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[2015] ZACT 99
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Fortress Income Fund Limited v Capital Property Fund Limited (LM064Jul15) [2015] ZACT 99 (2 November 2015)
COMPETITION
TRIBUNAL
OF
SOUTH
AFRICA
Case
No: LM064Jul
1
5
In
the
matter
between:
Fortress
I
ncome
Fund
Limited
Primary
Acquiring
Firm
and
Capital
Property
Fund
Limited
Primary
Target Firm
Panel
: Norman Manoim (Presiding Member)
: Medi Mokuena(Tribunal Member)
: lmraan Valodia (Tribunal Member)
Heard on
: 7 October 2015
Order
I
ssued
on
:
7
October
2015
Reasons
I
ssued
on
:
2
November
2015
Reasons
for Decision
Approval
[1] On 7
October 2015, the Competition Tribunal ("Tribunal")
unconditionally approved the merger between Fortress Income
Fund
Limited ("Fortress") and Capital Property Fund Limited
("Capital")
[2] The
reasons for approving the proposed transaction follow.
Parties
to
transaction
Primary
acquiring firm
[3] The
primary acquiring firm, Fortress is a publically listed Real Estate
Investment Trust, listed on the JSE, and which is not
controlled by
any firm.
[4]
Fortress together with its wholly-owned subsidiaries owns a
portfolio of ninety seven investment
properties in
South Africa comprising industrial, retail, office and residential
properties.
Primary
target firm
[5]
Capital is also a publically listed Real Estate Investment Trust and
is listed on the JSE. Capital wholly-owns thirty firms
within South
Africa.
[6]
Cumulatively Capital and the firms it controls own a property
investment portfolio comprising industrial, retail, office,
development
and miscellaneous properties.
Proposed
transaction and rationale
[7] The
proposed transaction involves Fortress acqumng the
entire issued share capital of Capital.
Upon
implementation of the merger, Capital's listed shares will be
terminated on the JSE and Capital will become a wholly-owned
subsidiary of Fortress. Fortress will exercise sole control as a
result.
[8]
Fortress submits that the proposed transaction will present a growth
opportunity and diversify its portfolio while a larger
fund will also
increase its chances of attracting international investors. Capital
submits that the proposed transaction will be
beneficial to its
shareholders due to the attractive offer it received.
I
mpact
on competition
[9] The
Commission identified that both firms own properties in retail,
industrial and office divisions and these properties were
evaluated
further by the Commission. As both firms own properties falling under
these sectors the Commission found that that the
proposed transaction
resulted in a horizontal overlap.
[10] The
Commission identified nine markets wherein the merging party's
activities overlap. The overlaps are as follows;
i.
four overlaps
i
n
respect of the provision of rentable light
i
ndustrial
property,
ii.
three overlaps in relation to the
provision of rentable convenience centers
iii.
one overlap in relation to the provision
of rentable grade B office property
iv.
one overlap in relation to the provision
of rentable grade B and C office property
[11] In
their investigation, the Commission found that the market share in
six of the nine identified markets remained low. However
the
Commission did find that in three of the markets the market shares of
the merged entity would be high. High market shares were
identified
for the following nodes,
i.
I
n
the market
for the provision
of rentable
light industrial property
within
a
broader node encompassing the Kempton Park/Spartan, lsando,
Elandsfonte
i
n,
Meadowdale,
Linbro ParK, Germiston and Pomona nodes
ii.
I
n
the market for the provision of
rentable
light
i
ndustrial
space within a broader node encompassing Brakfontein/ Midrand/
Cosmosdal/ Lombardi.
iii.
I
n
the
market
for
the
provision
of
rentable
Grade
B
office
property
within
the
Bryanston node
[12] The
merging parties submitted that in most cases, the Commission's
calculation of market share was higher than theirs. The
explanation
for this was that the Commission had relied on listed companies to
calculate market shares but according to Mr Stevens
of Fortress in
the three markets concerned, unlisted companies owned property and if
their market shares were taken into account
this would dilute the
high market shares for Fortress post-merger shown on the Commission's
figures.
[13] In
order to determine whether high market shares in the three markets
would have a negative impact on competition the Commission
considered
whether there was an availability of vacant rentable space and/or
whether there were prospective new developments. In
the three markets
where a high market share was identified, the Commission found that
there was sufficient vacant space to serve
as an alternative
which
would offset
any
concerns
of
the
combined high
market
shares.
The
Commission was therefore
satisfied that the proposed transaction
would not result
in
a substantial lessening of competition.
[14] We
concur with the Commission's competition assessment, i.e. that the
proposed transaction is unlikely to substantially prevent
or lessen
competition in any relevant market either because the high market
shares appear over stated because of the potential
competition
arising from the ownership of vacant land by other firms or if the
merging parties are correct that these figures are
in any event
over-stated.
Public
interest
[15]
The
merging
parties
confirmed
that
the
proposed
transaction
will
not
result
in
an
adverse
i
mpact
on employment.
[1]
The
proposed
transaction
further
raises
no other public interest concerns.
Conclusion
[16] In
light of the above, we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition
in any
relevant market. In addition, no public interest issues arise
from the proposed transactions.
Accordingly,
we a prove the proposed transaction unconditionally.
02
November 2015
DATE
____________________
Mr
Norman Manoim
Ms
M
edi
Mokuena
and
Prof
lmraan
Valodia
concurring
Tribunal
Researcher:
Aneesa Ravat
For
the
merging parties:
Susan
Meyer of Cliffe Dekker Hofmeyr
I
nc
For
the
Commission:
Reabetswe
Molotsi and Xolela Nokele
[1]
Inter
alia
merger
record
page
9.