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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 017087
In the matter between:
ARCH PROPERTY FUND LIMITED Primary Acquiring Firm
And
K2012089838 (SA) (PTY) LTD AND
ARMANDI PROPERTIES (PTY) LTD Primary Target Firms
Panel : Anton Roskam (Presiding Member)
: Mondo Mazwai (Tribunal Member)
: Imraan Valodia (Tribunal Member)
Heard on : 28 August 2013
Order Issued on : 28 August 2013
Reasons Issued on : 27 September 2013
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Reasons for Decision
Approval
1. On 28 August 2013, The Competition Tribunal (“Tribunal”) unconditionally
approved the acquisition by Arch Property Fund Limited of (1) the shares in
and loan claims against which Leaf Property Fund Trust holds in
K2012089838(SA) (Pty) Ltd and (2) Armandi Properties (Pty) Ltd in respect of
a 50% (fifty percent) undivided share in Erf 12544, Constantia.
2. The reasons for approving the proposed transaction follow.
Parties to transaction
3. The primary acquiring firm is Arch Property Fund Limited (“ Listco”). Listco is
wholly owned by Amdec Investments (Pty) Ltd (“Amdec”). Amdec, through its
wholly owned subsidiaries, owns a portfolio of immovable properties and
property letting enterprises (“Amdec Property Portfolio”). In terms of an
internal restructuring, Amdec will procure that Listco will hold all the issued
shares in two of its wholly owned subsidiaries, namely Melrose Arch
Investment Holdings (Pty) Ltd (“ Melrose Arch”) and Amdec Property
Investments (Pty) Ltd (“API”) (hereinafter referred to as the “ Amdec
Restructuring”).
4. The first primary target firm is K2012089838 (Pty) Ltd (“Leaf SPV”). Leaf SPV
is a newly incorporated limited liability company solely owned by The Leaf
Property Fund Trust (“Leaf Property”). In terms of an internal restructuring,
Leaf Property will procure that a portfolio of its immovable properties and
property letting enterprises (“Leaf Property Portfolio”) be transferred to Leaf
SPV (“Leaf Restructuring”).
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5. The second primary target firm is Armandi Properties (Pty) Ltd (“ Armandi”)
which owns a 50% undivided share in Erf 12544, Constantia known as “Virgin
Active, Steenberg” (“Steenberg Property”).The Steenberg Property consists
of gym property situated in Westlake Business Park II, Westlake Cape Town.
The Steenberg Property is owned in equal shares by Listco and Armandi and
is currently let to a Virgin Active gym. Listco will not acquire any interest, direct
or otherwise, in Armandi and is only acquiring an undivided share in the
Steenberg Property.
Proposed Transaction and Rationale
6. Listco intends to acquire from Leaf Property its share in and loan claims
against Leaf SPV. In addition Listco intends to acquire from Armandi a 50%
undivided share in the Steenberg Property. Post–merger, Leaf SPV and the
Steenberg Property will be wholly owned and controlled by Listco. The
proposed transaction was notified as a single transaction as a result of the
coexistent and indivisible nature of the transactions
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7. Listco currently owns a landmark property in the form of Melrose Arch. Amdec
(through its 100% stake in Listco) wishes to diversify its investment by Listco
acquiring the Leaf Property Portfolio (through its acquisition of Leaf SPV),
thus having access to a wider range of properties and geographic areas.
8. Leaf SPV submits that the Merger allows the current investors of Leaf
Property to obtain investment exposure to a flagship asset in the form of
Melrose Arch and promotes diversification of both Leaf SPV’s and Listco’s
property holdings across a wider range of properties and geographic areas.
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!The Armandi Sale will be conditional upon the Leaf SPV Sale and the listing of Listco on the JSE. Listco 1
currently owns the other 50% share in the Steenberg Property and the ultimate intention of the merging parties is
to amalgamate and combine in Listco the Leaf Property Portfolio and the Amdec Property Portfolio which
includes inter alia Listco’s 50% share in the Steenberg Property and the remaining 50% share in the Steenberg
Property, being acquired by Listco in this proposed transaction.
9. Leaf SPV submits further that the Merger will facilitate the proposed IPO and
create the scale required for the listing of Listco on the JSE, which will unlock
value, create liquidity, widen the shareholder base and offer the public access
to property assets that were not previously available on the market.
10. Armandi owns a 50% undivided share in the Steenberg Property which is
included within the Amdec Portfolio. Armandi does not have any other interest
within the property industry and does not have a vested interest in this
transaction which will ultimately result in the listing of Listco on the JSE.
Relevant Market and Impact on Competition
11. Listco’s property portfolio comprises of residential estates, office property and
mixed use properties throughout SA. The Leaf SPV property portfolio
comprises of office property located throughout SA. The Steenberg Property
(in which Leaf SPV has an undivided 50% share) comprises of gym space
located in the Western Cape. Thus the merging parties both own office
property and gym property. The focus of the transaction for purposes of the
competition analysis was on these two types of properties.
Office Property
12. The product market for purposes of this transaction is the market for rentable
Grade A office property in the Western Cape. The Competition Tribunal has
ruled in Primegro Properties Ltd and Growthpoint Properties Ltd
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properties are divided into different classes according to factors such as age
and quality of the buildings etc. and that each of these classes constitutes a
distinct market.
13. Two properties were singled out that may cause a geographic overlap, namely
Listco’s Westlake Property located in Tokai and Leaf SPV’s Great Westford
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! Tribunal case No 29/LM/June03.2
Property located in the Rondebosch node. According to the South African
Property Owners Association [“SAPOA”] Tokai is not defined as a node on its
own, but rather forms part of the greater Claremont area and the Claremont
node. The Tokai area and the Rondebosch node are not adjacent to one
another and are separated by numerous other areas and a distance of
approximately 15.7km.
14. The two merging parties (Listco and Leaf SPV) do not own rentable Grade A
office property within the same node or within close proximity of one another.
Thus the proposed transaction does not result in a geographic overlap.
Gym Property
15. Listco’s Westlake Property was previously let to a Curves gym which later
closed down due to the Curves gym suffering financial difficulty. Leaf SPV’s
Great Westerford property is currently let to a private gym and the Steenberg
Property is currently let to a Virgin Active gym. Thus the relevant product
market identified is the market for the provision of rentable gym property.
16. The merging parties’ gym properties in the Western Cape, more specifically
the competitive effect in the Claremont and Rondebosch nodes in a 5-10km
radius from the target gym properties, were analysed as this was the area
identified to most likely raise competitive concerns.
17. Listco’s Westlake Property is located in the Claremont node, Leaf SPV’s
Great Westerford Property is located in the Rondebosch node and the
Steenberg Property is located in the Claremont node.
18. The Curves gym which was in the Westlake Property and the Virgin Active
gym in the Steenberg Property are approximately 600m apart. Virgin Active
Steenberg and the gym in the Great Westerford Property is approximately
2km apart. According to interviews conducted by the Commission during its
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investigation, Virgin Active Steenberg draws customers predominantly from
the Tokai, Steenberg and Bergvliet areas, which are each within 5-10km of
Virgin Active Steenberg.
19. There are several gym properties within a 5-10 km radius from the target
properties which will exercise a constraint on Listco. Listco already owns an
undivided 50% share in the Steenberg Property. The Commission found that
the incentives of Listco will not change as a result of the shift from 50% to sole
ownership of the Steenberg Property, as Listco does not have market power
in relation to rentable gym property in the defined areas. We have no
evidence to the contrary.
20. Moreover, the current tenants (Virgin Active Steenberg) of the Steenberg
Property have concluded 20 year leases with escalation clauses thus it is
unlikely that the transaction will negatively affect the existing tenants in the
properties.
Conclusion
21. In light of the above, we conclude that the proposed transactions are unlikely
to substantially prevent or lessen competition in the market for rentable Grade
A offices or in the rentable gym property market. In addition, no public interest
issues arise from the proposed transactions. Accordingly, we approve the
proposed transactions unconditionally.
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____________________ 27 September 2013
Mondo Mazwai DATE
Anton Roskam and Imraan Valodia concurring
Tribunal Researcher: Derrick Bowles
For the merging parties: Susan Meyer - Cliffe Dekker Hofmeyr Inc.
For the Commission: Lana Norton
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