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[2015] ZACT 15
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Arrowhead Residential Limited v Jika Properties (Pty) Ltd (020198) [2015] ZACT 15 (25 February 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 020198
In the matter
between:
ARROWHEAD
RESIDENTIAL
LIMITED
...................................................................
Acquiring
Firm
And
JIKA
PROPERTIES (PTY)
LTD
..........................................................................................
Target
Firm
Panel: Norman Manoim
(Presiding Member),
Yasmin Carrim
(Tribunal Member)
and Medi Mokuena
(Tribunal Member)
Heard on: 11
February 2015
Order issued on: 11
February 2015
Reasons issued on :
25 February 2015
Reasons for
Decision
[1] On 11 February
2015, The Competition Tribunal (“Tribunal”)
unconditionally approved the merger between Arrowhead
Residential
Limited (“Arrowhead Residential”) and Jika properties
(Pty) Ltd (“Jika”)
[2] The reasons for
approving the proposed transaction follow.
Parties to
Transaction and their Activities
Primary acquiring
firm
[3] The primary
acquiring firm is Arrowhead Residential, a wholly-owned subsidiary of
Arrowhead Properties Limited (“Arrowhead”),
a public
company listed on the Johannesburg Securities Exchange. In addition
to Arrowhead Residential, Arrowhead controls Vividend
Income Fund
Limited and Vividend Management Group. Its top beneficial unit
holders, holding more than 5% of the A and B linked
units are listed
below:
Unit Holder
A Linked
Units
B Linked
Units
Coronation
Fund Managers
11.48%
11.37%
Nedbank Group
11.25%
7.29%
Investec Asset
Management
5.29%
9.25%
Stanlib Group
Limited
3.41%
3.29%
Government
Employees Pension Fund
3.64%
3.25%
[4]
Arrowhead Residential is listed under the
‘
Real
Estate- Real Estate Holdings and Development
"
sector
on the JSE and has had Real Estate Investment Trust status as of 1
October 2013. Arrowhead holds a diverse portfolio of properties
comprising of rentable, retail, residential, office and industrial
space located across South Africa. In addition, Arrowhead conducts
its own internal asset management services with respect to its
property portfolio whilst outsourcing its property management to
other companies
1
.
Primary target
firm
[5] The primary
target firm is Jika. Jika is jointly controlled by Citiq (Pty) Ltd
(“Citiq”) (92.09%) and Amber Falcon
Properties (Pty) Ltd
(“Amber Falcon”) (7.96%). Amber Falcon does not control
any firm. Citiq controls Citiq Commercial
(Pty) Ltd, Citiq Property
Services (Pty) Ltd, Citiq Meter Solutions (Pty) Ltd, Citiq Property
Developers (Pty) and Segstone Trading
(Pty) Ltd.
[6] Jika is engaged
in the business of property development, investment holding and
letting, primarily in the South African region.
Its main focus is
acquiring affordable housing in the form of township units and
apartments as rental in Gauteng. Jika also invests
in student
accommodation in close proximity to the Tshwane University of
Technology, the University of the Witwatersrand and the
University of
Johannesburg.
Proposed
Transaction:
[7] In terms of the
Sale of Shares and Claims Agreement entered into between Arrowhead
Residential, Jika, Citiq and Amber Falcon,
Arrowhead Residential
seeks to acquire shares in, and claims against, Jika from Citiq and
Amber Falcon respectively. Upon completion
of the proposed
transaction, Arrowhead Residential will acquire sole control over
Jika and its residential properties. Jika’s
residential
property portfolio consists of the following:
37
residential properties collectively comprising 856 residential units
situation in the Johannesburg CBD, Joubert Park, Berea,
Fairview,
Townsview, Kenilworth, Yeoville, Rosettenville, Booysens, Hillbrow
and Bellevue;
19
residential properties collectively comprising of 207 residential
units situated in Randburg, Windsor East and Windsor West;
1
residential property comprising of 44 residential units in
Rouxville, Johannesburg, that is situated in Parkwood, Highlands
North, Alexandra, Wynberg, Morningside and Douglasdale;
2
residential properties collectively comprising 112 residential units
situated in Brakpan;
4
residential properties collectively comprising 467 residential units
situated in different locations in Pretoria.
[8]
The Sale of Shares and Claims Agreement is subject to an Excluded
Assets Agreement. In terms of the latter agreement, the parties
agreed that certain assets owned by Jika will be excluded from the
sale and transferred to Citiq.
At
the hearing, the merging parties confirmed that the assets excluded
from the sale are the properties used for student accommodation.
2
Rationale:
[9] Arrowhead
submits that the proposed acquisition of Jika and its residential
properties is in line with its strategy to acquire
higher yielding
properties with a sustainable revenue stream. This speaks to
Arrowhead’s main focus, which is to increase
returns for its
investors. Further, the acquisition provides Arrowhead residential
with an opportunity to diversify its property
portfolio and to expand
the listed residential property sector in the real estate market.
[10] Citiq and Amber
Falcon submit that they seek to focus on the provision of
accommodation to the student market. Accordingly,
both Citiq and
Amber Falcon are disposing of non-core assets in order to generate
funding and capital for the future development
of student
accommodation and new residential apartments.
Relevant Market
and Impact on Competition:
[11] The Commission
identified the relevant product market as the market for the
provision of rental space in residential properties.
[12]
Although the Commission did not conclude on the geographic market,
3
it found that the relevant areas affected by the proposed transaction
are the Johannesburg CBD and surrounding areas as well as
Randburg
and its surrounding areas.
4
The Commission therefore considered the activities of the merging
parties to determine whether any overlaps existed between them
in
these areas.
[13] As noted,
Arrowhead holds a diverse portfolio of properties comprising of
rentable, retail, residential, office and industrial
space located
across South Africa, including Gauteng. Jika, on the other hand,
holds a portfolio of 63 residential properties in
Gauteng. The
Commission thus concluded that a horizontal overlap exists between
the activities of the parties as both own residential
property in
Gauteng and more specifically in the Johannesburg CBD and surrounding
areas as well as Randburg and its surrounding
areas.
[14]
Further, it found that based on the estimated post-merger market
shares provided by the merging parties’, the merged
entity will
have the following market shares in the affected areas:
5
Affected
area:
Market
share:
Accretion:
Johannesburg
CBD and surrounding areas
3.67%
2.14%
Randburg
and surrounding areas
4.10%
2.07%
[15] In addition,
the Commission found that the market comprises of a number of market
participants, which include various private
and listed firms as well
as individuals that rent out property. The merged entity will
therefore continue to face competition in
the affected markets
post-merger.
[16] Accordingly,
the Commission concluded that the proposed transaction is unlikely to
substantially prevent or lessen competition
in the market for the
provision of rental space in residential properties in the
Johannesburg CBD and surrounding areas and Randburg
and surrounding
areas.
Public interest:
[17] The Commission
identified no public interest concerns likely to arise from the
proposed transaction.
Conclusion:
[18] In light of the
above, we agree with the Commission’s analysis and conclude
that the proposed transaction is unlikely
to substantially prevent or
lessen competition in the relevant market. In addition, no public
interest issues arise from the proposed
transaction.
25 February 2015
DATE
Norman Manoim
Yasmin Carrim
and Medi Mokuena concurring.
Tribunal Researcher:
Ammara Cachalia
For the merging
parties: Vani Chetty of Baker & Mckenzie
For
the Commission: Zanele Hadebe
1
These
companies include: JHI Properties (Pty) Ltd, Citiq Property Services
(Pty) Ltd, Amorispan (Pty) Ltd and Mafadi Property
Management (Pty)
Ltd
2
See
page 3 of the Transcript.
3
In
the merger between
Presmooi
(Pty) Ltd, Savyon Building (Pty) ltd and IPS Investments (Pty) Ltd
and Drystone Investments (Pty) Ltd, Prop hold Ltd,
Odeon Investments
(Pty) Ltd and Ada max Property Projects, Persequor Park (Pty) ltd,
the
Commission found that properties located 8km apart do not pose a
competitive constraint on each other thus suggesting a narrow
geographic market including a radius of below 8km. However, in this
case, the geographic market could be wider than an 8 km radius
depending on the geographic area.
4
These
areas encompass Johannesburg CBD, Joubert Park, Berea, Fairview,
Townsview, Kenilworth, Yeoville, Rosettenville, Booysens,
Hillbrow,
Bellevue, Windsor West and Randburg.
5
The
Commission relied on the post-merger market shares of the merging
parties as the information was not publically available
on the Gross
Lettable Areas for residential properties. The Competitors were also
unable to provide market share estimates for
the merged entity.