulties   experienced   by   hospitals   in   the   public   sector   to  
understand   the   extent   of   the   skills   required   to   manage   them  
successfully.   The   history   of   existing   independent   private   hospitals   is  
also replete with such difficulties, the most recent example being that of  
the   Wits   University   Donald   Gordon   Medical   Centre   (Pty)   Ltd   (“the  
Donald Gordon Hospital”). The Donald Gordon Hospital was ultimately  
acquired by Medi­Clinic Investments (Pty) Ltd. 152    In that transaction  
the hospital required a large capital injection to upgrade certain core  
facilities and needed experienced operational partners or personnel to  
return the hospital to profitability.  The Board of the hospital attempted  
to   find   an   independent   buyer   without   success.     The   only   interested  
party which had the requisite experience and financial resources was  
Medi­Clinic. This was confirmed by Dr Broomberg in his testimony. 153  
169.In this transaction, the IDC had also, without success, attempted to  
find a rescue plan for Protector with Clinix, a group independent of the  
big three players. 
170.The   trend   towards   increasing   concentration   in   the   private   hospital  
152  The Tribunal approved the transaction on 12 October 2005.

152  The Tribunal approved the transaction on 12 October 2005.
153  See transcript page 1458, held in camera.
61

market and the increasing cost of healthcare in this country certainly  
raise concerns. 154   But the remedy that the CMS seeks, namely that  
we prohibit any of the three groups to acquire any further hospitals, is  
one   more   akin   to   an   industry   sector   remedy   and   one   which   this  
Tribunal is not empowered to grant. 
171.This   Tribunal,   as   an   adjudicative   body,   is   required   to   assess   each  
case   on   its   own   merits   in   accordance   with   the   requirements   of   the  
Competition Act.  In terms of the Competition Act we are empowered to  
prohibit   or   conditionally   approve   a   transaction   only   if   it   substantially  
lessens competition in a relevant market or does not fulfil any of the  
other   requirements   of   section   12A.   We   cannot   impose   blanket  
prohibitions on specific enterprises in a particular sector.   Each case  
has to be assessed on its own merits and circumstances.  
172.In this particular matter, the Tribunal is required to consider, inter alia,  
the   fact   that   New   Protector   is   a   failing   firm   and   that   the   financial  
circumstances of the Protector hospitals are indeed dire.   
Conclusion 
173.This Tribunal has stated in the  Iscor case that depending on the anti­
competitive effect of the transaction, the less stringent US test of the  
failing firm doctrine would apply if a party fell short of the “market share  
would have gone to us” requirement.
174.In this transaction we have found that New Protector was a failing firm  
as contemplated in the Act and as contemplated in the US test, and  
that the merging parties have discharged the onus as contemplated in  
the  Iscor case.    
154  And possibly warrants an industry­wide inquiry.
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175.In   relation   to   Netcare’s   concerns   regarding   possible   closure   of  
specialised units at Medivaal, referrals of patients from Midvaal, refusal  
by Medi­Clinic to co­operate at a professional level and competition for  
specialists   in   the   Vaal   Triangle   post­merger,   we   found   no   credible  
incentive for Medi­Clinic to conduct itself in an anti­competitive manner  
post   merger,   and   only   unconvincing   evidence   to   suggest   that   such  
concerns have any justification. 
176.Moreover we also note the assurances provided to this Tribunal by Mr  
Swiegers on behalf of Medi­Clinic that post merger, Medi­Clinic will not  
close down or diminish the specialised facilities at Medivaal Hospital  
and   will   not   seek   to   change   the   competitive   dynamics   in   relation   to  
specialists in the Vaal Triangle. Mr Sweigers also undertook that Medi­
Clinic will continue to demonstrate professional comity with the other  
hospitals   in   allowing   them   access   in   moments   of   need   to   surgical  
equipment and staff, as it has done pre­merger. 
177.We  found   that  barriers   to  entry   in  the  private   hospital   market   were  
high.     However,   we   found   that   medical   schemes   do   enjoy   some  
countervailing power. In relation to the national leverage argument and  
preferred   provider   agreements,   we   found   no   credible   evidence   to  
support   the   theory   that   this   particular   acquisition   will   lead   to   any  
significant   enhancement   of   Medi­Clinic’s   already   strong   national  
bargaining position or render it more difficult for medical schemes to  
conclude preferred provider agreements in the Vaal Triangle.  
178.We agree with the CMS that the private hospital market is a highly  
concentrated   one,   and   that   regulatory   barriers   have   contributed   to  
some extent to these levels of concentration. However while we share

some extent to these levels of concentration. However while we share  
the concern expressed by the CMS that hospital costs in this country  
are escalating at an alarming rate, we are unable to conclude, given  
the   absence   of   evidence   by   the   intervenors   about   possible   anti­
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competitive   features   of   the   relationship   between   Medi­Clinic   and  
specialists, that this transaction will contribute to an increase in costs  
occasioned by an increase in utilisation of hospital services.  
179.Even   if   we   are   to   assume   that   this   transaction   would   lead   to   an  
increase  in utilisation and therefore  costs,  Dr Broomberg was of the  
view that the consequential anti­competitive harm would be relatively  
low.     The remedy that the CMS seeks, namely to prohibit the three  
large   hospital   groups   from   acquiring   any   further   hospitals   and   to  
require the IDC to sell the hospitals to an independent group, cannot  
be granted by this Tribunal.  
180.We accept that this transaction will result in an increase in tariffs at  
Medivaal.     However   the   impact   of   that   increase   to   medical   aid  
members and private patients is low relative to the benefits of having  
the Medivaal hospital continue in business and moreover receive the  
refurbishment and upgrading to which Medi­Clinic has committed itself  
in its testimony to the Tribunal. 
181.Accordingly we conclude that the competition loss occasioned by this  
transaction will be low and is outweighed by the failing firm factor.
182.There are no public interest grounds to consider.   Save for the issue  
discussed below, there is also no need for us to deal with any residual  
arguments   put   forward   by   the   intervenors   such   as   Medi­Clinic’s  
rationale for the  transaction. Accordingly the transaction  is  approved  
unconditionally.
183.During   the   course   of   the   proceedings,   and   after   Dr   Broomberg’s  
evidence was led in which he explained the findings of the Discovery  
Report to the Tribunal, the legal representatives of Netcare requested  
the Tribunal to stand the matter down.  The request itself was not made  
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in   open   court   but   was   made   by   Mr   Wilson   in   camera.     Mr   Wilson  
submitted   that  he  wished  to   stand   the   matter   down  in  order   to  take  
instructions from his client whether or not to bring an application for  
recusal of one of the Tribunal members. The reason for the application  
appeared to be some alleged conflict of interest and bias on the part of  
one of panel members.  These are serious accusations indeed.
184.After a brief adjournment this Tribunal refused the application, on the  
grounds   that   sufficient   time   was   available   to   Netcare   and   its   legal  
representatives   to   prepare   and   bring   a   recusal   application,   if   they  
wished  to  proceed with it,  on the  following day. No such  application  
was brought and nothing about Mr Wilson’s allegations was said on the  
following day (the last of the hearing) by the legal representative then  
appearing for Netcare.  
185.On the last day of the hearing, after all the witnesses had testified and  
before   argument   had   commenced,   Mr   Unterhalter   sought   a  
postponement   of   the   matter   in   order   to   submit   expert   economic  
evidence   in   rebuttal   of   the   Discovery   Report.     That   application   was  
denied.  The Tribunal undertook to provide reasons for that decision in  
this document.  
186.These   are   those   reasons.   The   application   was   denied   because  
Netcare’s legal representatives, led by Mr Unterhalter, had had, in the  
course of the proceedings, ample opportunity to cross­examine both Dr  
Broomberg and Mr Van den Heever on the contents of the Discovery  
Report.     Furthermore   they   were   aware,   at   an   early   stage   of   the  
proceedings, that Mr Van den Heever intended to rely on the contents  
of the Discovery Report to make the CMS’ case.  In addition, Netcare  
itself   was   aware   of   the   contents   of   the   Discovery   Report   because

itself   was   aware   of   the   contents   of   the   Discovery   Report   because  
Discovery Health had already relied upon it in its tariff negotiations with  
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Netcare.155   If,  in his or his client’s view, there was a need for this  
Tribunal   to   hear   any   further   economic   evidence   in   rebuttal   of   that  
report, Mr Unterhalter could have filed his rebuttal witness statements  
at   the   time   when   witness   statements   were   exchanged   between   the  
parties. At the very latest Necare and its legal representatives could  
have   sought   the   Tribunal’s   leave   to   submit   such   evidence   after   Dr  
Broomberg had testified. 
187.Further,   we   considered   that   the   postponement   sought   would   have  
resulted   in   delays   to   the   outcome   of   the   hearing   which   would   have  
disrupted   the   orderly   truth­seeking   process   and   caused   serious  
prejudice to the merging parties. If we had allowed Mr Unterhalter to  
file   his   recently   acquired   expert   evidence,   we   would   have   been  
required   to   grant   the   merging   parties   and   the   CMS   with   a   proper  
opportunity to consider and respond to this evidence.   We would also  
have had to recall key witnesses.   The uncertainty surrounding New  
Protector as a firm in liquidation would have continued and would have  
resulted in further loss of skilled employees and declining admissions  
at its hospitals.     Hence the prejudice caused to the merging parties  
and the Protector hospitals as a result of us granting the application  
outweighed   any   prejudice   caused   to   Netcare   by   us   refusing   the  
application.  
188.The behaviour of Netcare’s legal representatives, in ventilating serious  
accusations   against   a   Tribunal   member   in   a   closed   session   and  
threatening to bring an application for recusal but  failing  to do so, and  
thereafter   seeking   a   last­minute   disruptive   postponement   to   lead  
evidence which could have been led much earlier, is concerning.   The  
behaviour amounts, to put it mildly, to the tactics of a spoiler.

behaviour amounts, to put it mildly, to the tactics of a spoiler.  
189.This   Tribunal,   in   order   to   fulfil   its   truth­seeking   functions   and   to  
155  See Dr Broomberg’s evidence.
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enhance the level of information and transparency in its proceedings,  
has   generally   taken   a   generous   attitude   towards   interveners   in   its  
proceedings.  It is disappointing, to say the least, when intervenors who  
have ostensibly come to the proceedings in order to provide assistance  
to the Tribunal, in its truth­seeking task resort instead to tactics of delay  
and aggression. 
________________
Y Carrim
Presiding Member
Concurring: M Mokuena and L Reyburn
Tribunal Researcher:  R Badenhorst
For the merging parties: Adv O Rogers SC and Adv A Cockrell instructed  
by P Krusche (Jan S De Villiers Attorneys)
For the intervenors: Adv   D   I   Berger   instructed   by   M   Ntlha   (Cliffe  
Dekker) on behalf of the CMS
Adv DN Unterhalter SC, Adv J Wilson and Adv AG  
Gotz   instructed   by   A   Norton   (Webber   Wentzel  
Bowens)   on   behalf   of   Netcare   and   Supreme  
Health  
For the Commission:  A Kalla and M van Hooven  
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