COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:03/LM/JAN11
In the matter between:
RETAIL AFRICA CONSORTIUM HOLDINGS (PTY) LTD Acquiring Firm
And
RAPFUND HOLDINGS (PTY) LTD Target Firms
AND
RETAIL AFRICA WINGSPAN INVETMENTS (PTY) LTD
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member)
Merle Holden (Tribunal Member)
Heard on : 30 March 2011
Order issued on : 30 March 2011
Reasons issued on : 11 April 2011
Reasons for Decision
Approval
1] On 30 March 2011 the Competition Tribunal (“Tribunal”) approved the large
merger between Retail Africa Consortium Holdings (Pty) Ltd and Rapfund
Holdings (Pty) Ltd and Retail Africa Wingspan Investments (Pty) Ltd. The
reasons for approving the proposed transaction follow below.
The Parties to the transaction
2] The primary acquiring firm is Retail Africa Consortium Holdings (Pty) Ltd
(“REACH”), a company incorporated in accordance with the laws of the
Republic of South Africa. REACH is an entity that was established for the
purposes of giving effect to the proposed transaction and as such has no
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activities and does not control any firm. REACH is controlled 25% each by
each of the following trusts, the Eygenberger Investment Trust, the Kruger
Investment Trust, the Pickard Investment Trust and the Wingspan Investment
Trust.
3] The primary target firms are Rapfund Holdings (Pty) Ltd (“Rapfund”) and
Retail Africa Wingspan Investments (Pty) Ltd (“Wingspan”). Both are
companies incorporated in accordance with the laws of the Republic of South
Africa.
4] In terms of the transaction, REACH intends to acquire a 53.7% interest in
Rapfund and a 54.6% interest in Wingspan. The transaction is made up of
two steps in terms of which after the second step, Atterbury Investment
Holdings (“AIH”) will ultimately own a 50% shareholding in REACH.
Therefore, upon conclusion of the transaction, REACH will control the target
firms and AIH will control REACH.
The Rationale
5] The merging parties submitted that the transaction will ensure that the
primary target firms are consolidated such that management of the same is
conducted by a single entity. Further that the implementation of the
transaction will permit AIH to consolidate its interest in both Rapfund and
Wingspan and thus be in a position to achieve economies of scale in terms of
the management of its properties by its grouping together of similar
investments.
The parties’ activities
6] As REACH was established for purposes of the proposed transaction, it has
no activities. However, its controlling trustees hold into various entities for
investment purposes and are also active in the property investment market.
7] Both Rapfund and Wingspan are active in the property investment market in
South Africa and their functions include the development, investment,
refurbishment and management of rentable retail property. However Rapfund
specialises in the management of shopping centres that are less than
specialises in the management of shopping centres that are less than
15 000m2, situated in high income residential areas, whilst Wingspan
specialises in the management of rentable retail properties measuring in
excess of 15 000m2.
The relevant market and the impact on competition
8] The Commission found that there is a horizontal relationship in respect of
retail space but no vertical overlap.
9] The parties defined the relevant product market as that for rentable local
convenience retail space and rentable neighbourhood retail space. In defining
the relevant product market, the Commission took guidance from the Urban
Studies report in retail classification as an indicator of the different types of
shopping centres. This report takes into account, in addition to gross lettable
area (“GLA”), factors such as tenant mix, parking structure, convenience
factor, destination factor, physical structure of the centre and general target
population.
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10] The Commission submitted that there are at least four major distinctions
between shopping centre types, broken down into convenience centres which
include free standing convenience, neighbourhood and smaller community
sized centres, whose tenant mix is mostly geared towards grocery shopping;
comparative orientated centres which include larger community, minor
regional, regional and super regional sized centres whose tenant mix is
mostly geared towards a wide range of shops in which customers will be able
to compare many items such as clothing or fashion items, lifestyle centres
characterised by a tenant mix highly geared towards ‘white cloth’ restaurants,
art and decor shops targeting upper LSM consumers, and value centres
characterised by a tenant mix geared towards ‘big box’ retailers occupying
relatively larger spaces.
11] The Commission submitted that based on the above four categories, the
differences between these centre types suggest that each centre type caters
to its own market. We do not need to decide in the present case whether this
assumption is correct.
12] In this merger, the Commission found that there are two overlaps in respect of
shopping centres, one in Brooklyn (Pretoria) and the other one in Northcliff,
Johannesburg.
13] In respect of Brooklyn, post merger the merging parties will own the
Waterkloof Corner and Glenfair centres. The Commission classifies both as
convenience centres. The Commission submitted that although Waterkloof
Corner and Glenfair compete in the same product market, they are not in the
same geographic market. Geographic markets for convenience centres will
be smaller than for other types of centre as owing to their nature, consumers
will not travel too far to get to them. The fact that the two centres are 6.3km
suggest they are not the most proximate of competitors. More importantly the
Commission draws attention to the fact that they are on either side of the N1
Commission draws attention to the fact that they are on either side of the N1
Highway. This physical divide has meant that, Waterkloof Corner draws its
customers mainly from Brooklyn and Waterkloof, whilst Glenfair draws its
customers from Lynwood Manor. The Commission’s conclusion that
Waterkloof Corner and Glenfair are in separate geographic markets seems
reasonable.
14] In respect of Northcliff, the Commission submitted that both Verdi and L’Corro
shopping centres have the characteristics of ‘free standing convenience
centres’. The Commission further submitted that Verdi and L’Corro being
2.5km apart, with no natural or psychological impediments such as mountains
or highways are in the same geographic market.
15] In relation to the effect on competition in Northcliff, the Commission submitted
that within a 3.6km radius there are 12 alternative convenience centres. Verdi
and L’Corro each having a market share of 6.42% and 5.96% respectively,
the Commission found that the post-merger market share of less than 13%
was too low to raise any concerns. Further that the market share would
decline if the radius is increased to the upper bound of 5km. The Commission
further submitted that there are in the region of 100 proposed new shopping
centres or shopping centres under construction across South Africa, ranging
from local convenience to super regional. It was also submitted that
convenience centres have relatively lower barriers than other centre types as
due to size and location require less capital. Further that obtaining the
requisite permission from a local municipality to build these kinds of shopping
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centres is accomplished with ease.
16] In light of the above, the Commission found that the transaction is unlikely to
substantially prevent or lessen competition in the relevant markets. Again this
conclusion is reasonable.
CONCLUSION
17] The proposed transaction does not raise any public interest issues as there
will be no effect on employment pursuant to the implementation of the
merger.
18] In light of the above, we find that the transaction would not substantially
prevent or lessen competition in the relevant markets and we accordingly
approve the transaction.
____________________ 11 April 2011
MERLE HOLDEN DATE
N Manoim and Y Carrim concurring
Tribunal Researcher: Tebogo Hlafane
For the merging parties: Edward Nathan Sonnenbergs Inc.
For the Commission: Mr Jabulani Ngobeni
Mr Alex Constantinou
Ms Grace Mohammed
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