COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 75/LM/Nov09
In the matter between:
ABSA Bank Limited Acquiring Firm
And
Sanlam Home Loans (Pty) Ltd Target Firm
Panel : Norman Manoim (Presiding Member), Andreas Wessels
(Tribunal Member) and Andiswa Ndoni (Tribunal Member)
Heard on : 20 January 2010
Order Issued : 20 January 2010
Reasons Issued: 18 March 2010
Reasons for Decision
Approval
[1] On 20 January 2010, the Competition Tribunal (“Tribunal”) unconditionally
approved the merger between ABSA Bank Limited and Sanlam Home Loans
(Pty) Ltd. The reasons for approving the transaction follow.
Parties
[2] The primary acquiring firm is ABSA Bank Limited (“Absa”), a company duly
registered in terms of the company laws of South Africa. Absa is a subsidiary of
Absa Group Limited (“Absa Group”), a public company listed on the
Johannesburg Securities Exchange. Absa Group is ultimately controlled by
Barclays Plc, a public company listed on the London Stock Exchange, the
Tokyo Stock Exchange, and the New York Stock Exchange.
[3] The primary target firm is Sanlam Home Loans (Pty) Ltd (“SHL”), a company
registered in terms of the company laws of South Africa. Pre-merger SHL is
jointly controlled by Absa (with a 50% shareholding) and Sanlam Life Insurance
Limited (“Sanlam”) (with a 50% shareholding). Absa Group and Sanlam each
controls in excess of 40 subsidiaries.
[4] The SHL business model involves the securitisation of home loans originated
through the business as a means to secure medium- to long term funding and
minimise the cost of funding. The merging parties submitted that as part of a
securitisation structure, SHL owns 100% of the issued preference shares in
Sanlam Home Loans 101 (Pty) Ltd (“SHL 101”) and Sanlam Home Loans 103
(“SHL 103”). The ordinary share capital of these two entities is held by two
trusts, which operate for the benefit of two separate special purpose vehicles.
This structure ensures that SHL 101 and SHL 103 are bankruptcy/insolvency
remote. The merging parties further submitted that the financials of SHL 101
and SHL 103 are consolidated with those of SHL for accounting purposes since
SHL is deemed to control SHL 101 and SHL 103.
Proposed transaction
[5] In terms of the proposed transaction, Absa will acquire the remaining 50%
shareholding in SHL from Sanlam that it does not already own. The proposed
acquisition thus results in a change from joint control of SHL to sole control by
Absa. At the conclusion of the proposed transaction, SHL will be wholly owned
by Absa.
Rationale for transaction
[6] The merging parties submitted that they wish to terminate the existing joint
venture as SHL is unlikely to deliver sufficient returns in the future due to (i) the
inability of SHL to deliver a price competitive value proposition through
securitisation in current market conditions, given the rise in finance costs with
regard to securitisation products; and (ii) Absa’s unwillingness to deliver a
regard to securitisation products; and (ii) Absa’s unwillingness to deliver a
differentiated product because of the absence of economies of scale in SHL.1
Parties’ overlapping activities
1 See Transcript pp 3-4.
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[7] The Absa Group offers a variety of services that include retail banking;
commercial banking; investment banking; international operations; financial
services; advisory services; wealth management; and other services. Of
relevance to the proposed transaction under consideration is Absa’s provision
of residential home loans by means of the Absa Home Loans business unit
within the Secured Lending Cluster of its Retail Bank division.
[8] SHL is active in the provision of home loans to retail customers.
Relevant market
[9] The Commission submits that the relevant product market is the market for the
provision of home loans and that the relevant geographic market is national
given the nature of the products supplied and the fact that market participants
adopt a national pricing strategy. We shall assess the proposed transaction on
this basis.
Competition analysis
[10] Table 1 below provides the market shares of the participants in a national
market for the provision of home loans.
Table 1: National market shares for the provision of home loans
Company Market share (%)
Absa 31
Standard Bank 30
First National Bank 18
Nedbank 17
Investec 4
SHL <1
Others <1
Source: Merging parties’ estimates2
[11] As shown in the Table 1 above, the proposed merger will result in a market
share accretion in a national home loans market of less than 1%. The merged
entity will have a post-merger market share of approximately 32% in this
market. The proposed merger does not result in a substantial prevention or
lessening of competition as the merged entity continues to face competition
from credible competitors in the home loans market, including Standard Bank
2 The parties submitted that these market share estimates are based on data from the MAY
2009 BA900 reports filed with the SARB as supplemented by their estimates of securitised
assets as reported on the Banking Association’s website and the latest financials of SHL.
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(with an estimated market share of approximately 30%); First National Bank
(18%); Nedbank (17%); and Investec (4%).
Public interest
[12] No public interest issues arise from the proposed transaction.
Conclusion
[13] The proposed transaction is approved unconditionally as it does not result in a
substantial prevention or lessening of competition in any relevant market. In
addition, there are no public interest issues that arise from the proposed
transaction.
________________ 18 March 2010
Andreas Wessels DATE
Tribunal Member
Norman Manoim and Andiswa Ndoni concurring.
Tribunal Researcher : Romeo Kariga
For the merging parties: ABSA Group, Legal Counsel
For the Commission : Kwena Mahlakoana (Mergers and Acquisitions Division)
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