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[2013] ZACT 86
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Hyprop investments Ltd v Sycom Property Fund Managers Ltd (016683) [2013] ZACT 86; [2013] 2 CPLR 530 (CT) (7 August 2013)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No.: 016683
In
the matter between:
Hyprop
investments Limited Primary Acquiring Firm
and
Sycom
Property Fund Managers Limited in respect of the property letting
enterprise known as “Somerset Mali” and in Somerset
Mail
Property Management Company (Pty) Ltd Primary Target Firm
Panel
Andreas
Wessels (Presiding Member)
Mondo
Mazwai (Tribunal Member)
Anton
Roskam (Tribunal Member)
Heard
on
24
July 2013
Order
issued on :
25
July 2013
Reasons
issued :
07
August 2013
DECISION
Conditional
approval
1.
On 25 July 2013, the Competition Tribunal (“Tribunal”),
in terms of
section 16(2)(b)
of the
Competition Act of 1998
1
,
conditionally approved the acquisition by Hyprop Investments Limited
of the property letting enterprise known as “Somerset
Mall”
and Somerset Mall Property Management Company (Pty) Ltd from Sycom
Property Fund Managers Limited.
2.
The reasons for conditionally approving the proposed transaction
follow.
Parties
to transaction
Acquiring
firm
3.
The primary acquiring firm is Hyprop Investments Limited (“Hyprop"),
a property loan stock company listed on the Johannesburg
Securities
Exchange South Africa (JSE). It specialises in the investment in
prime shopping centres. Hyprop currently owns seventeen
properties
comprising office and retail properties located in South Africa.
4.
With regards to shopping centres, Hyprop currently owns eleven
shopping centres. Seven of these properties are located in Gauteng,
being Hyde Park Corner, The Glen Shopping Centre, The Mall of
Rosebank, Stoneridge Shopping Centre, Clearwater, Woodlands Boulevard
and Atterbury Value Mart. The remaining four properties are located
in the Western Cape, being Canal Walk, CapeGate Regional Shopping
Precinct, Willowbridge and Somerset Value Mart. Of relevance to the
competition assessment of this transaction is Somerset Value
Mart
which is classified as a community (value) centre and is situated
within five kilometres from Somerset Mall.
5.
Hyprop conducts its own asset and property management functions and
does not provide external property management to third parties.
Target
firm
6.
The primary target firm is Sycom Property Fund Managers Limited
(“SPFM”) in respect of the property letting enterprise
known as “Somerset Mall” and Somerset Mall Property
Management Company (Pty) Ltd (“Somerset Mall ManCo”).
Somerset Mall is categorised as a major regional centre located in
the Somerset node in the Western Cape. Somerset Mall ManCo is
the
property management company that was established for the purposes of
providing a management entity to manage Somerset Mall.
7.
SPFM is a wholly-owned subsidiary of Acucap Properties Limited
(“Acucap”) and manages Sycom Property Fund Collective
Investment Scheme in Property (“Sycom”). Sycom’s
major unit holders are: (i) Hyprop (33.88%) and Acucap (17.22%).
Sycom is a closed-end property unit trust listed on the JSE.It
invests directly and indirectly in retail and office space. Acucap
is a property loan stock company listed on the JSE. According to the
merging parties, Sycom is controlled by Acucap. Acucap performs
Sycom’s asset management services and retains day to day
control of the assets.
2
Proposed
transaction and rationale
8.
The proposed transaction represents a “buy-back” of
shares.
3
Ultimately Hyprop intends acquiring 100% of respectively Somerset
Mall and Somerset Mall ManCo from Sycom giving Hyprop sole
control
of Somerset Mall and Somerset Mall ManCo post-merger.
9.
Hyprop’s rationale for this transaction is two-fold: the
target property will complement Hyprop’s property portfolio
and will result in Hyprop converting its indirect investment in
Somerset Mai! (through its unitholding in Sycom) into a direct
property asset, thereby enabling Hyprop to exit from its investment
in Sycom.
4
10.
Sycom’s rationale for this transaction is to facilitate the
exit of Hyprop from Sycom and to enable Sycom’s Board
to
maximise its investment returns for unitholders.
5
11.
This merger was filed along with another “large” merger
(Tribunal case number 016659) in terms of which Sycom
acquired an
additional 50% shareholding in respectively Somerset Mall and
Somerset Mall ManCo from AECI Pension Fund. In order
for the
Hyprop-Sycom transaction to occur, the Sycom-AECI Pension Fund
transaction must first take place.
Competition
assessment
12.
Hyprop currently owns four rentable retail properties in the Western
Cape, with three of them being located more than 35 kilometres
away
from Somerset Mall.
6
These latter three shopping centres therefore do not represent any
competition concerns in relation to the acquisition of Somerset
Mall
given their relative distance from Somerset Mall.
13.
Hyprop’s fourth property, namely Somerset Value Mart, is
situated 450 metres from Somerset Mall and is classified as
a
community shopping centre. The Commission however concluded that
this also does not raise any competition concerns since (i)
Somerset
Value Mart and Somerset Mall are not close competitors; (ii) a large
number of other shopping centres not owned by the
merging parties
are located within a 10 to 15 kilometre radius around Somerset Mall;
and (iii) no customers raised any competition
concerns regarding the
proposed transaction.
14.
We have no reason to doubt the Commission’s findings and
therefore conclude that the proposed transaction does not
substantially prevent or lessen competition in any relevant market.
Public
interest
Employment
15.
The merging parties confirmed that the proposed transaction will
have no adverse effect on employment.
7
Effect
on small business
16.
In respect of Somerset Mall, the Commission found an exclusivity
clause in the lease agreement between the landlord and one
of the
anchor tenants, namely Pick ‘n Pay Stores Limited (“Pick
‘n Pay”). This exclusivity clause has
the potential
effect of preventing small businesses from accessing Somerset Mall,
such as grocery stores and bakeries of a certain
size, cafes and
delicatessen which sell fresh fish or meat; butcheries other than
halaal butcheries; and fresh produce businesses.
8
17.
To date the Commission has investigated and referred a number of
property transactions to the Tribunal in which it identified
a
public interest concern relating to the existence of exclusivity
clauses in various lease agreements concluded between landlords
and
their respective anchor tenants.
9
The Commission in those matters recommended that the mergers should
be approved by the Tribunal subject to conditions to address
the
effect of the proposed transaction on the ability of small
businesses to become competitive. The recommended conditions
typically required the acquiring firm in a particular transaction to
undertake to use its best endeavours to negotiate with the
anchor
tenant in good faith to remove the exclusivity clause(s) at some
future date. The Tribunal, in terms of
section 12A(3)(c)
of the Act,
approved a number of large mergers on this basis.
18.
In a more recent Tribunal decision of 13 June 2013, we approved a
retail property merger involving
Fortress
Income 2 (Pty) Ltd
(“Fortress”) (Tribunal case number: 016519) without any
conditions relating to the removal of an existing exclusivity
clause, given that the condition, if imposed, would be ineffectual
since there was no available retail space at the relevant
shopping
centre (i.e. Nelspruit Plaza) to offer to new tenants and
furthermore no prospect of it expanding beyond its present
size.
10
In line with the latter Tribunal decision, the Commission in this
case investigated (i) the current vacancy rate at Somerset
Mail;
(ii) the number of entries and exits of tenants for the past three
years; (iii) the number of lease agreements which terminate
within
the next two years; and (iv) whether any expansion of Somerset Mall
is envisaged within the next two years. Having regard
to these
factors, the Commission concluded that there are practical
possibilities for small businesses to enter Somerset Mali
and that
the exclusivity clause in the Pick ‘n Pay lease agreement
therefore has the potential of excluding small businesses
from
Somerset Mall. More specifically, the Commission found that there
were numerous lease agreements that terminate within the
forthcoming
two years and further found evidence of entry and exit from Somerset
Mall. The case before us now is thus factually
different from the
Fortress
matter.
19.
The Commission further investigated whether two shopping centres in
the geographic vicinity of Somerset Mall, namely (i) the
Habitat
Centre
@
The
Mall
and
(ii)
Waterstone
Village Shopping Centre
could accommodate new or expanding small businesses. The Commission
concluded that these two shopping centres (both classified
as
neighbourhood shopping centres, as opposed to the Somerset Mall
being a major regional centre) are within a five kilometre
radius
from Somerset Mall, that they both have available retail space and
that the lessors have no exclusivity clauses in their
lease
agreements with the lessees. The Commission, based on this
information, recommend that no condition be placed on the proposed
transaction to address the relevant public interest issue.
20.
However, the Commission did not consult any small businesses
regarding the substitutability of the above-mentioned two shopping
centres and Somerset Mall from a small tenant’s perspective.
Furthermore, the Tribunal was concerned that one of the centres
identified as a potential alternative to the affected small
businesses had a relatively high vacancy rate, which raised
questions
regarding it being a real alternative from the perspective
of a new small business or an existing small business wishing to
expand.
We further note that, from a small tenant’s
perspective, there may be important differences between Somerset
Mall and the
two above-mentioned centres, such as footfall, tenant
mix, proximity and availability of public transport, building
structure
and design, size, number of parking bays and the structure
thereof, mall classification and trading hours. Given the lack of
this type of information and of the requirements of small businesses
of the type currently excluded from entering Somerset Mall,
we
concluded that the above- mentioned exclusivity clause in the lease
agreement between the landlord and Pick ‘n Pay raises
a
potential substantial public interest concern in terms of
section
12A(3)(c)
of the Act.
21.
Since the merging parties tendered a condition that addressed the
public interest concern relating to small business, we approved
the
merger conditionally on the basis of such an undertaking, namely
that:
21.1.
Sycom (in relation to Tribunal case number 016659) and Hyprop (in
relation to Tribunal case number 016683) jointly undertake
to use
reasonable commercial endeavours to negotiate with Pick ’n
Pay, in the utmost good faith within sixty (60) days
of the
Tribunal’s order, to remove the exclusivity clause contained
in the lease agreement between the landlord and Pick
‘n Pay.
Other
public interest issues
22.
Apart from the above-mentioned concern relating to the ability of
small businesses to become competitive, the proposed merger
raises
no other public interest concerns.
CONCLUSION
23
We approve the proposed transaction subject to the conditions set
out in the attached
“Annexure
A”.
ANDREAS
WESSELS
08
August 2013
DATE
Mondo
Mazwai and Anton Roskam concurring
Tribunal
Researcher: Nicola llgner
For
the Commission: Jatheen Bhima
For
the merging parties: Vani Chetty Competition Law
ANNEXURE
A
Hyprop
Investments Limited and Sycom Property Fund Collective Investment
Scheme in Property, in respect of the property letting
enterprise
known
as “Somerset Mall” and in Somerset Mall Property
Management
Company
(Pty) Ltd
Tribunal
Case number: 016683 CONDITIONS
1.
DEFINITIONS
The
following expressions shall bear the meanings assigned to them below
and
cognate
expressions bear corresponding meanings -
1.1.
“Approval Date” means the date referred to in the
Competition Tribunal’s merger clearance certificate (Form
CT
10);
1.2.
“Commission” means the Competition Commission of South
Africa;
1.3.
“Conditions” means these conditions;
1.4.
“Hyprop” means Hyprop Investments Limited;
1.5.
“Merger” means the acquisition by Hyprop of control over
Somerset Mai! and Somerset Mall Property Management Company
(Pty)
Ltd;
1.6.
“Merging Parties: means Hyprop and Sycom in respect of the
property letting enterprise known as “Somerset Mall”
and
Somerset Mall Property Management Company (Pty) Ltd;
1.7.
“Pick ‘n Pay” means Pick ‘n Pay (Pty) Ltd;
and
1.8.
“Sycom” means Sycom Property Fund Collective Investment
Scheme in Property, in respect of the property letting
enterprise
known as “Somerset Mall” and in Somerset Mall Property
Management Company (Pty) Ltd.
2.
RECORDAL
2.1.
Hyprop has agreed to the following undertakings meant to address the
public interest concerns.
2.2.
The present merger is interrelated to the acquisition of the
remaining 50% share in Somerset Mall and the Somerset Mail Management
Company (Pty) Ltd by Sycom, under Tribunal Case number 016659.
3.
CONDITIONS TO THE APPROVAL OF THE MERGER
Hyprop
(in relation to Tribunal case number 016683) and Sycom (in relation
to Tribunal case number 016659) jointly undertake to
use reasonable
commercial endeavours to negotiate with Pick ’n Pay, in the
utmost good faith within sixty (60) days of the
Tribunal’s
order, to remove the exclusivity clause contained in the lease
agreement between the landlord and Pick ‘n
Pay.
4.
MONITORING OF COMPLIANCE WITH THE CONDITIONS
Hyprop
(in relation to Tribunal case number 016683) or Sycom (in relation to
Tribunal case number 016659) undertake to provide the
Commission with
an affidavit setting out the outcome of the negotiations with Pick ‘n
Pay, as contemplated in paragraph 3
above, within ninety (90) days of
the Tribunal’s order.
1
Act
No. 89 of 1998, as amended.
2
See
page 67 of the merger record.
3
See
merger record
inter
alia
page 25.
4
See
page 64 of the merger record.
5
See
page 64 of the merger record.
6
Canal
Walk, CapeGate and Willowbridge (see paragraph 4 above).
7
See
pages 18, 61 and 77 of the merger record.
8
See
pages 309 to 336 of the merger record, specifically page 322 which
contains the exclusivity provisions of the lease agreement.
9
See
inter
alia Accelerate Property Fund Limited
and
15
letting enterprises being sold by Fourways Precinct (Pty) Ltd
(Tribunal case number: 016170);
Fairvest
Property Holdings Limited
and A
portfolio
of commercial properties of the South African Corporate Real Estate
Fund
(Tribunal case number: 015610);
Redefine
Properties Limited
and
Hyprop
Investments Limited in respect of
a
50%
undivided share of the business enterprise known as “South
Coast Mall”
(Tribunal case number: 014993); and
Growthpoint
Properties Limited
and
Liberty
Group Limited in respect of a 64.29% interest in the business
enterprise known as “Alberton City”
(Tribunal
case number: 014415).
10
See
large merger involving
Fortress
Income 2 (Pty) Ltd
and
The
immovable proprietary and property letting enterprises of Pick 'n
Pay Rustenburg, Central Park Bloemfontein, Nelspruit Plaza,
New
Redruth Alberton, Sterkspruit Plaza and Tzaneen Centre
(Tribunal case number: 016519).