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[2016] ZACT 24
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Redefine Properties Limited and Others v Cirano 300 Investments Proprietary Limited in respect of a 75% undivided in Erf 221, Rosebank known as Galleria (LM168Oct15) [2016] ZACT 24 (9 March 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM1680ct15
In
the matter between:
Redefine
Properties Limited The Pivotal Fund Limited
Abshelf
04
Proprietary
Limited
Primary Acquiring Firms
and
Cirano
300 Investments Proprietary Limited
in
respect of a 75% undivided share in Erf 221,
Rosebank
known
as the
Galleria
Primary Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: Medi Mokuena (Tribunal
Member)
: Fiona Tregenna
(Tribunal Member)
Heard
on
: 10 February 2016
Order
Issued on
: 10 February 2016
Reasons
Issued on
: 9 March
2016
Reasons
for Decision
Approval
[1]
On 10 February 2016, the Competition Tribunal ("Tribunal")
unconditionally approved the merger between the acquiring
firms;
Redefine Properties Limited ("Redefine Properties"), The
Pivotal Fund Limited ("The Pivotal Fund") and
Abshelf 04
Proprietary Limited ("Abshelf') and the target firm Cirano 300
Investments Proprietary Limited in respect of a
75% share in Erf
221,Rosebank known as the Galleria ("Cirano").
[2]
The reasons for approving the proposed transaction follow.
Parties
to transaction
Primary
acquiring firms
[3]
The primary acquiring firms Redefine Properties and The Pivotal Fund
are public companies listed on the Johannesburg Securities
Exchange
and are not controlled by any firm. Redefine properties comprises a
number of property investment and management firms
which have a
diverse property portfolio consisting of office, retail, residential
and industrial properties. The Pivotal Fund is
a property investment
and development fund which has a property portfolio comprising
office, retail, industrial and vacant land.
Abshelf is a wholly owned
subsidiary of Abland Proprietary Limited ("Abland"). Abland
primarily develops retail, commercial
and industrial properties in
South Africa. Abland also owns a small property portfolio comprising
retail and office space. Redefine
Properties, The Pivotal Fund and
Abshelf will hereinafter be referred to as the Primary Acquiring
Firms
Primary
target
firm
[4]
The primary target firm, Cirano is controlled by Genesis Properties
(Pty) Ltd and is engaged in property investment with its
operations
based primarily in South Africa. For purposes of the proposed
transaction Cirano's ownership of the Galleria is relevant.
The
Galleria, situated in Rosebank is a property comprising of Grade B
office space and rentable retail space.
Proposed
transaction and
rationale
[5]
The proposed transaction involves the Primary Acquiring Firms
acquiring a 75% share in the Galleria and effectively creating
a
joint venture. Post-implementation, the Galleria will jointly be
controlled by the Acquiring Firms with Cirano retaining a 25%
undivided share in the co-ownership. The
parties to the transaction intend to potentially
redevelop the Galleria into rentable Grade P office space, retail
space and residential space.
[6]
Redefine properties submitted that the proposed transaction is in
line with its redevelopment strategy, with the target firm
being a
prime redevelopment site. The Pivotal Fund submitted that the
proposed transaction is in line with its growth strategy
to enhance
future capital growth. Abland, through Abshelf submitted that the
proposed transaction is an ideal property investment
which is in line
with its investment strategy. Cirano submitted that the proposed
transaction has allowed it to select suitable
firms to work with in
the redevelopment of the Galleria.
Impact
on competition
[7]
The Competition Commission ("the Commission"), in their
investigation of the proposed merger, found that a horizontal
overlap
existed in the provision of rentable office, retail and residential
space.
[8]
In terms of the provision of rentable office space the Commission
evaluated the impact of the proposed transaction within the
markets
of rentable Grade B office space within the Rosebank node and
rentable Grade A and P office space within the Rosebank node.
The
Commission found that there were existing alterna Grade B office
properties located within the Rosebank node as well as new
developments in progress. In terms of rentable Grade A and P office
space the accretion in market share, falling below 1%, was
low and
would not alter the structure of the market. Basing their
recommendation on these findings, the Commission was of the view
that
the proposed transaction would not result in a substantial lessening
of competition.
[9]
In their investigation of the overlap in retail property the
Commission investigated the proposed transaction in the market
for
the provision of rentable space in convenience centers within a
broader node encompassing Rosebank, Morningside, Randburg and
surrounding nodes within a 1Okm radius of the Galleria. The
Commission found that the post-merger market share fell under 10%
with an accretion falling under 1% and found that the merged entity
would continue to face competition from other convenience centers.
The Commission therefore found that the proposed transaction would
unlikely result in the substantial lessening or prevention in
competition.
[10]
In their investigation of residential properties the Commission found
that the acquiring group, specifically Redefine, owns
rentable
residential properties used for student accommodation whereas the
planned redevelopment of the Galleria intends to redevelop
the
property to include rentable high-end residential space. The
Commission was of the view that student accommodation and luxury
accommodation were not suitable alternatives due to the discrepancy
in price. It was therefore of the view that the proposed transaction
would not result in a substantial lessening or prevention of
competition in the residential property market.
[11]
During the hearing of the matter the Tribunal raised a concern
regarding the appointment of board members to the board
of the
joint-venture as it may result in information sharing. As
appointments of board members had not taken place at the time
of the
hearing the merging parties undertook to be alive to this issue when
appointing members to the board. They further undertook
to inform the
Tribunal of the appointments once they were finalized to ensure that
the directors on the board would not be able
to transfer
competitively sensitive information.
[12]
The Commission cumulatively found that the proposed transaction would
be unlikely to substantially lessen or prevent competition.
In the
absence of facts to the contrary we concur with the Commission's
competition assessment, i.e. that the proposed transaction
is
unlikely to substantially prevent or lessen competition in the
residential, office and retail markets, as defined by the Commission
in their assessment.
Public
interest
[13]
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
[14]
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 approve the
proposed
transaction unconditionally.
09
March 2016
DATE
________________
Ms
Yasmin Carrim
Ms
Medi
Mokuena
and
Prof
Fiona
Tregenna
concurring
Tribunal
Researcher:
Aneesa Raval
For
the merging parties: Vani
Chetty of Baker & McKenzie
For
the Commission:
Rebetswe Molotsi, Seema Nunkoo and Xolela
Nokele
[1]
Inter
alia
merger
record page 16.