COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 103/LM/Nov11
013706
In the matter between:
Synergy Income Fund Ltd Acquiring Firm
And
Certain letting enterprises owned by
SA Corporate Real Estate Fund Target Firms
Panel : Andreas Wessels (Presiding Member)
Medi Mokuena (Tribunal Member)
Taki Madima (Tribunal Member)
Heard on : 11 April 2012
Order issued on : 11 April 2012
Reasons issued on : 16 May 2012
Reasons for Decision
Conditional approval
1. On 11 April 2012 the Competition Tribunal (“Tribunal”) conditionally
approved the acquisition by Synergy Income Fund Ltd of certain letting
enterprises owned by SA Corporate Real Estate Fund. The reasons for
this conditional approval follow below.
Parties to transaction
2. The primary acquiring firm is Synergy Income Fund Ltd (“Synergy”), a
variable loan stock company in terms of which each investor acquires
linked units consisting of a share and a variable rate subordinate
debenture. Synergy does not control any other firm.
1
Of relevance is that Synergy currently owns certain retail properties
classified as shopping centres. Of further relevance to the competition
and public interest assessment of the proposed transaction is that
Synergy has an existing management agreement with Capital Land Asset
Management (Pty) Ltd (“the Fund Manager”), which is responsible for the
day-to-day management of the fund. The shareholders of the Fund
Manager include Spar Group Ltd (“Spar”), which has a 20% interest in the
Fund Manager.
The primary target (or transferred) firms consist of a portfolio of seven
letting enterprises owned by SA Corporate Real Estate Fund (“SA
Corporate”), a collective investment scheme in property, also known as
Property Unit Trust. The target properties consist of the following retail
shopping centres:
i) The Village Centre (also known as Richdens) located in Hillcrest in
Pinetown;
Hubyeni Shopping Centre located in Elim, Limpopo;
Nzhelele Valley Shopping Centre located in Makhado, Limpopo;
Renbro Shopping Centre located in Hammanskraal, Pretoria;
Van Riebeeckshof Centre located in Bellville, Western Cape;
Highland Mews1 located in Witbank, Mpumalanga; and
Ermelo Game Centre2 located in Ermelo, Mpumalanga.
3. A Spar franchisee is an anchor tenant in the shopping centres identified in
(i) to (v) above.
Proposed transaction and rationale for transaction
4. In terms of the proposed transaction Synergy will acquire the target
properties from SA Corporate each as a going concern. These target
properties will post-merger be managed by the Fund Manager.
5. Synergy’s rationale for the proposed transaction is to generate attractive
income and capital appreciation with long term sustainable growth from
profitable investments in retail property assets in South Africa.
6. SA Corporate no longer wishes to hold the to be transferred part of its
retail property portfolio.
1 Currently anchored by Woolworths.
2 Currently anchored by Game.
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Assessment
No horizontal overlap
7. There is no geographical overlap between the activities of Synergy and
the target properties since Synergy does not own any community and
neighbourhood shopping centres in the same nodes or adjacent to the
nodes where the target properties are located. Therefore, the proposed
transaction raises no competition concerns form a horizontal perspective.
Vertical competition and public interest concerns
8. The Commission raised certain concerns relating to Synergy’s
relationship with Spar. As stated in paragraph 3 above, Spar currently
holds a 20% interest in the Fund Manager which post-merger will manage
the target shopping centres. The Commission’s concerns related to the
risk that such a relationship may exclude small competitors of Spar
franchisees, i.e. so-called “line stores” such as bakeries, butcheries,
green grocers and superettes, from the retail space controlled by
Synergy.
9. More specifically, the Commission concluded that Synergy’s strategy to
invest in shopping centres that are anchored by Spar is of a concern since
it could lead to the foreclosure of certain of Spar’s rivals from these
shopping centres. According to the Commission, given Spar’s relationship
with the Fund Manager, a Spar franchisee could be put in an
advantageous position within a shopping centre and Spar could have the
incentive to exclude potential competitors from a local area by denying
them access to a particular shopping centre. The Commission noted that
this is of particular concern due to certain exclusive lease agreements that
are in place between the Spar franchisees and the respective landlord(s).
These exclusivity provisions exclude certain rivals from setting up shops
within the same shopping centre as the incumbent, i.e. the Spar
franchisee.
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10. The Commission further concluded that the proposed transaction raises
public interest concerns in terms of section 12A(3)(c) of the Competition
Act, 1998 3 since the above-mentioned exclusive leases explicitly deny
space in a particular shopping centre to “part-line” retailers which are
likely to qualify as small businesses in terms of the Act.
11.Given the above concerns the Commission recommended, and the
merging parties agreed, that two conditions be placed on the approval of
the proposed transaction:
11.1.First, Spar should dispose of its shares in the Fund Manager in order
to alleviate the concern around Spar’s relationship with the Fund
Manager. Such an undertaking by Synergy has been made a condition
for the approval of the proposed transaction. In terms of the Tribunal’s
order Synergy shall undertake to procure that the Spar Group shall
dispose of its 20% shareholding in the Fund Manager (see paragraph
3.1 of the imposed conditions).
11.2.Second, to address the concerns relating to exclusivity the
Commission recommended and the merging parties offered to use
their best endeavours to negotiate with Spar to have certain identified
exclusivity provisions removed from the lease agreements with Spar
franchisees in the relevant target shopping centres. This undertaking
has also been made a condition for the approval of the proposed
transaction. The Tribunal’s order states that Synergy shall negotiate
with Spar and its relevant franchisee in the utmost good faith to have
the exclusivity clause in the lease agreement removed at the renewal
of the lease in respect of the relevant centre (see paragraph 3.2 of the
imposed conditions).
Effect on employment
12. The merging parties confirmed that the proposed transaction will not have
any effect on employment in South Africa, more specifically that no
3 Act No. 89 of 1998, as amended.
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retrenchments are envisaged as a result of the proposed transaction.4
CONCLUSION
13. We concur with the Commission’s finding that in the context of this merger
the imposed conditions adequately address and are proportional to any
likely competition and/or public interest concerns arising from the
proposed transaction. For the sake of completeness, the full set of the
Tribunal’s imposed conditions is attached hereto as “Annexure A”.
____________________ 16 May 2012
Andreas Wessels DATE
M Mokuena and T Madima concurring
Tribunal researcher: Londiwe Senona
For the merging parties: Webber Wentzel Attorneys
For the Commission: Jabulani Ngobeni and Zanele Hadebe
4 Merger record, page 14.
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