Summary of Judgment

1. Introduction

These proceedings concerned the approval of a large merger before the Competition Tribunal of South Africa. The matter was adjudicated by a panel consisting of Anton Roskam (Presiding Member), Medi Mokuena (Tribunal Member), and Imraan Valodia (Tribunal Member).

The primary acquiring firm was Delta Property Fund (“Delta”), a company listed on the Johannesburg Securities Exchange Limited (JSE). The target comprised two properties (described in the reasons as “Two Properties”), namely OMC Durban (the Old Mutual Precinct) and The Marine, which were owned by Old Mutual Life Assurance Company (SA) Ltd (“Old Mutual”).

The merger was heard on 27 August 2014, and on the same date the Tribunal issued an order unconditionally approving the transaction. The Tribunal’s reasons for that decision were subsequently issued on 23 September 2014. The dispute concerned whether the acquisition of the two Durban CBD properties by Delta raised any competition or public interest concerns warranting prohibition or conditional approval.

2. Material Facts

Delta was described as a JSE-listed company and, on the Tribunal’s account, it was not controlled by any single firm. Its portfolio comprised various categories of rentable properties, including Grade A, B, C and P, as well as mixed-use (office and retail) properties located across South Africa.

The target assets were two properties located in the Durban central business district (CBD) in KwaZulu-Natal. The Tribunal recorded that OMC Durban comprised Grade A office space. The Marine was described as a consolidation of five properties used for rentable office space.

The transaction was structured such that Delta would purchase the target properties from Old Mutual, thereby acquiring sole control over them. Implementation was to occur through a Purchase and Sale of a Letting Enterprise Agreement.

For competition analysis, the Tribunal relied on the Competition Commission’s assessment which identified horizontal overlaps in the Durban CBD in the provision of rentable property. In relation to Grade A office space, the Commission’s analysis indicated a post-merger market share of less than 46% with a market share accretion of less than 20%. Despite the relatively high post-merger figure, the Commission conveyed to the Tribunal at the hearing that there was substantial vacant Grade A office space in the Durban CBD, including vacancy in property owned by both the merging parties and their competitors.

For retail, the Commission assessed an overlap in the market for convenience shopping centres in the Durban CBD, using a 10 kilometre radius from the target properties’ shopping centres. On that basis, the merged entity’s post-merger market share was less than 5%, with accretion of less than 2%. The Durban CBD was further described as having plenty of vacant buildings offering rentable retail space, including at least two buildings approximately 100 metres from the target properties.

On public interest, the merging parties confirmed that the transaction would have no adverse effect on employment and raised no other public interest concerns.

3. Legal Issues

The central legal question was whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market, given the identified horizontal overlaps in the Durban CBD relating to Grade A office space and convenience retail space.

The Tribunal was also required to consider whether the transaction raised any public interest concerns, particularly with respect to employment, on the factual record presented.

The dispute primarily concerned the application of competition law principles to the established facts, including market definition and competitive effects assessment (such as market shares, vacancy levels, and competitive constraints), as well as an evaluative assessment of whether those facts supported a finding of likely harm to competition.

4. Court’s Reasoning

The Tribunal’s reasoning proceeded from the Competition Commission’s competitive assessment identifying horizontal overlaps and then evaluating whether those overlaps translated into a likelihood of a substantial prevention or lessening of competition.

In respect of Grade A office space in the Durban CBD, the Tribunal acknowledged that the post-merger market share was high (less than 46%). However, it accepted the Commission’s assurance given at the hearing that there was significant vacancy in Grade A office space in the Durban CBD, including in buildings owned by both the merging parties and their competitors. The Tribunal treated this vacancy as an important indicator that the merged entity would be constrained from profitably increasing rentals post-merger, because available alternative space would limit the merged firm’s ability to exercise market power.

The Tribunal also relied on information gathered by the Commission from tenants, which indicated that tenants were able to negotiate rentals and lease durations with landlords. This was treated as evidence relevant to the competitive dynamics of the market and the degree of constraint faced by landlords. In addition, the Tribunal accepted that other property market players would continue to impose competitive constraints, and it specifically noted competitors identified by the Commission, including Redefine Properties, Blend Properties, CBS Properties and Nedbank Properties, among others.

With respect to retail property, the Tribunal accepted the Commission’s analysis of convenience shopping centres within a 10 km radius, which produced a low post-merger market share (less than 5%) and minimal accretion (less than 2%). The Tribunal further accepted that other market participants would constrain the merged entity post-merger, including Vukile Property Fund Limited and Redefine Income Fund Limited. The Tribunal also relied on the Commission’s information that the Durban CBD contained vacant buildings offering rentable retail space, including buildings located very near to the target properties, which supported the conclusion that tenants would have alternatives and that post-merger rental increases would likely be constrained.

On public interest, the Tribunal accepted the merging parties’ confirmation that the transaction would have no adverse employment effects and raised no other public interest concerns, and it did not identify any basis in the record to reach a different conclusion.

Synthesising these considerations, the Tribunal agreed with the Commission’s conclusion that the transaction was unlikely to substantially prevent or lessen competition, and it therefore regarded unconditional approval as appropriate.

5. Outcome and Relief

The Competition Tribunal unconditionally approved the large merger between Delta Property Fund and the two target properties (OMC Durban and The Marine) owned by Old Mutual Life Assurance Company (SA) Ltd.

No conditions were imposed, and the Tribunal’s reasons record no separate or additional relief. The text of the reasons does not record any costs order.

Cases Cited

No cases were expressly cited in the reasons.

Legislation Cited

No legislation was expressly cited in the reasons.

Rules of Court Cited

No rules of court were expressly cited in the reasons.

Held

The Tribunal held that the proposed acquisition by Delta of sole control over OMC Durban and The Marine was unlikely to substantially prevent or lessen competition in the relevant markets in the Durban CBD, notwithstanding a relatively high post-merger share in Grade A office space, because the evidence indicated significant vacant space, the presence of effective competitors, and indications that tenants could negotiate and had alternative options.

The Tribunal further held that the merger raised no public interest concerns, including no adverse effects on employment, on the record before it. The merger was therefore approved without conditions.

LEGAL PRINCIPLES

The decision applied the principle that merger control requires an assessment of whether a transaction is likely to substantially prevent or lessen competition, which involves evaluating the competitive effects of horizontal overlaps by reference to market shares and accretion alongside evidence of competitive constraints.

The Tribunal treated vacancy levels in the relevant property markets as a material competitive constraint, supporting the inference that a merged landlord is less likely to exercise market power through post-merger rental increases where substantial alternative space is available.

The Tribunal also applied the principle that evidence about the ability of customers (tenants) to negotiate contractual terms, together with the continued presence of competitors, can inform whether the merged entity is meaningfully constrained in the market.

Finally, the decision reflected the principle that merger approval also entails consideration of public interest factors, and where the record indicates no adverse employment effects and no other public interest concerns, this aspect does not justify conditions or prohibition.