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[2014] ZACT 54
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Liberty Group Ltd v Melrose Arch Investment Holdings (Pty) Ltd (018960) [2014] ZACT 54 (5 August 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 018960
In
the matter between:
LIBERTY
GROUP LIMITED
Primary Acquiring Firm(s)
And
MELROSE
ARCH INVESTMENT HOLDINGS (PTY) LTD
Primary
Target Firm(s)
Panel
Yasmin Carrim (Presiding Member)
Takalani Madima (Tribunal
Member)
Andiswa Ndoni (Tribunal
Member
Heard
on
09
July 2014
Order
Issued on
09 July 2014
Reasons
Issued on
05 August 2014
Reasons
for Decision
Approval
[1]
On 09 July 2014 the Competition Tribunal
(“the Tribunal”) unconditionally approved an acquisition
by Liberty Group Limited
of a 25% share in the property known as
Melrose Arch from Melrose Arch Investment Holdings (Pty) Ltd.
[2]
The reasons for unconditionally
approving the proposed transaction follow hereunder
Parties
to the Transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Liberty
Group Limited (“Liberty”). Liberty is a long-term
insurance company in the financial
services sector and holds a
property portfolio comprising assets in the hospitality, retail and
office space sectors. Liberty is
a wholly owned subsidiary of Liberty
Holdings Limited (“Liberty Holdings”) which is a public
company listed on the
Johannesburg Securities Exchange
[4]
Liberty Holdings is a subsidiary of the
Standard Bank Group Limited which is one of South Africa’s
largest financial institutions
and is involved in the provision of a
range of banking services.
Primary
target firm
[5]
The primary target firm is Melrose Arch
Investment Holdings (Pty) Ltd (“Melrose Investments”) in
respect of a 25% share
in the property known as Melrose Arch. Melrose
Arch is a mixed use property comprising rentable office space,
rentable retail space,
residential space, hotel space and a
gymnasium. Melrose Arch is situated at the corner of Corlett Drive
and the M1 Highway, Melrose,
Johannesburg.
[6]
Melrose Arch is controlled by Melrose
Investments, a firm incorporated in terms of the laws of the Republic
and, in turn, jointly
controlled by Arch Properties Fund Limited
(“Arch Properties”) as to 50% and Amdec Investments (Pty)
Ltd (“Amdec”)
as to the remaining 50%. Amdec is the
ultimate beneficial owner of Arch Properties.
[7]
In terms of a Sale and Purchase of
Business Agreement between Liberty and Melrose Arch Investments,
Liberty is to acquire a 25%
undivided share in Melrose Arch.
1
Post-merger Melrose Arch will be held by Melrose Investments and
Liberty as to 75% and 25% respectively.
Proposed
Transaction
[8]
In addition to the aforementioned Sale
and Purchase of Business Agreement, the parties have entered into a
Co-ownership Agreement
such that postmerger, Liberty and Melrose
Investments will exercise joint control over Melrose Arch.
Rationale
[9]
Liberty submits that its strategy is to
identify and invest in current assets that will continue to grow. It
views Melrose Arch
as an asset likely to achieve growth and to assist
in its aim of re-balancing, upgrading and restructuring of its
property portfolio.
[10]
Melrose Investments views further
investments in and upgrades to Melrose Arch as necessary to unlock
additional potential. Considerable
capital is required for such
investments and upgrades to be effected and the proposed transaction
provides just that.
Relevant
Market and Impact on Competition
[11]
The Commission’s investigation
revealed the following relevant markets:
·
The market for the provision of rental space in
comparative centres within a 15km radius of the target property;
·
The market for the provision of short term
accommodation in four and five star hotels within a 6km radius of the
target property;
·
The market for the provision of rentable
residential space; and
·
The market for the provision of rentable
P-Grade office space.
The
market for rentable space in comparative centres within a 15km radius
of the
target
property
[12]
Within a 15km radius of Melrose Arch,
the Commission identified two comparative centres controlled by the
acquiring firm, namely
Sandton City and Eastgate Shopping Centre at
distances from the target property of 5.8km and 13.8km respectively.
On the Commission’s
calculation, in this market the merged
entity will hold a market share of roughly 27% with the transaction
accounting for accretion
of 4.5%. The merging parties however,
conducting something of a more nuanced market share analysis, found
that Eastgate Shopping
Centre poses no constraint on the target firm
and should thus be excluded from the analysis. On the merging
parties' analysis the
merged entity will hold a market share in the
region of 11.6%.
[13]
The Tribunal views the difference in
market share as immaterial to the ultimate outcome and finds that the
merged entity will remain
constrained by numerous large players in
the market. Similarly, the small accretion caused by the transaction
allays any competition
concerns.
The
market for short term accommodation in four and five star hoteis
within a 6km
radius
of the target property
[14]
Within this defined market, the
Commission identified a possible overlap as the acquiring firm holds
two hotels within a 6km radius
of Melrose Arch (those being Sandton
Sun Hotel and Sandton Sun Intercontinental Towers). The merged entity
will hold an estimated
market share of 13% with the transaction
accounting for market share accretion of about 5%.
[15]
The Commission is unconcerned with this
aspect of the transaction solely on the basis that it regards 13% as
a low market share.
The
market for the provision of residential rental space
[16]
While the Commission was unable to
provide specific market share information regarding this market, it
is of the opinion that the
merged entity would hold minimal market
share. Further, the Commission does not consider the proposed
transaction to raise any
competition concerns in this market since
the barriers to entry are particularly low and the market is highly
fragmented and competitive
with both private individuals and
corporates operative in this market.
The
market for the provision of rentable P-Grade office space
[17]
Within this market the Commission
identified no geographic overlap between the merging parties’
activities. This finding is
based on the fact that Melrose Arch is
located in the Melrose/Waverley node while other P-Grade office space
owned by Liberty is
located in the Sandton, Environs and Rosebank
nodes. In light thereof, the Commission’s investigation into
this market was
taken no further.
[18]
Accordingly, the Commission concluded
that the proposed transaction is unlikely to substantially prevent or
lessen competition in
the markets defined above.
Public
Interest
[19]
The Commission identified no public
interest concerns likely to arise from the proposed transaction.
Conclusion
[20]
In light of the above we conclude that
the proposed transaction is not likely to substantially prevent or
lessen competition in
the relevant markets nor does the merger raise
any public interest concerns that would alter that conclusion.
Accordingly, we approve
the transaction unconditionally.
05
August 2014
DATE
Ms
Yasmin Carrim
Ms
Andiswa Ndoni and Dr Takalanl Madima concurring.
Tribunal
Researcher: Shannon Quinn
For
the merging parties: Vani Chetty- Vani Chetty Competition Law
For
the Commission: Dineo Mashego
1
This
includes the properties, both the fixed and movable assets, the
rights and obligations in terms of the leases in place pre-merger
and the goodwill associated with the letting enterprise.