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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:
016576
In the matter between:
Land and Agricultural Bank of South Africa
Acquiring Firm
And
The Operating Lending Book of
Target Firm
Suidwes Agriculture (Pty) Ltd
Panel : Norman Manoim (Presiding Member)
Imraan Valodia (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on : 21 May 2013
Order issued on : 21 May 2013
Reasons issued on : 03 June 2013
Reasons for Decision
Approval
On 21 May 2013, the Competition Tribunal (“Tribunal ”) approved the merger
between Land and Agricultural Bank of South Africa (“LandBank”) and The
Operating Lending Book (“Lending Book”) of Suidwes Agriculture (Pty) Ltd
(“Suidwes”). The reasons for approving the proposed transaction follow
below.
Parties to the transaction
[1] The primary acquiring firm is LandBank an entit y incorporated and
governed through the Land and Agriculture Developme nt Bank Act.
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LandBank is a specialist financier of agriculture a nd rural development,
1 Act no 15 of 2002.
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which provides wholesale and retail lending to agri cultural cooperatives
and emerging farmers. Such funds can be in the form of revolving loans,
long-term mortgages and insurance operations.
[2] The primary target firm is the Lending Book of Suidwes. The Lending Book
is used to provide retail funds directly to agricul tural clients who require
such capital to fund their farming and agro-process ing activities. Suidwes
is a company incorporated in terms of the laws of t he Republic of South
Africa as a wholly-owned subsidiary of Suidwes Inve stment Limited
(“Suidwes Limited”), which in turn is controlled by Suidwes Holdings (RF)
Limited (“Suidwes Holdings”).
Rationale for the transaction
[3] Mr Derek Linde of Suidwes testified that his co mpany wants to exit the
lending market because of its risk profile and thus wants to concentrate on
its core business as a provider of agricultural services.
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Relevant markets and impact on competition
[4] The Commission and the merging parties submitte d the relevant product
market to be the market for the provision of wholes ale financing and retail
financing in the agricultural industry. As such, th ere is horizontal overlap in
the activities of the merging parties as they both active in the market for
retail financing in the agricultural industry.
[5] Although the transaction also has vertical aspe cts to it, since LandBank
provides wholesale trading to the Lending Book the Commission found no
reason to have concerns as the amount of the total value of wholesale
funding by LandBank to the Lending Book is very minimal.
[6] In addition to this, the Commission submitted t hat the proposed
transaction would not lead to any input foreclosure as there are many
2 See Transcript of hearing para 10, page 7.
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alternatives to the merged entity that customers co uld switch to post
merger.
[7] The merging parties submitted during the hearin g that the Commission did
not err in defining the geographic market as nation al even thought the
target firm operates at regional level, as post-mer ger it will be able to
operate at a more national level as it will no longer have limited capacity. 3
Market share
[8] Post merger, the merged entity will have a mark et share of 24.8% in the
retail funding market to the agricultural industry. Although this figure is high
the accretion in market share from the Lending Book will only be 1.8%,
which the Commission submitted did not raise any co ncerns, as the
merged entity would continue to compete with firms such as ABSA, MGK
and Senwes, post merger.
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Barriers to Entry
[9] The merging parties acknowledged that barriers to entry are high but
argued that they were not insurmountable in both re levant product
markets. These range from regulatory barriers to hi gh capital outlay. For
one to enter the market for the wholesale of fundin g in the agricultural
industry, a capital outlay of R65 million is requir ed, and R875 million as
capital outlay in the wholesale lending market is required.
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Our Analysis
[10] Although we agree with much of the Commission’ s reasoning we would
place a different emphasis on the facts. Whilst the merger takes the form
of an acquisition of an asset, in substance it lead s to the removal of
3 See Transcript of hearing para 20, page 7.
4 See para 11, page 20 of Commission’s Referral Report.
5 See merger record in Competitiveness Report submitted by merging parties on page 254-256.
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Suidwes as a competitor in the agricultural loan ma rket. This much was
conceded at our hearing. 6 Suidwes will post merger became an agent for
the LandBank in sourcing loans.
[11] Secondly, whilst the Commission has identified the retail loan market
as national it also emerged at the hearing that Sui dwes had a regional
focus confined to the area where its co-operative business had traditionally
existed.
[12] Despite this we still consider that the Commis sion’s conclusion that the
merger raises no competition concerns is correct, a s Suidwes operations
were small, its competitiveness was declining and p ost merger the
Landbank will become a more effective competitor na tionally in agricultural
loan provision.
CONCLUSION
[13] There are no significant public interest issue s and we accordingly
approve the transaction without conditions.
____________________ 03 June 2013
Norman Manoim DATE
Imraan Valodia and Medi Mokuena concurring.
Tribunal Researcher: Caroline Sserufusa
For the merging parties:
Rick van Rensburg for ENS
For the Commission: Rakgole Mokolo
6 See Transcript of hearing para 10 page 6.