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[2014] ZACT 12
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Arrowhead Properties Limited v Vividend Income Fund Limited (018929) [2014] ZACT 12 (24 July 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 018929
DATE:
24 JULY 2014
In the matter
between:
ARROWHEAD
PROPERTIES LIMITED
.......................................
Primary
Acquiring Firm
And
VIVIDEND INCOME
FUND LIMITED
................................................
Primary
Target Firm
Pane! : Dr T
Madima (Presiding Member)
: Prof. F
Tregenna (Tribunal Member)
: Ms A Ndoni
(Tribunal Member)
Heard on : 2 July
2014
Order Issued on :
2 July 2014
Reasons Issued on
: 24 July 2014
Reasons
for Decision
Approval
[1] On 2 July 2014,
The Competition Tribunal (“Tribunal”) conditionally
approved the acquisition by Arrowhead Properties
Limited
(“Arrowhead”) to increase its linked units to 100% in
Vividend Income Fund Limited (“Vividend”).
[2] The reasons for
approving the proposed transaction follow hereunder.
Parties to the
transaction
[3] The primary
acquiring firm is Arrowhead, a company listed under the Real Estate -
Real Estate Holdings and Development sector
of the Johannesburg
Securities Exchange (“JSE”) and not controlled by any
firm. The top beneficial unit-holders of
Arrowhead which hold a
greater than 5% of the combined A and B linked units are; Coronation
Fund Managers, Investec Asset Management
and Ford Asset Management.
Arrowhead controls Vivid end Management Group and Arrowhead
Residential (Pty) Ltd and it holds 31.7%
of the units in Vividend
Income Fund Limited.
[4] The primary
target firm is Vividend, a company listed on the JSE and not
controlled by any firm, its beneficial unit-holders
holding more than
5% of the linked units in Vividend are; Arrowhead, Stanlib Asset
Management and Nedcor Bank Nominees. Vividend
controls Clearwater
Crossing (Pty) Ltd, Fluxrab Investments No 196 (Pty) Ltd and ho(ds a
90% interest in Southern Value Consortium.
Proposed
Transaction and Rationale
[5] Arrowhead
intends to increase its linked units in Vividend to 100% by way of a
Scheme of Arrangements.
[6] Arrowhead’s
acquisition is in line with its strategy of making distribution-
enhancing acquisitions, increasing critical
mass, asset quality and
diversification that will drive its performance for the benefit of
its investors. The acquisition will
provide Arrowhead with a
strategic stake in Vivid end’s R2 billion commercial and retail
portfolios.
[7] For Vividend the
disposal of its linked units to Arrowhead would be in the best
interests of Vividend's linked unit-holders.
Relevant Market
and Impact on Competition
[8] Arrowhead is an
investment firm which primarily invests in property, it is listed
under the Real Estate- Real Estate Holdings
and Development sector on
the JSE. Its property portfolio comprises of retail, residential,
industrial and office properties located
throughout South Africa.
[9] Vividend is also
an investment firm which primarily investment in property, its
property portfolio comprises of retail, residential,
industrial and
office properties locate in Gauteng, Western Cape, Free State,
Mpumalanga and Kwa-Zulu Natal.
[10] The proposed
transaction does resuit in a horizontal overlap arising in relation
to the market for the provision of rental
space in B-Grade office
property in the Randburg node, the market for the provision of rental
space in B-Grade office property
in the Durban CBD node and the
market for the provision of rental space in a convenience centre
within a 10km radius of the respective
Vividend retail properties
within the following Rossettenville/Selby, Benoni/Boksburg,
Montclair/Durban; and Pietermariztburg.
[11] The Commission
is of the view that the proposed transaction is unlikely to
substantially prevent or lessen competition as the
merging parties’
post¬merger shares will remain low. Furthermore, there is no
geographic overlap in the activities of
the merging parties in retail
properties in the Western Cape, Mpumalanga and the Eastern Cape.
[12] The transaction
does however raise public interest concerns. The Commission found
that the proposed transaction raises employment
concerns and in its
view would likely result in retrenchments of 21 out of the 22 current
employees of Vividend. The Commission
is of the view that there is
likelihood that Arrowhead might retrenchment the employees within 6
to 12 months post-merger. This
will be part of the business model
that it does not directly employ any employees. Arrowhead outsources
its property management
services as well as any other employment
functions to firms such as JHI
Properties (Pty)
Ltd, Citiq Property Services and Mafadi Property Management (Pty)
Ltd.
[13] The Commission
is of the view that the retrenchment of the 21 unskilled employees is
significant. Following much deliberation
between the merging parties
and the Commission, the merging parties initially agreed to retain
all the employees for a 12 month
period except for the one white
collar employee. The merging parties were unable to concede to
extending of the retention period
from 12 months to 36 months but
they did agree to employ the affected employees on a permanent basis
as a measure to alleviate
the Commission's concerns. The Commission
has therefore recommended that the proposed transaction be approved
subject to the condition
that the merged entity shall not retrench
the 21 employees for a period of three years from the effective date
as a result of the
proposed transaction.
Conclusion
[19] In light of the
above I conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition in
the market for the
provision of rental space in B-Grade office property in the Randburg
node; the market for the provision of rental
space in B-Grade office
property in the Durban CBD node; and the market for the provision of
rental space in a convenience centre
within a 10km radius of the
respective Vividend retail properties. In addition, the public
interest issues do raise concerns accordingly
I approve the proposed
transaction subject to the condition that the merged entity shall not
retrench the 21 employees for a period
of three years from the
effective date as a result of the proposed transaction.
Dr T Madima DATE
24 July 2014
Prof. F Tregenna
and Mr A Roskam concurring
Tribunal
Researcher: Moleboheng Moleko
For the merging
parties: Vani Chetty - Vani Chetty Competition Law
For the
Commission: Hardin Ratshisusu, Seema Nunkoo, Xoleia Nokele
and Dineo
Mashego.