COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:108/LM/Dec11
[013763]
In the matter between:
Southern Sun Hotels (Pty) Ltd Acquiring Firm
And
Hotel Formula 1 (Pty) Ltd Target Firm
Panel : Yasmin Carrim (Presiding Member),
Medi Mokuena (Tribunal Member)
Takalani Madima (Tribunal Member)
Heard on : 14 March 2012
Order issued on : 14 March 2012
Reasons issued on : 22 March 2012
Reasons for Decision
Approval
1] On 14 March 2012 the Competition Tribunal approved the merger
between Southern Sun Hotels (Pty) Ltd and Hotel Formula 1 (Pty) Ltd.
The reasons follow below.
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The Transaction
2] The target company, Hotel Formula 1(Pty) Ltd (“Hotel Formula 1”) is a
joint Venture between Southern Sun Hotels (Pty) Ltd (“Southern Sun
Hotels”) and Accor SA. Southern Sun Hotels is increasing its 47.4%
interest to 100% by acquiring the remaining shares of 52.6% held by
Accor SA, thereby moving from joint to sole control.
3] Both the acquiring and target firms are private companies incorporated
in terms of the laws of the Republic of South Africa. Southern Sun
Hotels is an indirectly wholly owned subsidiary of Tsogo Sun Holdings
Ltd. Accor SA is a wholly owned subsidiary of Accor, a company
incorporated in terms of the laws of France.
The Rationale
4] According to Accor it is selling its interest in Hotel Formula 1 because it
wants to focus on the operational side of running hotels rather than
hotel real estate which is capital intensive. Southern Sun is exercising
its pre-emptive right to acquire the shares in Hotel Formula 1.
The parties and their activities
1] Hotel Formula 1 provides low budget hotel accommodation, which is
graded as 1 star. Hotel Formula 1 is located throughout South Africa.
2] The Tsogo Sun Group is involved in hotel, gaming, exhibition and
conference facilities and the entertainment industry and has a local as
well as international presence. Southern Sun owns 93 hotels in eight
countries. In South Africa it, inter alia, operates 2/3 star graded hotels
under the Stay Easy brand in Cape Town, Johannesburg, Nelspruit,
Witbank, Pretoria, Harrismith and Pietersburg.
3] The Commission, in its investigation, found that rates per night for
single rooms at Hotel Formula 1 were between R437 – R644 and at
Stay Easy hotels between R549 – R690. The Commission therefore
decided to define the relevant product market as the market for hotel
accommodation with a star grading of 1, 2 and 3. Within this product
market the parties’ activities overlap in Cape Town, Pretoria, Nelspruit,
Witbank and Johannesburg.
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The impact on competition
4] The Commission had calculated the market shares by using the
number of rooms available in each geographic area. According to the
Commission it was conservative in its approach and did not include all
the establishments available in an area, for instance it did not include
Bed and Breakfast accommodation. It only included the top 10
establishments per area. Based on this methodology it calculated the
merged entity’s market share post the transaction as:
City Post Merger Market share %
Cape Town 12
Johannesburg 19.5
Pretoria 9.9
Nelspruit 16.4
Witbank 19.6
5] As indicated above there are a number of low budget hotels and Bed
and Breakfast accommodation in each city that have not been taken
into account in calculating the market shares. A number of travel
agencies indicated to the Commission that it was easy for them to
switch between different hotels in these geographic areas, indicating
that countervailing power exists in the market. Barriers to entry are high
though not insurmountable and according to the Tourism Grading
Council it would only take approximately three years for a new entrant
to enter the market and become competitive.
6] The hotel industry in South Africa is currently facing a difficult period
after the soccer world cup with less demand for local accommodation.
The worldwide economic downturn has also had a negative impact on
the tourism industry and local travellers tend to return to their home
towns after business appointments to save costs rather than overnight
at a hotel. The decrease in demand has lead to an oversupply of
accommodation in the main cities.
7] In light of the above, we find that the transaction would not substantially
prevent or lessen competition in the relevant geographic markets.
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CONCLUSION
8] There are no significant public interest issues and we accordingly
approve the transaction.
____________________ 22 March 2012
Yasmin Carrim DATE
M Mokuena and T Madima concurring.
Tribunal Researcher: Rietsie Badenhorst
For the merging parties: Nortons Inc
For the Commission: Bheki Masilela
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