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[2014] ZACT 102
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Octodec Investments Limited v Premium Properties Limited (019042) [2014] ZACT 102 (1 October 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No:
019042
In
the matter between:
OCTODEC
INVESTMENTS
LIMITED
Primary Acquiring Firm
And
PREMIUM
PROPERTIES
LIMITED
Primary Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: Fiona Tregenna (Tribunal Member)
: Anton Roskam (Tribunal Member)
Heard on
: 3 September 2014
Order
Issued on : 3 September 2014
Reasons Issued on : 1
October 2014
Reasons
for Decision
Approval
[1]
On
3 September 2014, The Competition Tribunal
("Tribunal")
conditionally approved the
acquisition by Octodec Investments Limited
("Octodec")
for the remaining issued share
capital of Premium Properties Limited
("Premium").
[2]
The
reasons for approving the proposed transaction follow.
Parties to the
transaction
[3]
The
primary acquiring firm is Octodec, a company listed on the Real
Estate Holding and Development sector on the Johannesburg Securities
Exchange
("JSE").
Octodec
is controlled by the Wapnick Family, Stanlib, Old Mutual Life
Assurance Company and Government Employee Pension Fund
("GEPF").
Octodec currently owns 14% of
Premium properties.
[4]
The
primary target firm is Premium, a company listed on the JSE and has
Estate Investment Trust status. Major shareholders include
the
Wapnick Family, Octodec, Stanlib (Pty) Ltd, Old Mutual Life Assurance
Company and GEPF.
Proposed
Transaction
[5]
Octodec
intends to increase its shareholding and acquire the remaining 86%
shares in Premium. Post-transaction Octodec will have
sole-control of
Premium.
Rationale
[6]
The
merging parties will benefit in the following manners; tax
efficiency, enlarged property fund with diverse asset base, increased
market capitalisation, increased liquidity of shares, re-rating of
merged company, improved debt capital market terms, financial
and
operating efficiencies, time savings and administrative cost saving.
Relevant Market and
Impact on Competition
[7]
The
merging parties are both active in the market for the provision of
office property, retail space in convenience centres, light
industrial space and residential space.
[8]
There
are overlaps in the merging parties' activities in the following
product and geographic markets:
•
The
market for the provision of rental space in B-Grade office property
in the Pretoria node;
•
The
market for the provision of rental space in C-Grade office property
within the Johannesburg CBD, Pretoria CBD, Arcadia and Sunnyside
node;
•
The
market for the provision of retail space in a convenience centre
within 10km radius from the merging parties convenience centres
in
the Johannesburg and Pretoria CBD node;
•
The
market for the provision of light industrial space within Pretoria
and Environs node; and
•
The
market for the provision of residential space within the Johannesburg
CBD, Pretoria and Environs nodes.
[9]
The
merging parties' post-merger estimates in all of the abovementioned
markets are mostly low, ranging between <05 <14%.
The only
higher market share is in the market for the provision of rental
space in C-Grade office property in the Johannesburg
CBD. It will
have a post-merger market share of between <30 -<40% but the
Competition Commission
("Commission")
is of the view that even this market
share raises no competition concerns. Furthermore the Commission is
of the view that the current
vacant space available in the nodes not
only places a constraint on the merging parties but also acts as an
incentive to the merging
parties, who also have vacant space within
their properties, to refrain from unilateral conduct.
Public
Interest
Exclusivity
clauses
[10]
Three
anchor tenants, consisting of large retail chain stores, have leases
with Premium which grant them the right to seek their
prior approval
before Premium can lease to their respective competitors. These
rights apply for the duration of their leases. The
leases have a 10
year duration period and are due to expire in 2021.
[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, in terms of section
12A (3);
"... (c) the ability of small
businesses, or firms controlled or owned by historically
disadvantaged persons, to become competitive..."
[12]
The Commission has therefore proposed
that the merger be approved on condition that the acquiring firm use
its best efforts to negotiate
with its tenants for the removal of
these clauses.
[13]
The Tribunal notes that in this merger
one of the lease agreements with an anchor tenant contains the
following clause -
"the LANDLORD
shall
not
during the period of this
lease, or any renewal hereof, lease any other portion of the SHOPPING
CENTRE or any extension or addition
thereto, to
a
tenant whose business in whole or
part comprises:
1.
a
bakery
2.
fresh meat;
3.
fresh produce;
4.
groceries; and
5.
delicatessen...
,,
[14]
This
clause places an absolute restriction on the lessor from offering
premises of any size whatsoever, no matter how small, to
businesses
who might, in whole or in part, compete with the chain stores'
businesses. A similar clause is to be found in the other
anchor
tenant agreements, however in this latter instance the clause
requires the prior written approval of the tenant if the lessor
wishes to lease to a supermarket or store containing food departments
in excess of 100 square metres and/or certain categories
of business
such as bakery, pie shop, butchery, fishery or fresh produce. In
essence it applies to the typical type of small business
who might
compete with one or other product type offered by the larger chain
stores, which would be typically small businesses.
[15]
The
merging parties explained that while they had no objection to the
imposition of the proposed condition. In their view the condition,
"is neither here nor there"
seemingly because the 'type of
tenant' that their centres attracted did not include small businesses
and their physical design would
enable them to put in an additional
anchor tenant.
[16]
If
indeed this were the case, such restrictive clauses in the leases
would serve no purpose whatsoever and one would expect no objection,
from the merging parties or the relevant tenants, to their deletion.
Furthermore no explanation or supporting evidence, such as
LSM
analysis or customer profiles, was provided by the merging parties as
to how they arrived at this definitive view, or why it
was that there
was no likelihood whatsoever that the centres would in future attract
smaller businesses. The merging parties did
not put forward any
efficiency arguments, on their own behalf or on behalf of their
tenants, for the inclusion of these provisions.
[1]
Given this, we find that it would be preferable, in the circumstances
of this case, that the merging parties endeavour to have
these
clauses removed.
Conclusion
[17]
In
light of the above we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition in the
markets mentioned. In addition, no other public interest issues arise
from the proposed transaction. Accordingly we approve the
proposed
transaction conditionally.
Yasmin
Carrim
Fiona
Tregenna and Anton Roskam concurring
1 October 2014
DATE
Tribunal
Researcher:
Moleboheng Moleko
For
the merging parties:
Vani Chetty
- Baker Mckenzie
For
the Commission:
Zanele Hadebe and Grace Mohamed
[1]
The only explanation provided was that the head offices of these
stores required these types of clauses. See Transcript page
6.