COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:72/LM/AUG11
In the matter between:
LAND AND AGRICULTURAL BANK Acquiring Firm
OF THE REPUBLIC OF SOUTH AFRICA
And
THE PERFORMING FARMERS LENDING Target Firm
BOOK OF GRO CAPITAL FINANCIAL
SERVICES (PROPRIETARY) LIMITED
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Takalani Madima (Tribunal Member)
Heard on : 19 October 2011
Order issued on : 20 October 2011
Reasons issued on : 25 October 2011
Reasons for Decision
Approval
1] On 20 October 2011, the Competition Tribunal (“Tribunal”) approved the large
merger between Land and Agricultural Bank of the Republic of South Africa
and the Performing Farmers Lending Book of Gro Capital Financial Services
(Proprietary) Limited. We explain below our reasons for this conclusion.
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The Parties to the transaction
2] The primary acquiring firm is Land and Agricultural Bank of the Republic of
South Africa (“Land Bank”), an agricultural bank involved in the provision of
financial services to participants in the agricultural and rural development as
well as the provision of retail and wholesale finance.
3] The primary target firm is the Performing Farmers Lending Book Limited (“the
Farmers Lending Book”) currently owned by Gro Capital Financial Services
(Proprietary) (“Gro Cap”). Gro Cap is a wholly owned subsidiary of AFGRI
Operations which is controlled by AFGRI Limited.
4] In terms of the transaction, Land Bank will acquire Gro Cap’s Performing
Farmers Lending Book.
The Rationale
5] The merging parties submitted that Land Bank intends to acquire the Farmers
Lending Book in order to increase its assets and better fulfil its development
mandate.
The parties’ activities
6] Land Bank is involved in the provision of financial services to participants in
the agricultural and rural development as well as the provision of retail and
wholesale finance. Through one of its subsidiaries, Land Bank also provides
insurance products.
7] The Farmers Lending Book provides retail funds directly to corporate and
individual agricultural clients. Some of the retail agricultural funding the
Farmers Lending Book offers includes, seasonal production loans, revolving
credit facilities, hire purchase contracts, medium term loans and irrigation
crop production loans.
The relevant market and the impact on competition
8] The Commission defined the market as that for the provision of financial
services and credit facilities and the brokering of crop and life insurance to
firms in crop farming. However, the Commission found that certain elements
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such as the size of a client and the amount that a firm is able to provide
creates two levels of the market within the broad market for the provision of
credit and financial facilities, being the upstream and downstream markets.
The Commission submitted that although these two levels relate to the
provision of credit facilities and financial services, they are not substitutable
for one another. This, the Commission submitted is because, amongst
others,1 the customers in the upstream market are other financial institutions
which require the finances in order to further on-lend to smaller companies
and individual farmers whilst those in the downstream market are small firms
and individual farmers who use the finance for their farming inputs or
produce.
9] As Land Bank is involved in both the upstream and downstream markets
whilst the Farmers Lending Book is only involved in the downstream market,
the Commission found that there is a horizontal overlap in the downstream
market for the retail provision of financial services and credit facilities in the
agricultural market. However, the Commission found that a post-merger
market share of 14.15% was too low to raise any competition concerns.
10] The Commission also found that there is a vertical integration as Land Bank
provides the Famers Lending Book with wholesale agricultural lending which
the Farmers Lending Book on-lends to agricultural clients but found that as
the market is fragmented and there are other alternative sources of finance or
credit, foreclosure is unlikely.
11] Accordingly, the Commission concluded that the transaction is unlikely to
result in any substantial prevention or lessening of competition in the relevant
markets
12] At the hearing the parties suggested that post merger because of the Land
Banks stronger capital base, the Farmers Lending Book would be able to
offer retail loans at more competitive rates than it does presently.
CONCLUSION
offer retail loans at more competitive rates than it does presently.
CONCLUSION
1 See page 8 of the Commission’s Report.
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13] The parties submitted that the proposed transaction will not result in
employment losses. The proposed transaction does not raise any other public
interest issues.
14] We agree with the Commission’s conclusion above and find that the merger is
unlikely to lead to any substantial prevention or lessening of competition in
the relevant market. Accordingly, we approve the above merger
unconditionally.
____________________ 25 October 2011
NORMAN MANOIM DATE
Yasmin Carrim and Takalani Madima
Tribunal Researcher: Tebogo Hlafane
For the merging parties: Edward Nathan Sonnenbergs
For the Commission: Dineo Mashego
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