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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 016592
In the matter between:
Land and Agricultural Bank of South Africa Acquiring Firm
And
Performing Financial Products of the Lending Book of GWK Ltd Target Firm
Case No.:016626
And the matter between
Land and Agricultural Bank of South Africa Acquiring Firm
And
Statusfin Financial Services (Pty) Ltd Target Firm
Panel : Norman Manoim (Presiding Member),
Takalani Madima (Tribunal Member)
and Anton Roskam (Tribunal Member)
Heard on : 26 June 2013
Order issued on : 26 June 2013
Reasons issued on : 09 July 2013
Reasons for Decision
Approval
[1] On 26 June 2013, the Competition Tribunal (“Tri bunal”) approved the
mergers between The Land and Agricultural Bank of S outh Africa
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(“LandBank”) and The Performing Financial Products of the Lending
Book (“The Lending Book”) of GWK Ltd (“GWK”) and St atusfin
Financial Services (Pty) Ltd (“Statusfin”). For th e sake of convenience
we decided to jointly delineate the reasons for bot h transactions, which
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,
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 firms are:
• The Lending Book, which is used to provide retail funds directly to
agricultural clients who require such capital to fu nd their farming and
agro-processing activities. The Lending Book is act ive throughout
South Africa on a national basis.
• Statusfin, which is a wholly-owned subsidiary of M GK Operating
Company (Pty) Ltd (“MGK”). Statusfin also provides retail funds directly
to agricultural clients who require such capital to fund their farming and
agro-processing activities.
Rationale for the transaction
[3] Due to various similar transactions that have b een notified to the
Commission by LandBank, the Commission decided to p robe further
and find out from LandBank what the rationale was t o its sudden
acquisitions of various cooperatives in the Agricul tural Industry.
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LandBank submitted that because these cooperatives had a limit as to
the funding they are able to receive, it was diffic ult for LandBank as
1 Act no 15 of 2002.
2 See Transcript of hearing para 10, page 7.
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part of its legislative mandate to financially assi st emerging farmers,
and by acquiring the cooperatives it would be easie r for LandBank to
achieve this.
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[4] Mr Jac Marais, on behalf of the merging parties for the Statusfin
transaction, testified that the product LandBank de veloped was unique
in the agricultural environment, and as such there is no limitation on
any of the other competitors to develop a similar p roduct, and therefore
notify similar transactions to the Commission.4
Relevant markets and impact on competition
[5] In both transactions there is a horizontal over lap in the activities of the
merging parties, as both target firms and LandBank supply retail financial
services to the Agricultural industry.
[6] Although the transaction also has vertical aspe cts to it, since LandBank
provides wholesale trading to the Lending Book and Statusfin, the
Commission found no reason to have concerns as the amount of the total
value of wholesale funding by LandBank to both targ et firms is fairly
minimal. In addition to this, the Commission submit ted that the proposed
transaction would not lead to any input foreclosure as there are many
alternatives to the merged entity that customers co uld switch to post
merger.
Market share
[7] Post merger, the merged entity will have a mark et share of 27 % in the
retail funding market to the agricultural industry. Although this figure is
high, the accretion in market share from the Lendin g Book will only be
1.05% for the GWK transaction, and 1.8% for the Sta tusfin transaction,
which the Commission submitted did not raise any co ncerns, as the
merged entity would continue to compete with firms such as ABSA,
Standard Bank, Nedbank and Senwes, post merger.
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3 See Transcript of hearing qt page 6.
4 See Transcript of hearing at page 11.
5 See page 18 of Commission’s Referral Report.
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Barriers to Entry
[8] 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 R2.5 billion is requi red, and R300 million as
capital outlay in the retail lending market is required.
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Our Analysis
[9] The essential question in these types of transa ctions is whether the farmer
as a consumer is better off lending from LandBank, or lending from the
cooperatives. The merging parties during the hearin g submitted that post
merger the status quo would remain the same as a fa rmer would still have
the convenience of continuing to do business with t he cooperatives as
before.
[10] The merging parties have testified to a pro-co mpetitive effect of the
merger. Although interest rates on loans are likely to stay the same,
farmers will be able to source larger loans from th e LandBank than they
were from any of the target firms pre-merger. This is because the
LandBank, with its superior balance sheet, is bette r positioned to extend
loans than either of the target firms.
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[11] The Commission also submitted during the heari ng that it spoke to
farmers during its investigation who were in suppor t of the transactions as
the position post merger would benefit them more th an the current
situation. 8
[12] During the hearing, we asked the Commission ho w it deals with these
types of transactions, i.e. a variety of incrementa l mergers by a particular
6 See merger record (Landbank and GWK) at para 7.1.3, page 76, in Competitiveness Report submitted
by merging parties.
7 See Transcript of hearing at page 8.
8 See Transcript of hearing at page 14.
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firm (in this case LandBank) where none of the merg ers themselves are
significant. The Commission submitted that it takes a holistic approach
wherein it will consider the notifications at hand in conjunction with similar
previous mergers that were notified.
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[13] The Commission went on further to testify that going forward, it will revisit
customers it had spoken to when the first merger wa s notified, to find out
whether these transactions had any pro-competitive gains in the market.
Currently however the Commission did not follow thi s approach as it
submitted that the time span between when the first merger was notified
and the current two transactions, was too short for any evidence of
positive results emanating from the transactions to show in the market. 10
CONCLUSION
[14] There are no significant public interest issue s and we accordingly
approve the transaction without conditions.
____________________ 09 July 2013
Anton Roskam DATE
T Madima and N Manoim concurring.
Tribunal Researcher: Caroline Sserufusa
For the merging parties:
Jac Marais of Adams and Adams, Richard van
Rensburg of Edward Nathans Sonnenbergs
For the Commission: Rakgole Mokolo
9 See Transcript of hearing at page 13.
10 See Transcript of hearing at page 15.