COMPETITION TRIBUNAL SOUTH AFRRICA
Case No: 69/LM/Jun08
In the matter between
Zungu Investments Company (Pty) Ltd Acquiring firm
And
African Vanguard Resources (Pty) Ltd Target firm
Panel : D Lewis (Presiding Member); Y Carrim (Tribunal Member) and N.
Manoim (Tribunal Member)
Heard on : 03 September 2008
Decided on : 03 September 2008
Reasons Issued : 22 September 2008
Reasons for Decision
Approval
[1] On 03 September 2008 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Zungu Investments Company (Pty) Ltd and
African Vanguard Resources (Pty) Ltd unconditionally. The reasons appear below.
Parties
[2] The primary acquiring firm is Zungu Investments Company (Pty) Ltd (“ZICO”), a
company incorporated in accordance with the laws of the Republic of South Africa. 1 ZICO’s
current shareholding is as follows: Sanlam has 99.99% shares, Mfundo Nenjabulo Trust has
0.002% shares and the remainder of the shares in ZICO are held by widely dispersed
shareholders.
[3] The primary target firm is African Vanguard Resources (Pty) Ltd (“AVR”), a company
incorporated in accordance with the laws of the Republic of South Africa. AVR’s current
shareholding is as follows: Mfundo Nenjabulo Trust has 41% shares, Liberty Life Group has
1 ZICO controls the following firms: SARHWU Investment Holdings Ltd (“SIH”), ZICO Capital (Pty)Ltd (“Zico
Capital”) Outdoor Network Ltd (“Outdoor Network Ltd (“Outdoor Network Ltd (“Outdoor Network”), Qubeka
Forensic Services (Pty)Ltd (“Qubeka”), Isikhonyane Cleaning (Pty)Ltd (“Isikhonyane Cleaning), African Vanguard
Holdings (Pty)Ltd (“AVH”) and Izimpondo Communications (Pty)Ltd (“Izimpondo’). ZICO is jointly controlled by
Mr. Sandile Zungu and Sanlam Ltd. Mr. Sandile Zungu controls ZICO by virtue of his ability to appoint majority
directors as holder of the majority shares in ZICO. Sanlam controls ZICO by virtue of its majority preferential
share. Sanlam also controls in excess of thirty subsidiaries.
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15.3% shares, ZICO has 2.9% shares and the remainder of the shares in AVR are held by
widely dispersed shareholders.2
Transaction
[4] In terms of the proposed transaction ZICO will increase its 2.9% shareholding in AVR
to 58% shares. Post merger ZICO will have 58% share in AVR, and the remaining
shareholding will be held by Liberty with 12.7% and the other shareholders with 29.5%.
Rationale of transaction
[5] From the acquiring firm’s perspective the proposed transaction is aimed at
addressing problematic management issues which may be attributed to the current complex
structure within the ZICO Group and to raise capital for the Group.
[6] AVR will benefit from better capitalisation as a result of the proposed transaction.
Parties Activities
[7] ZICO is an investment holding company with investments in various industries such
as forensics, healthcare, financial services resources, media, retail, contract cleaning and
cash management services.3 Sanlam is part of the Sanlam Group which conducts business
through the following business clusters namely: the retail, institutional, short term insurance
and corporate clusters.
[8] AVR is an investment company which focuses specifically in the mining sector.4
Competition Analysis
[9] According to the Commission there is no overlap in the activities of the merging
parties as ZICO and Sanlam do not have interest in the mining sector where AVR is active.
During its investigations the Commission noted that pre-merger a structural link exists
between Sanlam and Liberty who are competitors in other markets, but the link was
insignificant to cause any competition concerns. 5 However the Commission was concerned
that in the event of Sanlam exercising de facto control over ZICO, it may be in a position to
2 AVR controls African Vanguard Resources (Doornkop) (Pty) Ltd (“AVRD”), African Vanguard Resources
(Aflease) (Pty) Ltd and Richtrau No 139 (Pty) Ltd. AVR also has 51% shareholding in Jasper (Pty) Ltd (“Jasper”).3 ZICO has controlling interest in the following firms, which provides the following services: SARHWU an
investment holding company which has investments in companies that provides assets management; ZICO
Capital an investment company with investments in companies that supply and manufacture educational aides;
Outdoor Network a leading South African outdoor media company; AHV an investment company with
investments in companies which are active in the healthcare sector;Isikhonyeni Cleaning which provides cleaning
services; Qubeka which provides forensic investigations and Izimpondo a Zulu language newspaper.4 AVR’s subsidiaries are involved in gold mining, uranium mining and alluvial diamond mining.
5 According to the Commission Sanlam has an indirect 2.9% shareholding in AVR and Liberty has 15.3% direct
shareholding in AVR.
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appoint a director at AVR. The Commission argues that this would create a point of contact
between Sanlam and Liberty, the effect of which was not fully investigated by the
Commission. In an effort to address these concerns, the merging parties gave an
undertaking to notify the Commission and seek approval for the appointment of a director of
AVR by Sanlam. According to the merging parties they only intended to give the above
undertaking should the Tribunal and the Commission consider it necessary to impose the
condition. The Commission therefore recommended that we approve the proposed
transaction subject to a condition that:
• Sanlam will not appoint any person to the board of AVR without the approval of the
Competition Commission.6
[10] At the hearing the merging parties again submitted that they do not believe that the
condition imposed by the Commission is necessary. They further argued that if we feel that
the condition is necessary they were willing to accept the condition imposed. Whilst we
understand the Commission’s concerns about a situation where competitors sit on the same
board of directors, we are of the view that it is not necessary to impose a condition on this
transaction because of its distance from both the main business of Sanlam and Liberty (the
target firm is not a competitor of either) and the decision making structures of Sanlam and
Liberty. We therefore find it unnecessary to impose the condition imposed by the
Commission and this transaction is therefore approved unconditionally. In addition there are
no public interest concerns.
Conclusion
[11] Based on the above the transaction will not result in a substantial lessening or
prevention of competition and is accordingly approved unconditionally.
___________________ 22 September 2008
N Manoim Date
Tribunal Member
D Lewis and Y Carrim concurring
Tribunal Researcher : Jabulani Ngobeni
Tribunal Member
D Lewis and Y Carrim concurring
Tribunal Researcher : Jabulani Ngobeni
6 In a letter addressed to us and the Commission a day before the hearing the merging parties argued that they
merely indicated their willingness to give this undertaking should the Commission and the Tribunal consider it
necessary and that they did not give this undertaking.
3
For the merging parties : Bowman Gilifillan Attorneys
For the Commission : Themba Mahlangu (Mergers and Acquisitions)
4