COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 11/AM/Jan12
In the request for consideration of an intermediate merger:
Synergy Income Fund Ltd First applicant
Khuthala Alliance (Pty) Ltd Second applicant
And
The Competition Commission Respondent
In the intermediate merger between:
Synergy Income Fund Ltd Primary acquiring firm
And
Khuthala Alliance (Pty) Ltd Primary target firm
Panel : Andreas Wessels (Presiding Member)
Medi Mokuena (Tribunal Member)
Takalani Madima (Tribunal Member)
Heard on : 07 March 2012
Order issued on : 08 March 2012
Reasons issued on : 20 July 2012
Reasons for Decision
Conditional approval
1. On 08 March 2012 the Competition Tribunal (“Tribunal”), in terms of
section 16(2)(b) of the Competition Act of 1998 1, conditionally approved
the intermediate merger between Synergy Income Fund Ltd and Khuthala
Alliance (Pty) Ltd.
2. This merger was approved subject to the following conditions:
1 Act No. 89 of 1998, as amended.
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2.1. The merging parties shall negotiate with Spar and its franchisee in the
utmost good faith to have their exclusivity clause removed at the
renewal of the release in the King Senzangakhona Shopping Centre in
2018.
2.2.The merging parties shall provide a report to the Competition
Commission within 30 (thirty) days after entering into a new lease
agreement with Spar and its franchisee in the King Senzangakhona
Shopping Centre in 2018, setting out in detail the extent to which they
have compiled with this condition.
Background
3. The Competition Commission (“Commission”) on 13 January 2012
approved the proposed transaction subject to certain conditions. The
merging parties on 27 January 2012, in terms of section 16(1)(a) of the
Act, requested the Tribunal to consider the merger since they were not
amenable to the Commission’s imposed conditions. However, by the time
of the Tribunal hearing the Commission and merging parties had agreed
on conditions to address the Commission’s identified concerns and we
have imposed those conditions.
Parties to proposed transaction
4. The primary acquiring firm is Synergy Income Fund Ltd (“Synergy”), a
company incorporated in terms of the laws of the Republic of South Africa.
Synergy is a variable loan stock company in terms of which each investor
acquires linked units consisting of a share and a variable rate
subordinated debenture. The debenture portion of the linked unit earns
interest at a variable rate. Profits are distributed to investors in proportion
to each investor’s participation in Synergy.
5. Of relevance to the competition assessment of this transaction is that
Synergy owns certain retail property assets classified as neighbourhood
shopping centres, namely the Sediba Plaza located in Hartebeespoort
Dam, North West and the KwaMashu Shopping Centre in Durban,
KwaZulu-Natal.
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6. Synergy was established by Capital Land Asset Management (Pty) Ltd
(“the Fund Manager”) through its close association with Spar Group Ltd
(“Spar Group”). The Fund Manager manages and administers the
business and affairs of Synergy. Of specific relevance is that Spar Group
has a 20% shareholding in the Fund Manager. The other shareholders of
the Fund Manager are Baleine Capital (Pty) Ltd; AM Family Trust; The
Brooks Family Trust; Liberty Group Properties (Pty) Ltd; and Capital Land
Asset Management Employee Trust.
7. The primary target firm is Khuthala Alliance (Pty) Ltd (“Khuthala”), a
private company incorporated in terms of the laws of the Republic of South
Africa. The transferring firm is the letting enterprise known as King
Senzangakhona Shopping Centre (“KS Shopping Centre”), situated in
Ulundi, KwaZulu-Natal, which Khuthala currently owns. KS Shopping
Centre is categorised as a community centre.
Proposed transaction and rationale
8. In terms of the Letting Enterprise Purchase Agreement, Synergy will
acquire the above-mentioned letting enterprise from Khuthala, comprising
the fixed and moveable assets, goodwill as well as rights and obligations
of Khuthala.
9. According to Synergy the acquisition of KS Shopping Centre is in line with
its strategy of investing in convenience retail property assets that
demonstrate strong potential for income and capital growth.
10. Khuthala no longer wishes to own KS Shopping Centre and the
shareholders of Khuthala are taking this opportunity to realise their
investment to enable them to invest in other areas of the property market.
Impact on competition and public interest
11. The activities of the merging parties overlap horizontally in respect of the
provision of rentable retail space in South Africa. As stated above,
Synergy owns certain rentable retail properties classified as
Synergy owns certain rentable retail properties classified as
neighbourhood centres. Synergy however does not own any community
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centre in or near Ulundi, KwaZulu-Natal. Accordingly, the proposed merger
is unlikely to lead to a substantial prevention or lessening of competition in
any relevant market since there is no geographic overlap between the
activities of the merging parties.
12. The Commission however concluded that there is a public interest concern
arising from the proposed transaction given that the lease agreement
between Spar and the landlord (Khuthala) contains an exclusivity clause.
The Commission found that this exclusivity clause has the effect of
preventing small businesses from competing with Spar in the KS Shopping
Centre.
13. The Commission has conducted a broader investigation into the property
market and has found an industry practice of property developers entering
into exclusive anchor tenant agreements with the major supermarket
chains for lengthy periods. In the Commission’s view this functions as a
barrier to entry and is designed to exclude competitors or alternatively has
the effect of excluding entry by competing retailers. Furthermore, the
Commission’s supermarkets’ investigation has revealed that it is the small
independent retailers whose ability to grow and compete effectively with
major supermarket chains that is most hampered as they are not afforded
an opportunity to trade in certain shopping malls. The Commission
concluded that by gaining exclusivity in malls, the major supermarket
chains foreclose small independent retailers, speciality so-called part-line
stores such as bakeries, butcheries and take-away food outlets.
14. We concur with the Commission’s finding that the afore-mentioned
exclusivity clause in the lease agreement between Spar and Khuthala
raises a public interest concern in terms of section 12A(3)(c) of the Act
since it prevents certain small businesses from gaining access to rentable
retail space in the KS Shopping Centre. We consider the imposition of the
retail space in the KS Shopping Centre. We consider the imposition of the
stated conditions (see paragraph 2 above) as appropriate and proportional
in these circumstances to address this public interest concern.
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15. We note that the merging parties submitted that the proposed merger will
not have any adverse effect on employment in South Africa.2
CONCLUSION
16. We approve the above-mentioned proposed intermediate merger subject
to the conditions attached hereto as “Annexure A”.
____________________ 20 July 2012
A Wessels DATE
Medi Mokuena and Takalani Madima concurring
Tribunal researcher: Thabo Ngilande
For the merging parties: Webber Wentzel Attorneys
For the Commission: Jabulani Ngobeni
2 See pages 9 and 73 of the Commission’s merger record.
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