COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 19/LM/APR10
In the large merger between:
Redefine Properties Limited Acquiring Firm
And
Hyprop Investments Limited Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on : 15 July 2010
Order issued on : 15 July 2010
Reasons issued on : 27 August 2010
Reasons for Decision
Approval
1] On 15 July 2010, the Competition Tribunal (“Tribunal”) unconditionally
approved the merger between the above-mentioned parties. The
reasons for approving the transaction follow.
Parties and their activities
2] The primary acquiring firm is Redefine Properties Limited (“Redefine”),
a company incorporated in accordance with the laws of the Republic of
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South Africa. Redefine is a JSE listed property loan stock company and
has a number of subsidiaries. The Redefine group’s property
investments are diversified across all sectors of the rental property
market, including the retail, office and industrial sectors in various
locations countrywide. Redefine is also active in asset management as
an in-house function within the Redefine group.1
3] Redefine currently owns 33.3% of the primary target firm Hyprop
Investments Limited (“Hyprop”), a company incorporated in accordance
with the laws of the Republic of South Africa. Hyprop is a JSE listed
property loan stock company specialising in prime shopping centres.
Hyprop’s property portfolio comprises mostly of retail space located
throughout South Africa, which includes minor regional, regional and
super regional shopping centres. Its portfolio however also includes
office and hotel properties.
4] Hyprop does not control any firm, but has a non-controlling 37% stake
in Sycom Property Fund Collective Investment Scheme in Property
(“Sycom”). Sycom is a collective investment scheme holding its own
property portfolio which is managed by Sycom Fund Manager. Given
Hyprop’s stake in Sycom, the Sycom property portfolio will be taken into
account in the competitive analysis of the proposed transaction below.
Proposed transaction
5] In terms of the proposed transaction Redefine will acquire 12% of units
in Hyprop from Coronation Asset Management (Pty) Ltd
(“Coronation”)2. By virtue of this transaction with Coronation, Redefine
will therefore increase its shareholding in Hyprop to 45.3% (see
paragraph above). Redefine however ultimately intends to acquire
100% shareholding in and thus sole control of Hyprop. The
implementation of the aforesaid acquisition of units in Hyprop from
Coronation triggers a mandatory offer by Redefine to all Hyprop
Coronation triggers a mandatory offer by Redefine to all Hyprop
1 Redefine performs all asset management functions for the Redefine group.
2 A shareholder of Hyprop.
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unitholders. Redefine intends to canvass Hyprop unitholders, in regard
to the mandatory offer, with the objective of acquiring 100% of the
Hyprop units which will give Redefine sole control over Hyprop. The
proposed transaction has been notified on this basis, i.e. on the basis of
Redefine acquiring sole control over Hyprop.
6] As a consequence of the proposed transaction, Redefine will also
indirectly acquire Hyprop’s unit holding in Sycom. Redefine will also
acquire the rights to perform the asset management over the assets of
Hyprop.
Rationale for proposed transaction
7] Since Redefine already has a significant stake in Hyprop (see
paragraph above) it has played an integral role in Hyprop’s growth,
acquisitive strategy and strategic management. Redefine sees this
transaction as an opportunity to meaningfully increase its holding in
Hyprop and ultimately to gain sole control over Hyprop. The merger of
the portfolios of Redefine and Hyprop will result in a diversification of
Redefine’s asset base. According to Redefine, this transaction will
furthermore result in immediate cost savings (including the reduction in
costs resulting from having only one listed entity) and the possibility of
further savings in future.
8] Coronation’s rationale for the proposed deal is that it was able to obtain
a good selling price.
Overlap between activities
9] According to the Competition Commission’s findings, the activities of
the merging parties (when including Sycom in the analysis) overlap in
terms of:
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9.1.Rentable office and retail space in the following areas:
i) Grade A office space in:
a. the Woodmead
node in
Gauteng;
b. the Sandton
CBD node in
Gauteng;
c. the Braynston
node in
Gauteng;
d. the Bedfordview
node in
Gauteng; and
e. the Century City
node in the
Western Cape.
(ii) Grade B/C office space in the
Rosebank and surrounding node in
Gauteng.
(iii) A small/minor retail space in the
Shelly Beach area in KwaZulu-
Natal.
Redefine and Hyprop each hold a 50% interest in the
Southcoast Mall (a minor retail mall) in Shelly Beach. Since
neither Redefine nor Hyprop controls any other minor retail
properties in this geographic area we shall not deal with this
market any further below.
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9.2.The provision of asset management services.
Relevant markets
10] We shall assess the horizontally affect relevant markets on the basis of
the different classes of office and retail space in the local geographical
nodal locations identified in paragraph above.
11] The vertically affected market is the national market for the provision of
asset management services.
Impact on competition
Horizontal assessment
12] In regard to specific grades of retail and office space in all of the above-
mentioned overlapping nodes except the Woodmead node, the
accretion in the merged entity’s market shares as a result of the
proposed transaction is such that it does not raise significant
competition concerns and/or the post merger market shares are below
levels that raise significant competition concerns given that a sufficient
number of competitors remain in these markets post merger.
13] In a worst-case scenario where the properties of Sycom are included in
the analysis, the post merger market share of the merged entity is
relatively high in the confined Woodmead node. 3 However, competitive
pressure is likely to stem from the surrounding nodes not included in
this narrowly demarcated SAPOA 4 node. The surrounding nodes are
the Rivonia and Sunninghill nodes that fall within a 3-5 km radius of the
3 There is no overlap between the activities of the merging parties in this node if the Sycom property portfolio is
excluded.
4 The South African Property Owners Association.
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Woodmead node (together said three nodes form the “Greater
Woodmead” node). The merged entity’s market share in the Greater
Woodmead node will be below 24%. Moreover, customers in the
Woodmead node contacted by the Competition Commission during its
market investigation confirmed that they have the ability to switch to
alternative rental space in the event of a rental increase.
Vertical assessment
14] From a vertical perspective Hyprop, according to the merging parties,
premerger conducts its own internal asset management. Post merger
the Redefine group will perform Hyprop’s asset management function
on an in-house basis. The merged entity’s post merger national market
share in the market for the provision of asset management services is
below 15%. Given this relatively low market share and the fact that
there are numerous players in this market, including Growthpoint, Old
Mutual Investment Group, Liberty Life Properties and Sanlam
Properties to name a few, we find that the proposed deal does not
result in foreclosure concerns.
Conclusion
15] We conclude that the proposed transaction is unlikely to substantially
prevent or lessen competition in any horizontally or vertically affected
relevant market. Furthermore, no significant public interest issues arise
from the proposed deal. We therefore approve the transaction without
conditions.
____________________ 27 August 2010
Andreas Wessels DATE
Norman Manoim and Yasmin Carrim concurring
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Tribunal Researcher : Mahashane Shabangu
For the Merging parties : Vani Chetty
For the Commission : Alex Constantinou of the Mergers and
Acquisitions Division
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