COMPETITION TRIBUNAL REPUBLIC OF SOUTH AFRICA
Case no.: 130/LM/NOV07
131/LM/NOV 07
In the large merger between:
Mergence Africa Property Investment Trust
Dipula Property Investment Trust Primary Acquiring Firms
and
38 Property Letting Enterprises held by
ApexHi Properties Limited
66 Property Letting Enterprises held by
ApexHi Properties Limited Primary Target Firms
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal
Member), U Bhoola (Tribunal Member)
Heard on : 6 February 2008
Order issued on : 15 February 2008
Reasons issued on : 19 February 2008
________________________________________________________________
Reasons [Non Confidential]
________________________________________________________________
Introduction
1. On February 2008 the Competition Tribunal simultaneously dealt with and
approved two mergers; the first one between Mergence Africa Property
Investment Trust and 38 Property letting enterprises held by ApexHi
Properties Limited (“the Mergence transaction”), and the second one
between Dipula Property Investment Trust and 66 Property Letting
Enterprises (“the Dipula transaction”) held by ApexHi Properties Limited .
The reasons for approving both mergers are set out below. 1
1 As the mergers raise similar issues we have dealt with them in the same decision
The parties and the transaction
2. In the “Mergence transaction, Mergence Africa Property Investment Trust
(“MAP Trust”) which is controlled by Mergence Africa Property Fund (Pty)
Ltd (“MAPF”) 2, is acquiring 38 Property Letting Enterprises which
comprise of 24 retail properties, 9 offices and 5 Industrial properties
(“Target Property Portfolio”) which are held by ApexHi Properties Limited
(“ApexHi”), a variable rate property loan stock company listed on the JSE
in the real estate sector. Redefine, a listed property loan stock company
with various subsidiaries among which is Outward, and which through
these subsidiaries, participates in the rental of commercial properties in
the retail, office and industrial space sectors of the property market in
South Africa, is a major shareholder of ApexHi.
3. In the Dipula transaction, Dipula trust, which is ultimately controlled by
Dijalo Property Service (Pty) Ltd and Redefine Income Fund Ltd, is
acquiring a portfolio of 66 properties comprising 54 retail properties, 10
offices and 2 industrial properties from ApexHi.
4. Prior to both transactions in casu, Redefine reached agreement with Dijalo
Property Services (Pty) Ltd (“Dijalo”), a black owned company, and
formed Dipula Property Investment Trust (“Dipula”) which is 51% owned
by Dijalo, and 49% by Redefine. The transaction between Redefine and
Dijalo was approved by this Tribunal in December 2006. 3
5. Thus Redefine is the key player in both the Mergence transaction and the
Dipula transaction, both in regard to its relationship with Mergence, Dipula,
and ApexHi.
6. Redefine’s overall structure in relation to the transactions in casu is as
follows:
7. Mergence is a small, new entrant black empowerment company in the property
market which currently holds predominantly industrial portfolio. According to
market which currently holds predominantly industrial portfolio. According to
the submissions made at the hearing, the relationship between Mergence and
Redefine is one of an enterprise development nature, and Redefine is a strategic
equity partner which facilitates funding for Mergence.
8. Dipula is also a black empowerment company which according to the
submissions made at the hearing, though partly owned by Redefine, exists
2 Outward holds 49% shares in MAPF
3 Case No. CT 78/LM/SEP06
2
and operates distinctly from Redefine. Both Mergence and Dipula have
one representative from Redefine on their boards.
Rationale for the transaction
9. The rationale for Mergence is to add and inject as many retail properties
as possible, whilst growing and at the same time diversifying their property
portfolios.
10. Dipula regards its transaction as an opportunity to meet its strategy to
acquire more commercial properties in order to grow its property fund,
which is currently relatively small. The properties that Dipula holds are
mainly in Gauteng, and this transaction gives it a national footprint to have
properties in other provinces.
11. For ApexHi, both transactions are a strategy to dispose of properties with
smaller value which do not fit ApexHi’s overall core portfolio which is of larger
value. The properties in these transactions were previously acquired from Prima,
an acquisition which was approved by this Tribunal in November 2005. 4 At the
hearing, Mr Elliot for ApexHi submitted that the current two transactions
are in line with ApexHi’s new strategy which seeks to focus on the
management of property portfolio with larger value, rather than dispersing
that and diversifying that with small properties. ApexHi divided these small
property portfolios into two so that one goes to Mergence, and the other
one to Dipula. We were informed that there was no particular rationale for
how the properties were divided and allocated.
12. Redefine sees the mergers as an opportunity towards complying with the
empowerment requirements for the property sector.
Relevant Market
13. In the Mergence transaction, ApexHi’s target property portfolio in the retail,
commercial (office), and industrial sectors, is geographically located in
various provinces throughout South Africa. Mergence’s current property
various provinces throughout South Africa. Mergence’s current property
portfolio is predominantly industrial with some retail properties and
commercial properties, which are geographically located in Gauteng,
KwaZuluNatal, Cape Town, Free State, Mpumalanga, Limpopo and
Western Cape provinces.
4 ApexHi Properties Limited and Prima Property Trust 68/LM/JUL05
3
14. The properties currently held by Mergence which fall within ApexHi’s product
classification and geographic area are: (a) rentable retail space in Alberton area
(local convenience retail shopping centre), Gauteng; (b) rentable industrial space
in Alrode, Alberton (light industrial), Gauteng; and (c) rentable industrial space in
Wynberg area, (light industrial) Gauteng.
15. In the Dipula Merger the product overlap is in respect of grade A and B
offices, light industrial properties as well as stand alone retail shopping
centres and local convenience retail shopping centres. However there is
no geographic overlap in these product markets between the merging
parties.
16. In light of the fact that Redefine is a shareholder in each of the acquiring
firms, we also considered whether there is an overlap in the product
markets defined in the two transactions. Although it was found that the
product markets of the two transactions overlap in respect of convenience
retail shopping centres and light industrial property it was found that they
are not situated in the same geographic areas.
17. There is no need to consider the Dipula transaction any further. There is also no
overlap between the properties transferred to Dipula and Mergence. In the
circumstances, we will only consider the effect that the Mergence transaction will
have on competition.
Competition Evaluation
18. In the Mergence transaction, the Commission submitted that the merging
parties would have a 3.11% combined post merger market share for local
convenience shopping centre in Alberton, 0.9% for light industrial property
in Alberton, and 1.97% for light industrial property in Wynberg. The
market share accretion is clearly insignificant to raise any competition
issues. There appears to be a cooperative rather than a competitive
issues. There appears to be a cooperative rather than a competitive
relationship between Redefine and ApexHi. This is not surprising having
regard to the fact that Redefine owns 27.96% shares in ApexHi, and that
two of Redefine’s executive board members are non executive board
members in ApexHi’s Board. One of the issues we had to consider in
these transactions is whether Redefine, ApexHi and the newly created
Dipula and Mergence, are engaged in dividing property markets between
themselves to avoid competition with one another. 5
5 This is not the first time that we have queried the interrelationships between Redefine and ApexHi, See
our decision in the Prima merger Case no. 68/LM/JUL05
4
19. This may suggest that even though these firms have never formally
merged as a single economic entity they may be run as one and the
Commission may want to investigate this further in any further merger
between these firms. In mergers involving only one of these firms, the
Commission may want to have regard to whether the combined assets of
the other three firms should be taken into account in assessing the
concentration levels that result from the merger.
Effects on Competition
20. These transactions are unlikely to have any anticompetitive effects,
particularly when having regard to the insignificant change in the market
structure post these transactions.
Public interest
21. The transactions do not raise any public interest issues.
Conclusion
22. Accordingly, these mergers must be approved without conditions.
____________ 19 February 2008
N Manoim Date
Concurring: Y Carrim, U Bhoola
Tribunal Researchers: L Xaba and R Badenhorst
For the Merging Parties : Vani Chetty Competition Law (Pty) Ltd
For the Commission : Makgale Mohlala and William Kganare
(Mergers and Acquisitions)
5