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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 018481
In the matter between:
PARETO LIMITED Primary Acquiring Firm
And
SYCOM PROPERTY FUND COLLECTIVE INVESTMENT SCHEME IN PROPERTY
And
FOUNTAINHEAD PROPERTY TRUST COLLECTIVE INVESTMENT SCHEME IN
PROPERTY Primary Target Firms
Panel : Mondo Mazwai (Presiding Member)
: Medi Mokuena (Tribunal Member)
: Andiswa Ndoni (Tribunal Member)
Heard on : 12 March 2014
Order Issued on : 12 March 2014
Reasons Issued on : 10 April 2014
Reasons for Decision
Approval
[1] On 12 March 2014 the Competition Tribunal (“ the Tribunal”) unconditionally
approved an acquisition by Pareto Limited of Sycom Property Fund Collective
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Investment Scheme in Property and Fountainhead Property Trust Collective
Investment Scheme in Property.
[2] The reasons for unconditionally approving the proposed transaction follow.
Parties to the Transaction
Primary acquiring firm
[3] The primary acquiring firm is Pareto Limited (“ Pareto”). Pareto is an unlisted
property loan stock company in the business of acquiring and enhancing
shopping centres in So uth Africa. Pareto is wholly owned by the Government
Employees Pension Fund (“ GEPF”) which is a juristic entity governed by the
Government Employees Pension Law of 1996 as amended. GEPF is
represented by the Public Investment Corporation (SOC) Limited (“ PIC”)
which is wholly owned by the South African Government.
[4] Pareto does not control any other firms but GEPF controls the following firms:
1. Pareto;
2. Business Venture Investment No. 1360 (Pty) Ltd;
3. ADR International Airports South Africa (Pty) Ltd;
4. Lexshell 44 General Trading (Pty) Ltd; and
5. CBS Property Portfolio (Pty) Ltd.
Primary target firm
[5] The primary target firms are the remaining shares in the Southgate Mall and
Southgate Value Mart (“ the Malls”) held by Sycom Property Fund Collective
Investment Scheme in Property (“ Sycom”) and Fountainhead Property Trust
Collective Investment Scheme in Property (“Fountainhead”).
[6] Sycom, represented by FirstRand Bank Limited (“ FirstRand”) in its capacity
as Trustee, is a collective investment scheme in property. Sycom holds Real
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Estate Investment Trust status and is listed on the Johannesburg Securities
Exchange (“JSE”). Sycom’s major unit holders are as follows:
Acucap (33.5%);
Stanlib (8.9%); and
GEPF (6.7%).
[7] Sycom is managed and controlled by Sycom Property Fund Managers Limited
(“SPFM”) which is in turn wholly owned by Acucap.
[8] Fountainhead, similarly represented by FirstRand in its capacity as Trustee, is
managed and contr olled by Fountainhead Property Trust Management
Limited which is in turn wholly owned by Redefine Properties Limited
(“Redefine”). Redefine is listed on the JSE and is not controlled by any firm.
Proposed Transaction
[9] In terms of two contemporaneous and indivisibly linked Agreements of Sale;
the first between FirstRand, in its capacity as trustee of Fountainhead , and
Pareto and the second between FirstRand, in its capacity as trustee of
Sycom, and Pareto, the proposed transaction results in Pareto ac quiring the
remaining:
15.973124% and 19.014331% in the Southgate Mall and Southgate
Value Mart from Fountainhead respectively; and
16.607874% in the Southgate Mall and 16.006781% in Southgate
Value Mart from Sycom respectively.
[10] The proposed transaction essentially involves Pareto changing its holding in
the Malls from joint to sole control , and Sycom and Fountainhead respectively
exiting the Malls.
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Rationale
[11] Pre-merger, the Malls are jointly controlled by Pareto, Sycom and
Fountainhead in terms of a co -ownership agreement . This agreement
contains certain minority protection clauses which confer joint control over the
Malls. According to Pareto, its strategic views differ markedly from those of
Fountainhead and Sycom and this difference, coupled with the minority
protection rights enjoyed by Sycom and Fountainhead , is preventing Pareto
from implementing certain initiatives. Pareto thus seeks sole control such that
it can implement the aforesaid initiatives unhindered.
[12] From Fountainhead's perspective, it is in the process of reconsidering its
investment in certain co -owned assets and aims to redu ce borrowing in the
short-term.
[13] Sycom is of the view that its holding in the Malls is too minor to influence the
performance of the fund and it thus has elected to dispose of its interest in the
Malls.
Relevant Market and Impact on Competition
[14] The relevant product markets identified by the Commission were:
the market for the provision of rentable retail space in regional centres;
and
the market for the provision of rentable retail space in value centres.
[15] Since Pareto controls no rentable retail space in value centres prior to the
proposed transaction, t he Commission focused its investigation solely on the
market for the provision of rentable retail space in regional centres.
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[16] In terms of the geographic market (for the provision of rentable retail space in
regional centres), the Commission assessed the likely effect of the proposed
transaction within a 10-15km radius of the Malls.1
[17] According to the Commission, p re-merger, the Southgate Mall enjoyed
approximately 12%2 market shares (based on Gross Lettable Area) in the
relevant geographic market as defined by the Commission. Pareto also owns
the Cresta Shopping Centre ("Cresta") in the same geographic market, which
enjoys a market share of approximately 24%. According to t he Commission,
Pareto's market share in the Southgate Mall will increase from approximately
12% to 17.8%3 thereby increasing Pareto's market share in the relevant
geographic market (where it owns the Southgate Mall and Cresta) from
approximately 36% to 41 %. In contrast, t he merging parties submit ted that
there would in fact be no market share accretion as it is the actual
shareholding in the Malls that is being altered, not the Malls’ market share.
[18] Either way, we find that the proposed transaction is unlikely to alter the
competitive structure of the market as pre -merger, Pareto already controlled
the Southgate Mall.
[19] In any event, a ccording to the Commission, it is unlikely that Pareto would be
able to exercise market power as there are numerous reputable competitors
including the Carlton, Maponya Mall, The Glen and Southdale which will
continue to constrain the merged entity post-merger. The Commission
concluded therefore that the transaction was unlikely to substantially prevent
or lessen competition in the relevant market.
1 The merging parties contend that in light of previous Tribunal decisions, a larger (a 25km radius from the
Malls) geographic market is more appropriate.
2 According to the Commission, this 12% market share is proportionate to Pareto's ownership in the Southgate
Mall (which is an approximate 67% shareholding).
Mall (which is an approximate 67% shareholding).
3 Post-merger, Pareto will own 100% of the shares in the Southgate Mall and according to the Commission will
therefore increase its market share from 12% to 17.8% (which is the market share attributable to the entire Gross
Lettable Area of the Southgate Mall).
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Public Interest
[20] The Commission identified no public interest concerns likely to arise from the
proposed transaction.
Conclusion
[21] In light of the above we conclude that the proposed transaction is unlikely to
substantially prevent or les sen co mpetition in the relevant market.
Accordingly, we approve the transaction unconditionally.
10 April 2014
DATE
MONDO MAZWAI
Medi Mokuena and Andiswa Ndoni concurring
Tribunal Researcher: Shannon Quinn
For the merging parties: Vani Chetty- Vani Chetty Competition Law
For the Commission: Clementine Mahlangu and Grashum Mutizwa