COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 60/LM/Sep10
In the matter between:
Swanvest 120 (Pty) Ltd Acquiring Firms
And
Indwe Broker Holdings Ltd Target Firms
Panel : Norman Manoim (Presiding Member)
Andreas Wessels (Tribunal Member)
Yasmin Carrim (Tribunal Member)
Heard on : 17/11/2010
Order issued on : 17/11/2010
Reasons issued on : 02/12/2010
Reasons for Decision
Approval
1] On 17 November 2010 the Competition Tribunal (“Tribunal”)
unconditionally approved the merger between Swanvest 120 (Pty) Ltd
(“Swanvest”) and Indwe Broker Holdings Ltd (“Indwe”). The reasons
follow below.
The Transaction
2] In this transaction Swanvest, a wholly owned subsidiary of Santam
Ltd (“Santam”), intends to acquire Indwe which is currently controlled
jointly by the Thebe and Phamodzi groups. Swanvest provides short
term insurance. Through its holdings, Indwe operates as a short term
insurance broker and a short term insurance administrator through its
various subsidiaries. The two subsidiaries of Indwe which are
relevant for the purpose of this analysis are Indwe Risk Services (Pty)
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Ltd (“Indwe Risk”) which is a broking firm, and Original Co-Sourcing
SA (Pty) Ltd (“Orico”), which is an insurance administrator.
3] Premerger Santam through Swanvest is a minority shareholder of Indwe,
and the shareholding in Indwe is as follows:
Swanvest - 37.8%
Pamodzi - 26.3%
Mainstreet -16.8%
Thebe - 19.04%
4] In terms of the transaction, Santam (through Swanvest) will acquire 100%
control over Indwe, by acquiring the shareholdings of Pamodzi and Thebe
Group which hold the majority of the issued share capital of Indwe. The
parties submitted that this is in terms of Swanvest’s pre-emptive right which
is embodied in a shareholders agreement amongst the shareholders of
Indwe.
Rationale
5] According to Santam the merger is essentially a defensive move
which accords with its pre-emptive rights, and the aim is that it hopes
to protect its interest in valuable insurance work being placed with it
by Indwe, given that the controlling Thebe and Phamodzi group
companies are exiting in order to realise their investment in Indwe. It
was explained at the hearing that the merger was triggered by the
latter’s wish to sell and not Santam’s wish to acquire. Santam feared
that if it did not follow its pre-emptive rights it might hold a substantial
minority interest in a business controlled by a rival.
The Issue of Control
6] Given the genesis of the Indwe structure, an issue was argued at the
hearing around whether Swanvest already had some form of joint
control before this transaction, and whether consequently there may
possibly have been a prior unnotified merger. However we did not
consider this issue presently. The Commission is aware of the facts
and can bring proceedings if it concludes that there should have been
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a prior notification. On that basis we do not make a finding in this
regard.
Competition Analysis
7] There is only a vertical relationship between the merging parties. The
Commission identified the relevant markets as:
• three upstream markets for short term insurance viz: personal lines,
commercial lines and corporate lines
• three downstream markets for short term insurance broking viz:
personal lines broking, commercial lines broking and corporate lines
broking; and
• a market for insurance administration containing the administration of
certain outsourced insurer functions viz: claims handling, settling and
policy issuing as agent for insurer.
8] With respect to market shares, the parties indicated that it was difficult
to provide separate market share estimates for the different niches of
short term insurance; i.e. personal, commercial and corporate insurance
lines. Santam’s market share in the upstream market was estimated to
be 19.7%. Though it is a fairly large player, it is not to the extent to
suggest that it is dominant. There are other preferred players in this
market such as Mutual and Federal, Zurich, Hollard, Outsurance and
others. In the downstream market, Indwe is an insignificant player with
an estimated market share of approximately 3%. There are numerous
large players in the downstream market such as Glenrand MIB,
Alexander Forbes, ABSA, and PSG.
9] The key competition concern was whether the incentives of Indwe
would change once Santam has sole control. Santam argued that
despite having control the Indwe business would have to be run
independently to retain credibility in the industry. On the other hand it
was concerned if the stake was covered by a rival and hence the
merger was described as defensive. At the hearing this was explained
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to our satisfaction. The use of the term defensive was used in the
context of protecting their investment in Indwe as opposed to their share
of Indwe’s business. Whilst it is not clear whether Santam will as sole
controller permit the autonomy suggested, the non-Santam business
handled by Indwe (currently Santam constitutes in the region of 60% of
its business) is not sufficient to create concerns, nor does it appear that
any rivals of Santam raised this as a serious concern.
10] With regards to the insurance administration market, no accurate
market share estimates were provided. However, the Commission
found that there was no alarm caused by the acquisition of Orico as an
insurance administrator given the insignificant size of Indwe in the
broker market. The fact that Orico is a “captive” insurance administrator
which administers only clients arising from Indwe Risk, albeit for
different insurers, means that there are similarly no concerns raised in
this part of the market.
Information Exchange
11] Various players from the upstream market such as Zurich and Hollard
raised concerns about the possible information sharing between the
merging parties post merger. However the Commission found that it
was unlikely that the merging parties would engage in such conduct
which would be detrimental to the credibility and reputation of these
firms. In addition the Commission found that the industry has measures
in place to manage appropriate information dissemination and to protect
confidential information from unauthorised leakage.
Conclusion
12] We therefore conclude that the proposed merger is unlikely to lead to a
substantial prevention or lessening of competition in any of the relevant
markets. There are no public interest concerns arising from the
proposed deal. Hence the proposed transaction is approved
unconditionally.
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____________________ 02/12/2010
Norman Manoim DATE
Andreas Wessels and Yasmin Carrim concurring
Tribunal Researcher: Londiwe Senona
For the merging parties: Cliffe Dekker Hofmeyr
For the Commission: F. Reid
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