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[2013] ZACT 102
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SA Corporate Real Estate Fund v A portfolio of commercial property of Lushaka Investments (Pty) Ltd (017145) [2013] ZACT 102 (18 September 2013)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 017145
In
the matter between:
SA
Corporate Real Estate Fund
Acquiring
Firm
And
A
portfolio of commercial property of
Lushaka
Investments (Pty) Ltd
Target
Firm
Panel
Andreas
Wessels (Presiding Member)
Anton
Roskam (Tribunal Member)
Imraan
Valodia (Tribunal Member)
Heard
on
11
September 2013
Order
issued on
11
September 2013
Reasons
issued on :
18
September 2013
Decision
Approval
[1]
On 11 September 2013, the Competition Tribunal (“Tribunal”)
unconditionally approved the acquisition by SA Corporate
Real Estate
Fund (hereafter “SA Corp”) of certain commercial property
of Lushaka Investments (Pty) Ltd (hereafter “Lushaka”).
[2]
The reasons for approval follow below.
Merging
parties
[3]
The primary acquiring firm is SA Corp, a diversified real estate
investment fund. The fund is listed on the Johannesburg Stock
Exchange Limited (JSE). SA Corp’s property portfolio includes
rentable retail space, rentable office space and industrial
properties.
[4]
We note that SA Corp’s largest unit holders include the
Government Employee Pension Fund (“the GEPF”) (holds
27.33% of the total units). We however further note that the
Competition Commission (“Commission”) found that the
Public Investment Corporation ("the PIC"), through the
GEPF, does not exercise an element of control over SA Corp.
1
[5]
The primary target firm is certain commercial property of Lushaka.
Lushaka is a property investment holding company and is a
family run
business. More specifically, the target property is the World Trade
Centre Johannesburg (hereafter “the WTC”)
which is a high
rise mix- use property located in Sandton, with a combination of
rentable Grade P office space and rentable retail
space. The WTC was
developed by Lushaka and is located within the Sandton property node.
Proposed
transaction and rationale
[6]
In terms of the
Sale
of Letting Enterprise Agreement,
SA Corp will acquire Sections 1 to 24 in the Scheme, being the office
tower known as the WTC together with the
"Exclusive
Use Areas”
from Lushaka (“the Property”). SA Corp wishes to purchase
the Enterprise comprising of the Property together with the
leases
(“the Target Property”) as a going concern.
1
As a result of the proposed transaction, SA Corp will directly
acquire control over the Target Property.
[7]
The WTC is the first phase of a three phase development by Lushaka.
The proposed transaction is limited to the first phase of
the
development.
[8]
SA Corp’s rationale for the proposed transaction is to generate
an attractive income and appreciation with long term sustainability
growth from investments in quality real estate assets.
[9]
Lushaka no longer wishes to hold the letting enterprise portfolio to
be sold.
Competition
analysis
[10]
Two general product markets are affected by this merger, namely (i)
rentable office space; and (ii) rentable retail space.
Office
space
[11]
With regards to office space, the target property can be classified
as premium grade, i.e. Grade P, office property. According
to the
Commission’s analysis, SA Corp owns two Grade A office
properties that are located within a 5 km radius of the target
property, namely (i) 21 Flicker Road in lllovo; and (ii) 36 Wierda
Road West.
[12]
There are various grades of rentable office space with Grade P being
the premium grade and Grade A being the next best grade.
There is
however in this case no need for us to take a definitive view on the
exact product market delineation for office space
since it does not
alter our ultimate conclusion.
[13]
SA Corp does not own any Grade P office space in or adjacent to the
Sandton node, or indeed in the entire Gauteng. Thus if
the market is
that for Grade P office space then there is no overlap between the
activities of the merging parties. If the product
market were to
include both Grade P and Grade A office space, then the merged
entity’s market share in the Sandton node would
be small.
2
[14]
Thus, irrespective of the market definition, we conclude that there
is no substantial prevention or lessening of competition
likely to
result from this merger in any potential office space market.
Retail
space
[15]
Again, given the facts of this merger, we have not found it necessary
to conclude on a strict market definition for retail
space.
[16]
SA Corp owns one retail property within the Sandton node, namely
Cambridge Crossing Shopping Centre. The Commission was of
the view
that the nature of the retail space available at the WTC was
significantly different to that at Cambridge Crossing Shopping
Centre
limiting the degree of substitutability between these two retail
properties. Furthermore, it found that there were more
than 50
shopping centres within a 5 km radius of the WTC.
[17]
We conclude that there is no substantial prevention or lessening of
competition likely to result from this merger in any potential
retail
property market.
Coordinated
effects
[18]
The Commission also investigated the likelihood of information
exchange that may be facilitated through the PIC’s (through
the
GEPF, see paragraph 4 above) appointment of one member to the board
of SA Corp and two board members to the board of Growthpoint
Properties Ltd (“Growthpoint”), a competitor of SA Corp.
The concern was that, because the PIC has interests in Grade
P office
properties, and Growthpoint also owns Grade P office space, the
proposed transaction may facilitate information exchange
between the
PIC and owners of competing Grade P properties. The Commission noted
that the same person concurrently serves on the
boards of both SA
Corp and the PIC. The Commission however found that the role of the
board member in question within SA Corp extends
as far as being
Chairman of the
"Social,
Ethics and Environmental Committee”
of SA Corp and that this does not afford him access to pricing
(rentals), leasing (for example identities of tenants) or any other
competitively sensitive information. Furthermore, the PIC’s
appointees to the boards of respectively SA Corp and Growthpoint
are
different individuals. The Commission therefore concluded that it is
not likely that the proposed transaction would increase
the
likelihood of coordination. We have no reason to doubt the
Commission’s conclusion regarding coordination in the context
of the proposed merger.
Public
interest
[19]
The merging parties confirmed that the proposed transaction will not
have any negative effect on employment.
3
Furthermore, the proposed transaction raises no other public interest
concerns.
CONCLUSION
[20]
For the reasons above, we approve the proposed merger without
conditions.
18
September 2013
Andreas
Wessels DATE
Anton
Roskam and Imraan Valodia concurring
Tribunal
Researcher: Andrew Sylvester
For
the merging parties: Ahmore Burger-Smidt of Werksmans Attorneys
For
the Commission: Jatheen Bhima
1
Commission’s
Report, pages 9 and 10.
1
For
a full description of the proposed transaction see
inter
alia
pages 12 to 15 of the merger record.
2
See
pages 128 to 130 of the merger record for estimates of the merged
entity’s market shares in the Sandton node.
3
See
merger record, pages
17,117
and 136.