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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:38/LM/MAY11
In the matter between:
OLD MUTUAL LIFE ASSURANCE
Acquiring Firm
COMPANY (SA) LTD
And
MOMENTUM GROUP LTD
Target Firm
Panel : Norman Manoim (Presiding Member)
Andiswa Ndoni (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on : 9 November 2011
Order issued on : 09 November 2011
Reasons issued on : 21 November 2011
Reasons for Decision
Approval
[1] On 9 October 2011, the Competition Tribunal (“T ribunal”) approved the large
merger between Old Mutual Life Assurance Company (S A) Ltd and
Momentum Group Ltd. We explain below our reasons for this conclusion.
The Parties to the transaction
[2] The primary acquiring firm is Old Mutual Life A ssurance Company (SA) Ltd
(“OMLACSA”), a public company incorporated in accor dance with the laws of
the Republic of South Africa. Its ultimate South Af rican shareholder is Old
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Mutual (South Africa) Limited which is controlled b y Old Mutual PLC.
OMLACSA controls in excess of twenty subsidiaries.
[3] The primary target firm is Momentum Group Ltd ( “Momentum”), in respect of
certain Transfer Policies and Transfer Assets. Mome ntum is a wholly owned
subsidiary of MMI Holdings Limited and ultimately F irstRand Limited.
Momentum controls a number of subsidiaries.
[4] In April 2009, the parties concluded a transfer agreement in terms of section
37(2) 1 of the Long-Term Insurance Act 52 of 1998 (“transfer agreement”). The
transfer agreement involved the transfer of Policie s and Assets from
Momentum to OMLACSA. These Policies comprised of ri ghts and duties
emanating from certain linked policies issued by Mo mentum to their
shareholders and include the policies of institutio nal customers such as
Nestle Provident Fund, Eskom Pension Fund and MacSt eel Group Pension
Plan, amongst others. These customers gave consent to the transfer in
question. The Assets mentioned represent the underl ying assets associated
with these policies and are purely of an investment nature. They are held by
Momentum in order to meet its liabilities towards t he policyholders. These
assets include amongst others certain retail properties.
The Rationale
[5] This transfer was triggered by the acquisition of Futuregrowth (which was
initially solely controlled by Momentum, until WipC apital (Pty) Ltd acquired a
70% interest in it) by Old Mutual in 2008. After th e acquisition, Momentum
was no longer comfortable with the arrangement it h ad with Futuregrowth
because of its close ties with the Old Mutual Group , one of Momentum’s
significant competitors. Various ways in which term ination could take place
were considered and it was decided that a transfer in terms of section 37 (2)
of the Long Term Insurance Act was the most suitabl e, as such transfer took
1 It provides that “ Any arrangement entered into between two or more in surers whereby a liability of
any long-term insurer towards policyholders is to b e substituted for a liability of any other insurer
towards such policyholders (whether or not the liab ility of the long-term insurer is expressed in or
created by existing policies or by new policies, or the terms of such new policies are the same as or
different from the terms of the original policies), shall be deemed for the purposes of this section t o be
a scheme for the transfer of the insurance business concerned, unless the Registrar is satisfied that the
said policyholders have been or will be made aware of the nature of such substitution and have
signified or will signify their consent thereto in writing”.
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the interests of the policyholders into account. Pr ior to this acquisition,
Futuregrowth managed the transfer assets linked to policies that were sold
and issued by Momentum to a diverse group of policy holders (“linked
policies”). 2
The parties’ activities
[6] The acquiring group offers a diverse range of f inancial products and services.
OMLACSA is a registered long term insurance provide r currently authorised
to provide amongst others, life policies, assistanc e policies, disability policies,
and health policies. It operates in both individual and group life segments of
the market.
[7] Momentum is involved in life insurance, investm ent and multi-management
activities within the FirstRand group as well as th e provision of medical aid
scheme administration services and managed care services.
The relevant market and the impact on competition
[8] The Commission found that there is a horizontal overlap in the long-term
insurance, specifically the market for linked polic y 3 investment products
offered to institutional clients.
[9] According to the Commission, long term insuranc e can be subdivided into
individual and group (institutional), risk and inve stment, as well as linked and
non-linked policies. The two subcategories, risk an d investment, are offered
to both institutional and individual customers. Acc ording to the Commission,
when an individual takes a risk or investment polic y with a long term insurer,
the contract is directly between that particular in dividual and the long term
insurer and institutional customers take out risk a nd investment policies on
behalf of their members. The Commission submitted t hat in non-linked
policies, the insured party is often guaranteed to receive a pre-determined
2 The Long Term Insurance Act defines a linked polic y as “ a long term policy of which the amount of
the policy benefits is not guaranteed by the long t erm insurer and is to be determined solely by
reference to the value of particular assets or categories of assets which are specified.”
3 The Long Term Insurance Act defines a linked policy as “a long term policy of which the amount of
the policy benefits is not guaranteed by the long term insurer and is to be determined solely by
reference to the value of particular assets or categories of assets which are specified in the policy and
are actually held by or on behalf of the insurer specifically for purposes of the policy.” See pg 13 of
Commission’s record.
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amount whereas in linked policies, the benefit is d ependent on the value of
the assets linked to the policies.
[10] The Commission further submitted that long ter m insurers administer
individual products differently from institutional products and that although
there is some degree of supply side substitutabilit y, there is limited demand
side substitutability. Further that there is also l imited demand side
substitutability between risk and investment produc ts as well as linked and
non-lined policies. However, both the Commission an d the merging parties
did not make a definitive conclusion on the broad r elevant product market,
this being due to the fact that from the Tribunal’s previous decisions, there
has been a tendency to approach the issue of the pr oduct market on a case
by case basis. 4 Nevertheless, the Commission assessed the transact ion
based on the narrow market for long term insurance linked policies.
[11] The Commission also found that the relevant ge ographic market is national
in scope.
[12] The Commission submitted that Long Term Insure rs are required to be
registered in terms of the Long Term Insurance Act 52 of 1998 and certain
requirements have to be followed including what is termed capital adequacy
requirement (“CAR”) which currently is R10, 000, 00 0. The Commission also
found that barriers to entry in the linked policies space are relatively low as
compared to the broad long term insurance market. H owever, although
barriers to entry appear to be relatively high in t he broad long term insurance
market and relatively lower in the linked policies, the Commission submitted
that such barriers are not insurmountable.
[13] The Commission submitted that its investigatio n revealed that clients are
able to switch between competitors given that long term insurers offer the
same broad classes of products subject to notice pe riods and policy
provisions and that depending on the type of linked policy, a termination
provisions and that depending on the type of linked policy, a termination
charge may be levied by the long term insurers. How ever, the Commission
submitted that the merging parties indicated that t he policies involved in the
present transaction are not subject to termination charges. This, the
4 See pg 13-14 of the Commission’s record.
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Commission submitted, is an indication of the prese nce of countervailing
power in the linked policy space.
[14] In relation to theories of harm that may resul t as a result of the merger, the
Commission submitted that given the low share accre tion, the high degree of
countervailing power, barriers to entry which are n ot insurmountable and the
number of rivals in the market, it is unlikely that the transaction will give rise to
unilateral effects. Further that coordinated effect s are unlikely to arise as the
market has significant number of players with some degree of product
differentiation and the transfer of the linked poli cies also removes a point of
possible interaction between Old Mutual and Momentu m. Therefore it is
unlikely that the transaction will result in an inc rease in the likelihood for
coordination.
[15] Additionally, the Commission also found that t here is another overlap in
respect to convenience/neighbourhood shopping centr e as both the Old
Mutual Group and Momentum, through its wholly owned subsidiary
Community Property Holdings Limited (“CPH”) control shopping centres in
Mitchell’s Plain, in Cape Town. However, the Commis sion found that with a
post merger market share of 21% and a share accreti on of roughly 3%, the
transaction is unlikely to result in substantial pr evention or lessening of
competition in this market.
[16] Accordingly, the Commission found that the pro posed transfer of specific
linked policies from Momentum to Old Mutual does no t enhance Old Mutual’s
market power in a manner likely to prevent or lesse n competition and that
there are significant competitive constraints in th e market to limit the ability of
the merged entity to exercise market power post mer ger. As such, the
Commission concluded that the transaction is unlike ly to result in the
substantial prevention or lessening of competition in the relevant market.
CONCLUSION
[17] The parties submitted that the proposed transa ction will not result in
CONCLUSION
[17] The parties submitted that the proposed transa ction will not result in
employment losses. The proposed transaction does not raise any other public
interest issues.
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[18] We agree with the Commission’s conclusion abov e and find that the merger
is unlikely to lead to any substantial prevention o r lessening of competition in
the relevant market. Accordingly, we approve the ab ove merger
unconditionally.
____________________ 21 November 2011
ANDREAS WESSELS DATE
Medi Mokuena and Andiswa Ndoni
Tribunal Researcher:
Tebogo Hlafane
For the merging parties: Cliffe Dekker Hofmeyr
For the Commission: Bongani Ngcobo