COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 67/LM/Oct09
In the matter between:
Pareto Limited Acquiring Firm
And
Old Mutual Life Assurance Company (South Africa) Limited Target Firm
Panel : N Manoim (Presiding Member) A Wessels, (Tribunal Member),
and A Ndoni (Tribunal Member)
Heard on : 9 December 2009
Order Issued : 9 December 2009
Reasons Issued: 29 January 2010
Reasons for Decision
Approval
[1] On 9 December 2009, the Tribunal unconditionally approved the merger
between Pareto Limited and Old Mutual Life Assurance Company (South
Africa) Limited. The reasons for approving the transaction follow.
The parties
[2] The primary acquiring firm is Pareto Limited (“Pareto”), on behalf of a nominee,
a company yet to be formed (“Newco”). Pareto is a company incorporated
under the company laws of South Africa. Pareto is 60% controlled by the Board
of Trustees 1
of the Eskom Pension & Provident Fund (“EPPF”) and 40%
1 The Board of Trustees consist of Mr XK Memani, Mr MN Bailey, Mr B Blignaut, Mr WE
Green, Mr A Jeawon, Mr GJ Kruger, Mr D Macatha, Ms JM Maisela, Mr TJ Matsau, Ms EM
Pule, Mr WJ Swart, Mr MAP Tseki, Adv. NK Tsholanku and Dr EZ Xaba.
controlled by the Public Investment Corporation (“PIC”). The parties submitted
that PIC does not control Pareto. The EPPF does not control any other firm
besides Pareto.
[3] The PIC is solely controlled by the Minister of Finance on behalf of the state.
The PIC controls various firms including CBS Property Portfolio Limited
(“CBS”).
[4] The shareholders and the shareholding of Newco will be identical to that of
Pareto. Thus Newco will be 60% controlled by EPPF and 40% controlled by
PIC.
[5] The primary target firm is Old Mutual Life Assurance Company (South Africa)
Limited (“OMLACSA”), in respect of the two regional shopping centres, namely
the Menlyn Shopping Centre in Pretoria and the Cavendish Square and
Cavendish Connect (“Cavendish”) in Cape Town (“primary target properties”).
The transaction
[6] In terms of the proposed transaction, OMLACSA will sell 50% of the ownership
interest in the primary target properties (Menlyn Shopping Centre and
Cavendish Square and Cavendish Connect) to Pareto. Pareto has elected to
nominate a yettobe established special purpose vehicle as the purchaser.
Post merger Menlyn Shopping Centre and Cavendish Square and Cavendish
Connect will be jointly controlled by Newco and OMLACSA.
THE PARTIES’ ACTIVITIES
Primary acquiring firm
[7] The EPPF is a defined benefit fund with defined employer and employee
contributions that provides retirement, withdrawal, death and disability benefits
to members, pensioners and/or dependents. The EPPF’s investments consist
of fixed interest and money market investments, shares and fixed properties. It
owns and manages an office complex in Parktown, Johannesburg and office
park housing EPPF’s offices in Bryanston, Johannesburg.
2
[8] The PIC invests funds on behalf of the public sector entities including the
Government Employees Pension Fund and is one of the largest investment
managers in South Africa. The PIC manages a number of properties which
provide office, retail, industrial and other rental space. The PIC also owns
properties through its subsidiary CBS.
[9] Pareto is an unlisted property variable loan stock company and its main
business is investing in immovable property. Pareto focuses on acquiring and
developing major retail centres in South Africa. Although the merging parties
submitted that the PIC does not control Pareto, for completeness sake we shall
consider the properties owned by PIC. Thus we shall consider the properties
owned by Pareto, the PIC and CBS in Gauteng and Western Cape. 2
Primary target firm
[10] OMLACSA conducts business in the life assurance sector in Southern Africa,
through which it provides life, disability and health insurances, retirement
savings and investment products to individuals and groups. It also has
investments in fixed property located throughout South Africa including retail,
office and industrial property. For the purposes of this transaction, only
OMLACSA’s interests in the target properties are relevant and these are its
interests in Menlyn Shopping Centre and Cavendish Square and Cavendish
Connect.
Rationale for the transaction
[11] Pareto’s business goal is to provide sustainable longterm property income
growth and hence sustainable cash distribution to shareholders. It aims to
achieve the growth in property income by optimising the usage of the existing
property investments through refurbishments and extensions and acquiring
property investments through refurbishments and extensions and acquiring
new retail properties with a minimum GLA of 30 000 square metres. The
proposed transaction is in line with Pareto’s pursuit of the above mentioned
goal.
[12] OMLACSA ... [CONFIDENTIAL]
2 See p9 of the Commission’s recommendations to the Tribunal for a complete list of the
properties owned by the acquiring group..
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The relevant market
[13] The Commission and the parties submitted that the relevant product market is
the market for regional shopping centres. The merging parties further stated
that the regional markets can in fact be divided into super regional shopping
centre (Menlyn Shopping Centre) and minor regional shopping centre
(Cavendish Square and Cavendish Connect).
[14] The Commission and the merging parties submitted that the geographic market
is local and is restricted to a 4050km radius. 3
Competition analysis
[15] We now turn to analyse competition in the relevant geographic markets in
greater detail below.
Regional Shopping Centres in Gauteng
[16] In Gauteng, OMLACSA owns Menlyn Shopping Mall. Pareto owns 56% of
Westgate Shopping Centre which is 77km from Menlyn Shopping Centre, 67%
of Southgate Mall that is 63Km from Menlyn Shopping Centre and 100% of
Cresta Shopping Centre that is 58km from Menlyn Shopping Centre. 4 As the
merging parties and the Commission submitted that competition in this market
takes place in a radius of approximately 4050km we conclude that Pareto’s
shopping centres (Westgate, Southgate and Cresta Shopping Centres), do not
compete with the Menlyn Shopping Centre as they are located more than 50km
from it.
[17] Although Sandton City, is a regional shopping centre that has the same offering
as Menlyn Shopping Centre in terms of tenant mix and shopping experience,
there is no need to consider it for the purposes of this merger as Pareto has a
noncontrolling minority interest and does not participate in its management or
exercise any voting rights in that regard. 5
3 Based on information from IPD and the South African Property Owners’ Association
(“SAPOA”), and previous Tribunal decisions, the Commission and the parties concluded that
the geographic market is local.
4 See record p31.
5 See Transcript pp 89.
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[18] Post merger, Pareto will have a market share of 20.1% and will continue to
compete with various firms in this market which include Growthpoint (with a
20.1% market share), Liberty (with a 15.6% market share), Attfund (with a 8.7%
market share), Hyprop Investments (with a 8.5% market share), and Sasol
Pension Fund (with a 8.3% market share), among others. The merger will
therefore not result in a substantial prevention or lessening of competition in the
market for regional shopping centres in Gauteng.
Regional Shopping Centres in Cape Town
[19] In Cape Town, the two shopping centres owned by the acquiring firms namely,
Pareto’s 57.5% interest in the Tyger Valley Centre and the PIC’s controlling
interest in Vangate Shopping Centres, are situated between 1035km radii of
the Cavendish Shopping Centre. As a result, they are likely to be regarded as
competitors of Cavendish Shopping Centre. The post merger market share
does not raise competition concerns as the merged entity will continue to face
credible competition. Post merger, Pareto will have a market share in Cape
Town of approximately 16.3%. In addition, the merged entity will continue to
face competition from various firms like Sycom Property Fund (with a 16.2%
market share), Hyprop (with a 12.2% market share), Fountainhead Property
Fund (with an 11% market share), and Attfund (with a 6.3% market share),
among others. The merger is therefore unlikely to lead to a substantial
lessening or prevention of competition in the market for regional shopping
centres in Cape Town.
Public Interest
[20] There are no public interest issues.
Conclusion
[21] The merger is approved unconditionally as it does not lead to a substantial
prevention or lessening of competition as shown above. In addition, there are
prevention or lessening of competition as shown above. In addition, there are
no public interest issues.
________________ 29 January 2010
5
N Manoim DATE
Tribunal Member
A Wessels and A Ndoni concurring.
Tribunal Researcher : R Kariga
For the merging parties: Cliffe Dekker Hofmeyr Attorneys
For the Commission : N Harilal (Mergers and Acquisitions)
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