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[2014] ZACT 72
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Fortress Income 2 (Pty) Ltd v Weskus Mall (019729) [2014] ZACT 72 (3 December 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 019729
In
the matter between:
Fortress
Income 2 (Pty)
Ltd
.........................................................................................
Acquiring
Firm
And
Weskus
Mall
........................................................................................................................
Target
Firm
Panel:
Norman Manoim (Presiding Member)
Imraan
Valodia (Tribunal Member)
Andiswa
Ndoni (Tribunal Member)
Heard
on: 05 November 2014
Order
issued on : 05 November 2014
Reasons
issued on : 03 December 2014
Reasons
for Decision
Approval
1.
On 05 November 2014 the Competition Tribunal (the “Tribunal”)
unconditionally approved an acquisition by Fortress
Income 2 (Pty)
Ltd (“Fortress”) of Weskus Mall (“Weskus Mall”).
2.
The reasons for the approval of the proposed transaction follow.
The
Parties and their activities
3.
The primary acquiring firm is Fortress, a firm incorporated in
accordance with the company laws of the Republic of South Africa.
Fortress controls Evaton Plaza Shareblock (Pty) Ltd, Mantraweb
Investments (Pty) Ltd and Intaba Investments 6 (Pty) Ltd. Fortress
is
a wholly owned subsidiary of Fortress Income Fund Ltd (“Fortress
Ltd”). Fortress Ltd is a public company listed
on the
Johannesburg Securities Exchange and it is not controlled by any
shareholder.
4.
The Fortress group comprises of property firms that currently own 97
investment properties classified as retail, industrial and
residential properties located in various provinces across South
Africa.
5.
The primary target firm is an immovable property and letting
enterprise known as Weskus Mall. Weskus Mali is owned by Witteklip
Mall (Pty) Ltd (“Witteklip”). Weskus Mail does not
control any firm. Weskus Mall is a retail property classified as
a
minor regional centre located in Vredenburg, Western Cape Province.
Proposed
transaction and rationale
6.
In terms of the proposed transaction Fortress intends to acquire
Weskus Mall as a going concern. Following implementation, Fortress
will have sole control over Weskus Mall.
7.
Fortress submitted that the acquisition of Weskus Mali is consistent
with its strategy of investing in retail properties.
8.
The shareholders of Weskus Mall submitted that this transaction is in
line with their overall strategy and that they are satisfied
with
Fortress’ offer.
Competition Analysis
9.
The Commission identified a horizontal overlap between the activities
of the merging parties in respect of the market for the
provision of
rental space in retail centres. The Commission found that regional
centres such as Weskus Mail fall within a comparative
centre category
and that the geographic market for comparative centres is 15km. The
Commission further found that the Fortress
group does not own any
regional centres in the Western Cape Province and consequently
concluded that there is no geographic overlap
between the activities
of the merging parties.
Public
interest
10.The
landlord of Weskus Mall, i.e. Witteklip, has entered into lease
agreements with two anchor tenants, namely, Shoprite Checkers
(Pty)
Ltd (“Shoprite”) and Salestalk 560 (Pty) Ltd t/a as Wimpy
Coast Mall respectively (“Salestalk”).
Both lease
agreements are to terminate in [...] and contain certain exclusivity
clauses.
11.The
exclusivity clause in favour of Shoprite precludes Witteklip from
leasing portions of Weskus Mall to certain businesses of
a certain
size such as bakeries and delicatessen, butcheries, fresh fruit and
vegetable shop and a fish shop without Shoprite’s
consent.
However, this exclusivity clause does not preclude Witteklip from
leasing space to Pick ‘n Pay. The exclusivity
clause in favour
of Salestalk excludes firms that operate businesses which are
substantially similar to that conducted by Wimpy.
According to the
Commission, since these exclusivity clauses do not give Witteklip the
unfettered right to lease space to small
businesses, this is likely
to raise barriers to entry and have a significant effect on these
businesses, as they are precluded
from competing with Shoprite and
Wimpy. Further contends the Commission that the lack of competition
in these categories means
consumers are prejudiced in terms of
reduced choice and higher prices.
12.
In order to address these concerns, the Commission recommended that
the transaction be approved subject to the condition that
merging
parties undertake to use reasonable commercial endeavours to
negotiate with Shoprite and Salestalk within 60 days of the
Tribunal’s decision to remove the exclusivity clauses contained
in both lease agreement.
13.
In response to the proposed condition, the Chief Executive Officer
and Managing Director of Fortress, namely, Mr. Mark Stevens
submitted
at the hearing that although Fortress does not support exclusivity
clauses and that it would accept the condition, if
imposed, his
experience is that it is a difficult process to have the clauses
removed. According to Mr. Stevens the difficulty
with the condition
is that it seeks to bring a change to a lease agreement which
involves a third party that is not party to the
merger. Mr. Stevens
also submitted that in other previous mergers that he was involved in
and in which the same condition as the
current one was imposed,
several negotiations took place in an effort to remove the
exclusivity clause. However, he has not had
any success in removing
the clause and that if fact in one case a substantial amount of money
was required by a certain tenant
in order to have the clause removed.
Mr. Stevens further submitted that the only way to rectify the issue
of exclusivity clauses
in lease agreements is through an industry
wide investigation conducted by the Commission.
14.
On the other hand, the Commission submitted that there has been
successful removal of the clauses in certain mergers although
an
assessment to see how this was able to be achieved in specific
centres and not in others has not been conducted yet.
15.After
taking into consideration both the Commission and Mr. Stevens’
submissions, we have decided not to impose the condition.
16.
Although we understand the Commission’s sentiment in proposing
the condition, we believe that the imposition of this type
of
condition through merger control, as opposed to enforcement route, is
not an effective tool as it requires the buy in of third
parties who
are not even involved in the merger in any way. Further, the
exclusivity clauses existed pre-merger and this transaction
does not
alter that. In addition and more importantly, apart from the presence
of Shoprite/Checkers at Weskus Mall, there are also
Woolworths and
Game stores (both of which sell groceries) as well as Food Lovers
market which sells
inter
alia
fresh
fruit and vegetables.
Conclusion
17.
In light of the above we conclude that the prosed transaction is
unlikely to substantially prevent or lessen competition. In
addition,
there are no other public interest issues arising from the proposed
transaction. Accordingly we approve the transaction
unconditionally.
03
December 2014
Date
Mr.
Norman Manoim
Ms
Andiswa Ndoni and Professor Imraan Valodia concurring
Tribunal
Researcher: Ipeleng Selaledi
For
the merging parties: Nazeera Mia of Cliffe Dekker Hofmeyr
For
the Commission: Dineo Mashego