COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 78/LM/Dec10
In the matter between:
Capital Property Fund Acquiring Firm
And
Pangbourne Properties Limited Target Firm
Panel : Norman Manoim (Presiding Member)
Andreas Wessels (Tribunal Member)
Yasmin Carrim (Tribunal Member)
Heard on : 02/03/2011
Order issued on : 02/03/2011
Reasons issued on : 09/03/2011
Reasons for Decision
Approval
1] On 02 March 2011 the Competition Tribunal (“Tribunal”) unconditionally
approved the proposed transaction involving Capital Property Fund and
Pangbourne Properties Limited. The reasons for approval of the proposed
transaction follow below.
Parties to transaction
2] The primary acquiring firm is Capital Property Fund represented by the Property
Fund Managers Limited (“Capital Property”). The primary target firm is
Pangbourne Property Limited (“Pangbourne”).
3] Capital Property currently has 9.8% unit holdings in Pangbourne and has a
portfolio of various rental properties in the industrial, office and retail space
1
sector in different locations in South Africa and also provides asset management
services which it outsources. Pangbourne is a property loan stock company
which holds various rentable properties in different locations in South Africa and
also provides property management services. Pangbourne’s properties also
include industrial space, office space and retail space.
Proposed transaction
4] The proposed transaction essentially results in Capital Property having sole
control of Pangbourne. Pangbourne unit holders will swap their linked units in
Pangbourne for units in Capital Property, so that Capital Property has sole
control over Pangbourne.
Rationale for proposed transaction
5] For Capital Property the proposed transaction is a growth strategy which will
allow it to increase market capitalisation as well as its management capacity. For
Pangbourne unit holders this will provide improved liquidity.
COMPETITION ASSESSMENT
Horizontal analysis
6] There is a horizontal overlap between the activities of the merging parties in the
provision of light industrial space, grade A office space and grade B office space.
7] The Commission found that there is a geographic overlap in respect of 11 light
industrial properties, 6 grade B office properties and 3 grade A office properties.
In all of these the Commission found the market shares to be low, and that the
market share accretion resulting from the proposed merger is minimal.
8] In respect to light industrial space the Commission’s investigation showed that
the combined post merger market share of the merged entity is below 15%. In
the Grade A office space the post merger market share is also below 15%
except in the Fourway node where the merged entity will have 18% combined
post merger market share. However the market share accretion is an
insignificant 1.6%.
9] In respect to grade B office space the combined post merger market share is
9] In respect to grade B office space the combined post merger market share is
also below 15% except in the Bryanston node where the merger entity will have
a high market share of approximately 86%. However, the Commission found that
there are both product and geographic market constraints– the merging parties
will be constrained from increasing their prices to the detriment of its tenants by
grade A office space. It also found that the customers of the merging parties
have some degree of countervailing power given the varied offerings within the
Bryanston node as well as in other surrounding nodes such as Sunninghill and
Sandton which customers can switch to.
10] At the hearing, Mr Andrew Teixeira from Capital Property also explained that
Grade A office space and Grade B office space are substitutable in that they are
similar both in appearance as well as the rentals payable, and that therefore it is
easy for customers to switch between the two types of grades in the event of a
price increase in either grade.
Vertical analysis
11] There is a vertical relationship between the merging parties since Pangbourne
has been responsible for some of the current asset management functions of
Capital. However the Commission submitted that post merger the functions
currently conducted by Pangbourne will be outsourced to Property Fund
Managers (PFM). The vertical relationship between the merging parties is
unlikely to result in any significant foreclosure concerns as the merged entities’
post merger market shares will remain low, and the merged entity will continue to
face competition from other larger players in the property market such as
Growth Point, Redefine, Old Mutual and Liberty.
PUBLIC INTEREST
12] No public interest issues arise from the proposed transaction.
CONCLUSION
13] Based on the above we conclude that it is unlikely that the proposed merger
would lead to a substantial prevention or lessening of competition in the property
market. Furthermore, no public interest concerns arise from this deal.
Accordingly the proposed transaction is approved unconditionally.
Accordingly the proposed transaction is approved unconditionally.
____________________ 09/03/2011
Y Carrim Date
3
N Manoim and A Wessels concurring
Tribunal Researcher: Londiwe Senona
For the merging parties: Vani Chetty Competition Law
For the Commission: Themba Mahlangu