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[2014] ZACT 58
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Resilient Properties (Pty) Ltd v NAD Property Fund (Pty) Ltd in respect of Jubilee Mall Property (019216) [2014] ZACT 58; [2014] 2 CPLR 489 (CT) (22 August 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 019216
In
the matter between:
RESILIENT
PROPERTIES (PTY)
LTD
Primary Acquiring Firm
And
NAD
PROPERTY INCOME FUND (PTY) LTD
IN
RESPECT OF JUBILEE MALL
PROPERTY
Primary Target Firm
Panel
N Manoim
(Presiding Member)
Y
Carrim (Tribunal Member)
I
Valodia (Tribunal Member)
Heard
on
31 July 2014
Order
Issued on
31 July 2014
Reasons
Issued on
22 August
2014
Reasons
for Decision
Approval
[1]
On 31 July 2014, The Competition
Tribunal (“Tribunal”) unconditionally approved the
acquisition by Resilient Properties
(Pty) Ltd (“Resilient”)
to acquire Jubilee Mall from NAD Property Income Fund (Pty) Ltd
(“NAD").
[2]
The reasons for approving the proposed
transaction follow.
Parties
to the transaction
[3]
The primary acquiring firm is Resilient,
a wholly owned subsidiary of Resilient Properties Income Fund
(“Resilient Fund”).
Resilient Fund is a fund established
in the laws of the Republic of South Africa and listed on the
Johannesburg Securities Exchange.
Resilient Fund is not controlled by
a single firm, and one of its largest shareholders is Capital
Properties Fund. Resilient controls
various firms.
[4]
The primary target firm is NAD, which
wholly owns Jubilee Mall the target property. NAD is controlled by
JPJ Trust. Jubilee Mall
does not control any firm.
Proposed
Transaction
[5]
Resilient intends to acquire the entire
issued share capital and immoveable property and enterprise trading
of Jubilee Mall from
NAD.
Rationale
[6]
The proposed transaction is in line with
Resilient’s strategy of acquiring retail properties. For NAD,
the transaction is
part of its restructuring to rebalance its
investment exposure.
Relevant
Market and Impact on Competition
[7]
Resilient has a property portfolio
comprising of 29 properties which are either retail, new development
or vacant land and all located
throughout South Africa in the Gauteng
Province, Limpopo, North West and Mpumalanga. Jubilee Mall is a mixed
use property of B-Grade
office space measuring 2,384 square metres
and retail space measuring 49 616 square metres. The building is
located in Jubilee
Road (D154) and Harry Gwala Road (D2757) in
Hammanskraal, Gauteng.
[8]
The acquiring firm has no regional
centres located within a 15km radius of Jubilee Mall. The closest
regional centre to that of
the target centre is the Grove Mall, in
Pretoria which is about 51.7km from the Jubilee Mail. Given the
distance the Commission
is of the view that the Grove Mall is
unlikely to place any competitive constraint on the Jubilee Mall. For
this reason Jubilee
Mall and Grove Mall are in different markets and
there is no overlap in the activities of the parties.
[9]
The merger will not result in any job
losses or retrenchments; in terms of the agreement between the
parties the proposed property
manager shall employ the employees on
the substantially same terms and conditions of employment as the
current employees.
Public
interest
[10]
Three anchor tenants of Jubilee Mall
have leases which grant them the right to seek their prior approval
before Jubilee Mall can
lease to their respective competitors. These
rights apply for the duration of their leases. The tenants in
question are Pick’
n Pay, whose lease runs until 2041, Spar
whose lease runs until 2021 and Gaaz Pizza which trades as Romans
Pizza, a pizza outlet
whose lease runs until 2016.
[11]
The Commission’s concern is that
the leases serve to prevent small competitors from acquiring leases
in the Mall. The Commission
submits that these clauses are
objectionable on public interest grounds as they have an adverse
effect on;
“
..(c)
the ability of smaii businesses, or firms controlled or owned by
historically disadvantaged persons, to become competitive
”...
[12]
The
Commission therefore proposed a condition for the approval of the
merger that the acquiring firm, attempt to negotiate with
the tenants
concerned for the removal of these clauses.
[1]
In essence the condition requires the acquiring firm to use its best
efforts. It does not make approval of the merger conditional
on their
deletion.
[13]
Although the acquiring firm was willing
to abide by the condition, if imposed, it did not see much utility in
having it. We agree
and have several reasons for doing so.
[14]
In the first place the condition seeks
to remedy a problem that is not merger specific. The clauses in the
lease exist pre-merger
and the implementation of the merger does not
alter that situation.
[15]
Secondly the Commission seeks to impose
the condition on a public interest ground, to protect small
businesses by preventing their
exclusion from large retail centres
such as Jubilee. However the clauses cannot be invoked against
tenants below a certain size,
so it is not small businesses they are
aimed at, but larger and thus more threatening competitors as
explained by Mr De Beer of
Resilient who said the following at the
hearing.
..."what
is being excluded is the more specialist shops, a green grocer or a
bakery, they don’t like the bakeries, and
they don’t like
the butcheries, so an OBC Store, it’s very difficult to run it
economically on that size though, so
that size is not a ... you can’t
really compete at that size, you need to have say you know a nice
size might be 750 square
metres, so the size is kept so small that
it’s really not really a serious, it’s irrelevant'.
[16]
Third and perhaps most importantly the
condition is ineffectual. Again the submissions of Mr De Beer on this
point were instructive.
Resilient has had recent experience in some
of its other mergers when such a condition was
imposed
in trying to negotiate out of a similar exclusivity clause in a
lease. He said that in every case in his experience the
request to
the tenant to waive the exclusionary clause had been rejected or been
met with a dismissive response along the lines
of, “give us a
R25 million settlement and we will waive if.
[17]
Mr De Beer confirmed that the conditions
imposed generally are an encumbrance and add no value.
[18]
It was clear from the responses of both
Mr De Beer and Ms Robinson of NAD that property firms are opposed to
including these clauses
in their leases. The fact that they are
included is a reflection of the bargaining power of the retailer at
the time a centre is
developed and needs to have a viable commercial
proposition, particularly if it has to approach a bank for bond
finance. Smaller
property firms like NAD are particularly vulnerable
to the bargaining power of major national tenants and hence we see
the type
of outcomes we see in the lease terms in this case.
[19]
Certainly the property companies going
forward have strong views about this practice by retailers and
through their association,
the South Africa Reits Association are
speaking out about them. Mr De Beer spoke out unequivocally on this
point:
..
“our Board has always maintained that they are very
anti-competitive, apart from issues like morality etcetera, and
the...
however there are leases which have option clauses that run up
to 40 years, so we’re sitting with some of these clauses, which
we’re ashamed to have, but we have them, and the new developers
when they try and put a development together which is the
here they
have no choice, they don’t have the bargaining power we have”.
[20]
We are sympathetic to the Commission’s
objective in attempting to send a signal to the market that these
type of clauses may
restrict competition. However as merger
conditions cannot impose conditions on third parties, enforcement
through the prohibited
practice regime is the more effective tool.
Here
one can impose an effective remedy if appropriate, whilst those who
seek to defend the clause, and who are not before us in
a merger
case, have an opportunity to do so,
[2]
[21]
The Tribunal has thus decided for these
reasons not to impose the recommended condition.
Conclusion
[22]
In light of the above we conclude that the proposed
transaction is unlikely to substantially prevent or lessen
competition. In addition,
no other public interest issues arise from
the proposed transaction. Accordingly we approve the proposed
transaction unconditionally.
22
August 2014
DATE
Mr
N Manoim
Prof
I Valodia and Ms Y Carrim concurring
Tribunal
Researcher: Moleboheng Moleko
For
the merging parties: Susan Meyer and Nazeera Mia - DLA Cliffe Dekker
Hofmeyr
For
the Commission: Dineo Mashego and Xolela Nokele
[1]
The terms of the proposed condition are, ‘"that Resilient
undertakes to use reasonable commercial endeavours to negotiate
with
the anchor tenants in the utmost good faith to have the exclusivity
clauses removed within 60 days of the tribunal decision
to have the
exclusivity clauses contained in the lease agreements removed”...
[2]
See for instance section 58(l)(a)(vi) which states, “In
addition to its other powers in terms of this Act, the Competition
Tribunal may, (a) make an appropriate order in relation to a
prohibited practice, including - (vi) declaring the whoie or any
part of an agreement to be void”.