COMPETITION TRIBUNAL OF SOUTH AFRICA
CASE NO: 116/LM/OCT08
In the matter between:
GOVERNMENT EMPLOYEES PENSION FUND Acquiring Firm
and
CERTAIN PROPERTIES IN ZENPROP PORTFOLIO Target firms
______________________________________________________________________
Panel : N Manoim (Presiding Member), Y Carrim (Tribunal Member), and
M Mokuena (Tribunal Member)
Heard on : 19 December 2008
Order issued on : 19 December 2008
Reasons issued on : 23 January 2009
REASONS FOR DECISION
APPROVAL
1. On 19 December 2008 the Tribunal approved the property merger between the
aforementioned parties. The reasons for the decision follow:
THE PARTIES
2. The primary acquiring firm is Government Employees Pension Fund (“GEPF”) which
owns a portfolio comprising office, retail, industrial and residential properties.1 The Public
1 For GEPF’s property portfolio, see Appendix B attached to the parties’ competitiveness report – pg. 75
– 78 of the record.
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Investment Corporation (“PIC”) is the investment portfolio manager of GEPF. The
primary target properties entail 50 properties and letting enterprises of Zenprop (Pty) Ltd
(“Zenprop”) which comprise of office, retail, industrial and hotel properties.2
THE TRANSACTION AND RATIONALE
3. In terms of the proposed transaction GEPF intends to acquire the aforesaid 50
properties of Zenprop. GEPF views the proposed transaction as a development
strategy, to grow its property investment portfolio. Zenprop, which is primarily a property
developer, considers the proposed transaction as an opportunity to realize the needed
returns on its investment while it remains in the industry, particularly with the current
liquidity problems faced by the property industry.
RELEVANT PRODUCT MARKET
4. The proposed merger results in geographical overlap in the activities of the merging
parties in 8 nodes consisting of Grade A,B and P office space, and light industrial
properties. These are set out below with their respective post merger market shares:
Node Post Merger Market Share of
merged entity
Grade A office space in Cape Town CBD 5.2%
Grade A office space in Midrand 20.2%
Grade B office space in Centurion 2.9%
Grade B office space in Hatfield 3.4%
Grade B office space in Alberton 8.9%
Grade P office space in Sandton 16.2%
Light Industrial Property in Edenvale 3.46%
Light Industrial property in Midrand 12.4%
2 For Zenprop’s target property portfolio, see Appendix A pg. 72 -73 of the record.
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5. The combined post merger market shares of the merging parties in respect of the
overlapping nodes are not significantly high and do not raise any competition concerns,
except for the Grade A office space in Midrand which raises concerns given the high
combined post market share of 20.2%. The concerns do not only stem from the high
market share in this area alone, but also the effect that this might have on managing the
rental levels in this area.
6. The merging parties submitted that the 20.2% estimated combined post merger market
share would decline to an estimated 13% as a result of new office developments in
Midrand already in progress. 3 In addition there are other active players in all the
overlapping nodes which will compete with the merging parties.
7. It appears from oral submissions made during our hearings that the likelihood of
additional capacity coming into the market is already having a bearing on rental levels
being achieved in the area. Also tenants, who are typically large concerns making use of
intermediaries to negotiate for them, have a very sophisticated view of the market and
know what rental levels they can expect to achieve. In the circumstances at present, it
would appear that the merged entity would not be in a position post merger to increase
its pricing power in respect of levels for Grade A office space in Midrand. 4
CONCLUSION
8. The Tribunal finds that this merger will not result in any substantial lessening or
prevention of competition in the relevant market. Accordingly the merger is approved
without conditions.
9. There are no public interest issues.
_______________ 23 January 2009
N Manoim Date
3 This new development is called Waterfall Property Development in Midrand between Allandale and
the M1 Highway, which will include the Waterfall Eco Office Park.4See Mr. Zagaretos’ submissions from PIC, pg. 6 of the transcript, and Mr. Weinstein’s submissions from
Zenprop, pg. 7 of the transcript.
3
Tribunal Member
Y Carrim and M Mokoena concurring
For the merging parties : Glyn Marais Attorneys
For the Commission : T Mavhase
Tribunal Researcher: L Xaba
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