Summary of Judgment

1. Introduction

These proceedings concerned an intermediate/large merger (as considered by the Competition Tribunal) in which the Competition Tribunal of South Africa was required to determine whether a proposed acquisition in the listed property sector should be approved and, if so, whether it should be approved subject to conditions.

The acquiring firm was SA Corporate Real Estate Fund (“SA Corporate”) and the target firm was SA Retail Properties Ltd (“SA Retail”). Both entities were JSE-listed property investment vehicles with portfolios that included retail property, and (in SA Corporate’s case) predominantly industrial property.

From a procedural perspective, the Tribunal heard the matter on 18 April 2007, issued an order on 19 April 2007, and later furnished reasons on 14 May 2007. The Tribunal’s order was one of conditional approval.

The general subject-matter of the dispute was whether the transaction would substantially prevent or lessen competition, particularly in relation to retail property letting markets in certain geographic areas in the Western Cape, and whether any identified competition concern could be addressed through an appropriate divestiture condition.

2. Material Facts

The transaction was structured such that SA Corporate would acquire all the linked units in SA Retail in terms of section 440K of the Companies Act. Upon implementation, SA Corporate would control SA Retail’s property portfolio, which included retail properties situated across several provinces (including Gauteng, KwaZulu-Natal, Mpumalanga, Northern Cape, and the Western Cape).

The Tribunal accepted that both parties were listed on the JSE and that neither was controlled by a single shareholder. SA Corporate controlled various companies, whereas SA Retail did not control any firm. The Tribunal recorded the principal shareholders of each merging party as part of the factual matrix relevant to the nature of control and ownership in the firms concerned.

A further material factual feature was the complementary nature of the parties’ portfolios. SA Corporate’s portfolio was described as being mostly industrial properties, with a significant concentration in KwaZulu-Natal, while SA Retail’s portfolio was described as being mainly retail properties located in major metropolitan areas. Notwithstanding this complementarity, there was an overlap in retail properties, which became the focus of the competitive assessment.

As to geography, while both firms owned retail properties in Gauteng, Mpumalanga, KwaZulu-Natal, and the Western Cape, the Tribunal identified that only the overlap in the Western Cape raised competition concerns requiring focused consideration. In the Western Cape, both firms owned retail properties in Brackenfell, Stellenbosch, and Tokai.

Certain facts were treated as effectively dispositive of competition concerns in specific localities. In Tokai, the merging parties already jointly owned the relevant retail property, and the Tribunal accepted that the transaction would therefore yield no change in concentration post-merger in that geographic market. In Brackenfell, the merged entity’s market share was recorded as 7%, which the Tribunal regarded as insufficient to support a conclusion of a substantial lessening of competition on those facts.

The principal contested/concern-raising factual configuration related to Stellenbosch, where SA Retail’s market share was recorded as approximately 45%, SA Corporate’s as approximately 16%, and the merged entity’s post-merger share as 60%. The Tribunal noted that such a high market share would ordinarily warrant further enquiry into competitive effects.

However, a further material fact emerged during the hearing: the parties indicated that SA Retail had reached an agreement to sell its Stellenbosch property, the Eikestad Mall, to a third party. The Tribunal accepted that this divestiture would significantly reduce the merged entity’s presence in the Stellenbosch area (with the post-merger gross rentable area decreasing from 38 832 m² to 10 401 m²), and that SA Corporate’s post-transaction market share would remain at 16% if the Eikestad Mall were sold.

At the time of the hearing, the sale of Eikestad Mall had not yet been concluded. The merging parties therefore agreed that, if the sale were ultimately to fail for any reason, the sale of that property should be imposed as a condition of approval of the merger.

The Tribunal also recorded that there were no significant public interest issues arising on the evidence and submissions before it.

3. Legal Issues

The central legal question was whether the proposed acquisition would be likely to substantially prevent or lessen competition in any relevant market, with the principal focus falling on retail property markets in particular Western Cape localities and, most importantly, Stellenbosch.

The dispute primarily involved the application of competition-law standards to an assessed market structure, rather than the resolution of material factual disputes. The key evaluative exercise concerned whether the measured post-merger concentration (as reflected particularly by market shares in Stellenbosch) indicated a competition concern, and whether the concern was adequately addressed through a divestiture (including whether that divestiture should be made enforceable as a condition of approval).

A further issue was whether there were any public interest considerations of sufficient weight to affect the outcome. On the Tribunal’s account, this did not require substantial adjudication because the Tribunal found no significant public interest issues on the record.

4. Court’s Reasoning

The Tribunal’s reasoning proceeded from identifying the area of competitive overlap. Although both firms held retail properties in multiple provinces, the Tribunal treated the Western Cape as the relevant locus of concern, and within it evaluated the competitive position in Tokai, Brackenfell, and Stellenbosch separately.

In Tokai, the Tribunal reasoned that because the parties already jointly owned the relevant retail property, the merger would not alter the structure of ownership or concentration in that geographic market. On that basis, the Tribunal regarded Tokai as not presenting a competition problem flowing from the transaction.

In Brackenfell, the Tribunal relied on the recorded 7% post-merger market share to conclude that the transaction would not substantially prevent or lessen competition there. The Tribunal’s reasoning indicates a structural approach: where the combined share remained low, the merger did not raise concerns requiring remedial measures.

In Stellenbosch, the Tribunal acknowledged that the post-merger market share of 60% would typically justify a deeper enquiry into competitive effects. The Tribunal nevertheless considered that this enquiry was unnecessary in light of the proposed divestiture of SA Retail’s Eikestad Mall property. The Tribunal reasoned that, if the Eikestad Mall were sold to a third party, the merged entity’s footprint in Stellenbosch would materially diminish (as reflected by the substantial reduction in gross rentable area) and SA Corporate’s market share would effectively remain at its pre-merger level.

Because the sale had not yet been concluded, the Tribunal adopted a conditional approach grounded in the parties’ stated agreement. It accepted that making the divestiture a formal condition of approval would address the risk that the proposed sale might fail, thereby preventing a scenario in which the merger would proceed while the high concentration in Stellenbosch remained unmitigated. This approach allowed the Tribunal to avoid undertaking a more extensive competitive assessment of Stellenbosch absent divestiture, because the approval would be tethered to an outcome that removed the relevant structural concern.

Finally, the Tribunal recorded that it found no significant public interest issues, and it treated this as supporting unconditionality on that axis, while still requiring a competition-focused structural remedy in relation to Stellenbosch.

5. Outcome and Relief

The Tribunal conditionally approved the merger between SA Corporate and SA Retail.

The approval was granted on condition that the merging parties divest all right, title and interest in the business comprising the letting enterprise and the property described as Erven 4282, 7365 and 6083 Stellenbosch, being the property on which the Eikestad Mall is situated.

No costs order is recorded in the reasons provided.

Cases Cited

No cases were cited in the reasons provided.

Legislation Cited

Companies Act 61 of 1973, section 440K.

Rules of Court Cited

No rules of court were cited in the reasons provided.

Held

The Competition Tribunal held that, subject to an enforceable divestiture remedy relating to the Eikestad Mall property in Stellenbosch, the proposed transaction would not substantially prevent or lessen competition in the relevant markets considered.

The Tribunal further held that there were no significant public interest issues affecting the approval determination on the record before it, and that conditional approval was appropriate to ensure that the Stellenbosch concentration concern would be removed through divestiture.

LEGAL PRINCIPLES

The Tribunal applied the principle that merger approval depends on whether a transaction is likely to substantially prevent or lessen competition in any relevant market, assessed with reference to the structure of competition in identified product and geographic markets.

The reasons reflect that high post-merger market shares in a particular geographic area would ordinarily justify further competitive enquiry, but that such enquiry may be rendered unnecessary where a structural remedy (here, divestiture) is accepted as sufficient to neutralise the identified concern.

The decision also illustrates the principle that the Tribunal may grant conditional approval where a competition concern is confined to a specific asset or locality, and where divestiture of that asset is capable of ensuring that the merger does not result in an impermissible increase in concentration.

Finally, the reasons reflect that, where the Tribunal finds no significant public interest issues, the outcome turns primarily on the competition assessment and any conditions necessary to address competition risks.