COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 10/LM/Jan08
In the matter between:
Alternative Channel Limited Acquiring Firm
And
m Cubed Life Limited Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal Member),
and T Orleyn (Tribunal Member)
Heard on : 26 March 2008
Order Issued : 2 April 2008
Reasons Issued: 22 April 2008
Reasons for Decision
Approval
1] On 2 April 2008, the Tribunal unconditionally approved the merger between
Alternative Channel Limited and m Cubed Life Limited. The reasons for
approving the transaction follow.
The parties
2] The primary acquiring firm is Alternative Channel Limited (“Alternative
Channel”), a company registered in terms of the company laws of the Republic
of South Africa. Alternative Channel is a subsidiary of the PSG Group Limited
(“PSG Group”). Alternative Channel does not control any firm.
3] The primary target firm is m Cubed Life Limited (“m Cubed Life”), a company
incorporated under the company laws of South Africa. m Cubed Life does not
control any other firm. m Cubed Life is controlled by m Cubed Holdings (“m
Cubed”). m Cubed does not control any other firm.
Description of the transaction
4] In terms of this transaction, Alternative Channel will acquire the long term
insurance business of m Cubed Life, reinsured by Alternative Channel. 1 In
addition, Alternative Channel will acquire m Cubed Life’s Inflation Pension Plan
(“IHPP”) business. 2 On completion of the proposed merger, Alternative
Channel will own and control the business of m Cubed Life and the IHPP
business of m Cubed Life.
Rationale for the transaction
5] PSG Group is focused on high net worth individuals and institutional investors.
With PSG’s prior acquisition of Alternative Channel, it expanded its product
offering to its clients. PSG Group submitted that it has the skills and
management knowhow to manage and turn around the business of m Cubed
Life and increase value for the benefit of shareholders. In addition, this
acquisition will further provide PSG Group with a critical mass in the industry.
6] The parties submitted that, with effect from 19 January 2007, the Financial
Services Board (“FSB”) has prohibited m Cubed Life from entering into any new
business insurance and writing of any new policies due to the fact that m
Cubed Life has been experiencing administrative problems. They further
submitted that the reinsurance transaction was essential to ensure that m
Cubed Life’s shareholders’ interests were best maintained and regulatory
requirements are met. 3
The parties’ activities
1 This transaction is preceded by the reinsurance agreement pursuant to which the business
in question is fully reinsured by Alternative Channel.
2 The IHPP is described as a portfolio of annuity (pension) products which guarantees an
2 The IHPP is described as a portfolio of annuity (pension) products which guarantees an
income provision to annuitants into retirements and also provides for payment of a further
discretionary Christmas bonus or thirteenth annuity in December. This product does not
guarantee that the increase will equal or exceed inflation. See Commission’s further
recommendations page 1 and the addendum 6 to the reinsurance agreement.
3 The reinsurance transaction has the further impact of improving the solvency position of m
Cubed Life and ensuring that financial neutrality, in respect of net asset value, is maintained
for m Cubed shareholders, such that the shareholders are not prejudiced in terms of the
reinsurance transaction. See Record page 26.
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Primary acquiring Group
7] Alternative is a registered long term insurance company and does business in
issuing and selling long term insurance policies. It also provides reinsurance to
other long term insurers. Furthermore, it is the holder of a linked life insurance
license and provides investments policies to high net worth individuals and
institutional investors. In particular it sells linked life policies which are not life
insurance but in fact investments.
8] PSG Group is a financial services and investment company, offering a range of
products, including corporate finance, retail banking, asset management, stock
broking, local and offshore investment, life insurance, short and long term
investment and private equity.
The primary target firm
9] m Cubed Life is a registered long term insurance company and does business
in issuing and selling long term insurance policies, which are not life insurance
but investments.
Relevant Market
10] The Commission and the parties stated that the relevant product market is the
market for the selling of linked life policies. 4 Further, they submitted that the
merging parties offer their linked life policies throughout the country and, as a
result, the geographic market for this transaction is national.
11] In its further recommendations to the Tribunal, the Commission submitted that
there is no overlap in the activities of the merging parties with regards to IHPP
business, as Alternative Channel does not currently have an IHPP business. As
a result, competition in the IHPP market will not be analysed in greater detail.
Competition analysis
4 The Long Term Insurance Act defines a linked life policy as “a longterm policy of which the
amount of the policy benefits is not guaranteed by the longterm insurer and is to be
determined solely by reference to the value of particular assets or categories of assets which
are specified in the policy and actually held by or on behalf of the insurer specifically for the
purpose of the policy” . See Channel Life Limited and m Cubed Investment Life Limited Case
16/LM/Mar05, and PSG Financial Services Limited and Alternative Channel Limited Case 107/
LM/Sep07.
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12] The merging parties’ activities overlap in the selling of linked life policies.
Table 1: Market share figures for the selling of linked life policies based on net
premiums and net benefits paid
Name of company Market share (net
premiums received and
outstanding)
(%)
Market share (net
benefits paid)
(%)
Momentum Group 22.9 16.7
Investment Solutions 18.8 17.2
Old Mutual 12.9 11
Investec 12.7 12.3
Alternative Channel 5.9 13.8
Coronation 4.9 0.3
Allan Gray Life 4.6 2.9
Sanlam 4.6 5
m Cubed 0.8 1.5
Others 16.5 19.4
Total 100 100
Source: Financial Services Board
13] The above table shows that the merging parties would have 6.7% combined
postmerger market share for linked life policies based on premiums and 15.3%
based on net profits paid. These market shares are low and do not raise
competition concerns. In addition, the merged entity will face competition from
market players such as Momentum Group, Investment Solutions, Old Mutual,
and Investec, among others. As a result, the proposed transaction is unlikely to
prevent or lessen competition in the market for linked life products.
Vertical relationship
14] The vertical relationships between the merging parties are unlikely to result in
any foreclosure as the parties’ post merger market share in the affected market
is low. There is therefore no need to describe these vertical relationships in
detail.
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Public Interest
15] There are no public interest issues.
Conclusion
16] The merger is approved unconditionally.
________________ 22 April 2008
D Lewis DATE
Tribunal Member
N Manoim and T Orleyn concur in the judgment of D Lewis
Tribunal Researcher : R Kariga
For the merging parties: Jan S De Villiers Attorneys
For the Commission : M Mohlala and T Lehaja (Mergers and Acquisitions)
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