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[2016] ZACT 5
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Southern Sun Hotels Proprietary Limited and Another v Majormatic 194 Proprietary Limited (LM183Nov15) [2016] ZACT 5 (25 January 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM183Nov15
In the
matter between:
Southern
Sun Hotels Proprietary Limited
Southern
Sun
Hotel
Interests
Proprietary
Limited
Primary Acquiring Firms
and
Majormatic
194
Proprietary
Limited
Primary Target Firm
Panel
: Norman Manoim (Presiding Member)
: Andiswa Ndoni (Tribunal Member)
: Anton Roskam (Tribunal Member)
Heard
on
: 15December 2015
Order
Issued on
: 15 December 2015
Reasons
Issued on
: 25 January
2016
Reasons
for Decision
Approval
[1] On 15
December 2015, the Competition Tribunal ("Tribunal")
unconditionally approved the merger between the acquiring
firms
Southern Sun Hotels (Ply) Ltd ("SSH") and Southern Sun
Hotel Interests Proprietary Limited ("SSHI") and
the target
firm Majormatic 194 (Ply) Ltd ("Majormatic").
[2] The
reasons for approving the proposed transaction follow.
Parties
to
transaction
Primary
acquiring firm
[3] The
primary acquiring firm SSHI is a wholly-owned subsidiary of SSH,
which is in turn an indirect wholly-owned subsidiary of
Tsogo Sun
Holdings Limited ("Tsogo Sun Holdings"). Tsogo Sun
Holding's controlling shareholder is Hosken Consolidated
Investments
Limited.
[4] Tsogo
Sun Holdings is a hotel, gaming and entertainment firm with
operations in and around South Africa.
Primary
target firm
[5] The
primary target firm Majormatic is a company which leases hotel
properties from HPF Properties (Ply) Limited
("HPF").
Majormatic cedes the management agreements relating to the
hotels to extrabold Hotel Management (Ply) Ltd. ("extrabold").
To elucidate, the primary target firm in this case is Majormatic as
well as the management agreements, head office and staff of
extrabold.
Proposed
transaction and rationale
[6]
The proposed transaction involves SSH acquiring the entire
issued share capital ot Ma1ormat1c which includes the lease
agreements
of the following properties: Crowne Plaza Johannesburg-
Rosebank, Holiday Inn Sandton- Rivonia Road and Protea
Hotel-Hazyview
SSH will also acquire the management agreements
between extrabold and Majormatic for these hotels as well as
extrabold's head office
and staff.
[7] SSH
submits that the proposed transaction provides it with an opportunity
to acquire lease and management agreements which would
generate
management fees for SSH. Majormatic concluded the proposed
transaction to focus on other interests.
Impact
on competition
[8] The
Competition Commission ("the Commission") in its
investigation found that the proposed transaction resulted in
a
horizontal overlap as both of the merging parties are involved in the
management of hotels. The Commission adopting hotel star
grading as a
basis for comparative substitutes evaluated the proposed transaction
in the following markets; the market for the
provision of 3 and 4
star hotel accommodation in the Hazyview area, the market for the
provision of 3 and 4 star hotel accommodation
in the Rosebank
area and the market for the provision of 4 star hotel
accommodation in the Sandlan area.
[9] The
Commission in its investigation into the identified horizontal
overlap in the Hazyview area found that SSH owns a 4 star
hotel, Sabi
River Sun Resort. The Protea Hotel- Hazyview, leased by Majormatic,
is categorized as a 3 star accommodation. The Commission
assessed the
overlap in the broad market of 3 and 4 star hotel accommodation and
found that the merged entity would hold a market
share under 25% with
an accretion below 11%. It also found that the merged entity would
continue to face competition from a number
of alternative hotels in
the Hazyview area.
[10] In
its assessment of the Rosebank area, the
Commission found that SSH operates a 5 star hotel,
54 on
Bath. The Commission evaluated the overlap between 54 on Bath
and the 4 star hotel leased by Majormatic, the
Crowne Plaza
Johannesburg. The Commission's investigation into the market
shares revealed that the merged entity would have
less than 30% of
the market share with an accretion falling under 25%. The Commission
noted that although the· post-merger
market share would be
high the competitive dynamics of the market would remain unchanged as
both hotels would continue to
face the same competition from
numerous other hotels in the Rosebank area. Further during the
hearing, the merging parties
submitted that the hotels have a
different client base 54 on Bath is a deluxe boutique hotel
catering to niche business and
leisure patrons whereas the Crowne
Plaza would cater to a mixture of business and 4 star leisure
travelers.
[11] The
Commission in its investigation into the Sandlan market found that
SSH operates a 4 star hotel, the Southern Sun Katherine.
The
Commission evaluated the overlap between the Southern Sun Katherine
and the 4 star hotel Holiday Inn Sandlan leased by Majormatic.
The
Commission found that the merged entity would have a market share of
just under 35%, with an accretion falling below 15%. The
Commission
noted the high market shares prevalent in this segment but submitted
that the Sandlan area is highly competitive as
it is a tourist and
business hub. The merging parties submitted during
the hearing, that low occupancy
levels have created a
huge gap in supply and demand which would keep the merging
parties competitive post-merger.
[12] The
Commission in the three markets listed above found that there is a
prevalence of alternative players who offer hotel accommodation
in
the areas in which the merging parties manage hotels. Further no
concerns were raised by the various customers, travel agencies
and
competitors who the Commission contacted during their investigation.
Based on this, the Commission is of the view that the
proposed
transaction would not substantially Jessen or prevent competition.
[13]
Based on the facts provided to us we are of the view that the
proposed transaction is unlikely to substantially prevent
or
lessen competition in anv of the markets mentioned above.
Public
interest
[14]
The merging
parties confirmed that the
proposed transaction will not
result in an
adverse
impact
on
employment.
[1]
The
proposed
transaction
further
raises
no
other public interest concerns.
Conclusion
[15] In
light of the above. we concluded that the proposed transaction is
unlikelv to substantially Prevent or Jessen competition
in any
relevant market In addition. no public interest issues arise from the
proposed transactions. Accordingly, we approve
the proposed
transaction unconditionally.
25
January 2016
DATE
____________________
Ms
Norman Manoim
Ms
Andiswa Ndoni and Mr Anton Roskam concurring
Tribunal
Researcher:
Aneesa Ravat
For the
merging parties:
Anthony Norton of Nortons Inc
For the
Commission:
Zanele Hadebe
[1]
Inter
alia
merger
record
page
16.