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[2016] ZACT 61
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Santam Limited v Absa Insurance Company Limited's Intermediated Commercial Lines Business (LM014APR16) [2016] ZACT 61 (12 September 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM0
1
4Apr16
I
n
the
matter
between:
SANTAM
LI
M
I
TED
Acquir
i
ng
F
i
rm
And
ABSA
I
NSURANCE COMPANY
LIM
I
TED'S
I
NTERME
D
I
ATED
Target
Firm
COMMERCIAL
LINES BUSINESS
Panel
:
Norman
Manoim (Presiding Member)
:
Medi
M
okuena
(Tribunal
M
ember)
:Andiswa
Ndoni (Tribunal
M
ember)
Heard
on
:
20
July 2016
Order
I
ssued
on
:
20
July 2016
Reasons
I
ssued
on
:
12
August
2016
Reasons
for Decision
APPROVAL
[1]
On 20 Ju
l
y
2016, the Competition Tribu
n
al
approved the
l
arge
merger between Santam Lim
i
ted
("Santam") and ASSA
Insurance
Company
Lim
i
ted's
("AIC") Intermediated
Commercial
l
ines
Business ("the target
firm")
with
a
condition pertaining
to employment.
[2]
The reasons for the conditional approval follow.
PARTIES
TO THE TRANSACTION AND THEIR
ACTIVITIES
Primary
Acquiring Firm
[3]
The primary acquiring firm is Santam, a firm listed on the JSE with
Sanlam life insurance holding a 62,19% share of its issued
share
capital. Santam specializes in the provision of short-term insurance
products for a diversified market in South Africa. These
products are
offered through broker's networks and direct sales channels and
include personal, commercial, agricultural and specialized
insurance
as well as wholesale reinsurance products.
Primary
Target Firm
[4]
The target firm is wholly controlled by AIC which is in turn, a
wholly owned subsidiary of ABSA Financial Services Limited ("ABSA
FS"). ABSA FS is a wholly owned subsidiary of Barclays Africa
Group Limited ("Barclays"). The target firm's business
primarily provides short-term insurance products such as property,
motor liability and engineering products to commercial clients.
PROPOSED
TRANSACTION
AND
RATIONALE
[5]
I
n
terms of the proposed
transaction,
Santam
will
acqu
i
re
the target
firm
as a going concern,
exercisi
n
g
sole control
over
it
post-transaction.
[1]
AIC
will otherwise
remain
a
competitor
with
Santam
in
respect
of
broader
short-term
i
nsurance
market as well as other narrower short-term
i
nsurance
markets
.
[6]
Santam submits that the target firm is currently inefficient and
unprofitable. It states that through its acquisition, Santam
will be
able to enhance the primary target firm's value.
[7]
AIC submits that
the sale
i
s
i
n
line with
i
ts
transformative
strategy focusing
on core
strengths
and
expertise.
This
strategy
was
prompted
by
new,
strong,
competitors,
high capital costs and
a
deficiency
i
n
scale.
The appl
i
cability
of this strategy is supported by a resolution by
the
directors of AIC
detailing
the target
firm's
high
earnings
volatility
and
returns
below
cost
of
equ
i
ty
over
the
l
ast
years.
[2]
RELEVANT
MARKETS AND IMPACT
ON
COMPETITION
[8]
The merging parties both provide short term insurance products
[9]
The Tribunal has previously
h
eld
defini
n
g
the market as the provision of short term
i
nsurance
may be too
broad
and the market shou
l
d
be further subdivided into
the
markets
for
the provision of personal, commercial
and
corporate cover.
[3]
AIC
only
provides
commercial
cover.
Th
i
s
too
may
be
too
broad
a
market
definition so the Commission subdivided this further
i
n
i
ts
analysis
.
[4]
[10]
I
n
none
of
the assessed sub-markets did the market
share accretion exceed 2%
n
or
did
i
t
materially
alter
the
structure
of the
markets.
Additionally,
the
presence
of
strong,
reputable
competitors
in
all
of
these
markets
will
mean
that
Santam
i
s
unl
i
kely
to
be
i
n
a
position
to
exercise
significant
market
power
post
merger.
[1
1
]
At the merger hearing
,
Santam
sought to dispute their market share
i
n
the
broad
market
for
the
provision
of
all
short-term
insurance
as
well
as
the
narrower
market
for
short-term
commercial
line
cover
calculated
by
the
Commission.
Whilst
we
note
their
disagreement
with
the
Commission's
market share,
we
shall
not make a
ruling on th
i
s
i
ssue owing
to the paucity of
i
nformation
at our disposal
as well
as
the
irrelevance
of
such
issue
to
the
determination
of the
matter at
hand.
On
both the
market shares
calcu
l
ated
by the
Commission as
well as those
calculated by the merging parties, the merger does not present a
threat of preventing or lessening competition in
any of the
identified markets.
PUBLIC
INTEREST
[12]
In relation to employment, the merging parties submit that the merger
will not have any impact on employment, in particular,
that no merger
specific retrenchments will arise as a result of the transaction.
[13]
In their report the Commission noted ongoing communication between
the merging entities and the South African Society of Bank
Officials
(SASBO) a trade union representing the employees affected by the
merger. At the hearing it was confirmed that the Commission
had not
yet obtained the final views of SASSO regarding the merger. Mr Gous
from Santam informed the panel that discussions with
SASSO and the
Merging parties were ongoing, with the only bone of contention being
that certain employee benefits provided by ASSA
may not follow the
employees into the merged entity. He was unable to certainly state
whether, at the time of the hearing, such
issues had been resolved.
[14]
In the context of such uncertainty, the panel additionally noted a
Barclays strategic document which highlights that:
"Santam
has
committed
to
finding
alternative
opportunities
,
decreasing
the
potential
for retrenchments'
[5]
[15]
When this statement was put to the merging parties, they were quick
to direct the panel to clause 6.14 of their sales agreement
governing
the merger which stipulates that Santam undertakes to not retrench
any of the relevant ASSA employees for a period of
twelve months.
[16]
These documents suggest that merger related retrenchments were
contemplated but that the parties had reciprocally undertaken
that
these were not to happen in the first year. There are two problems
with this. First the
consultat
i
on
process
with
the
un
ion
appears
incomplete
.
Second
the
u
n
dertaking
i
s
n
ot
enforceable
by
any
employee.
We
raised
th
i
s
with
the
parties who
were agreeable
to
th
i
s
u
ndertaking
bei
n
g
made
condition
for
the
approval of the merger and hence
enforceable on behalf of affected employees
.
The
condition,
attached
to
these reasons
as
'An
n
exure
A',
h
as
a
scope
no
broader
than
that
agreed
to
between
the
parties
i
n
the
sale
agreement, but
i
ts
i
nclusion
serves
to
ensure
that
Santam
may
be
held
accountable
by
i
ts
employees
shou
l
d
I
t
n
ot
comply
with
the co
n
tractual
obligat
i
on
.
CONCLUSION
[
1
7]
The
merger
i
s
u
n
likely
to
substantially
prevent
or
l
essen
competition
i
n the
broad
market
for
the
provision
of
short
term
i
nsurance,
the
narrower
market
for
the provision of short-term commercial
i
nsurance
products or any of
i
ts
sub markets.
[
1
8]
I
n
light
of
the
u
ncertainty
pertaining
to
the
ongoing
negotiations
with
SASSO,
it is
pr
u
de
n
t
to re
i
terate
the merging parties' commitment to ensuring
n
o merger
re
l
ated
r
etrench
m
ents
.
[19]
Accordingly we
approved
the transaction subject to the
employment
condition
attached as 'Annexure A.'
12
August 2016
Date
________________________
Norman
Manoim
Medi
Mokuena and And
i
swa
Ndoni
concurring
Tribunal
Researcher:
Alistair Dey-Van Heerden
F
or
the
Merg
i
n
g
Parties:
Edward Nathan
Sonnenberg
For
the
Commission:
Portia Sele
ANNEXURE
A
SANTAM
L
I
M
I
TED
and
ABSA
INSURANCE COMPANY LIMITED'S INTERMEDIATED COMMERCIAL LINES BUSINESS
Case
N
u
mber
L
M0
1
4Apr16
CONDITIONS
1.
DEF
I
N
I
TIONS
The
following expressions shall bear the meanings assigned to them below
and cognate expressions bear corresponding meanings-
1.1.
"Commission"
means
the
Competition
Commission of
South
Africa;
1.2.
"Conditions"
mean
these
conditions
;
1.3.
“Date
of
Approva
l
"
means the
date
referred
to
in the
Competition
Tribunal's
merger clearance certificate (Form CT
1
0)
;
1.4.
"Labour
Relations
Act" means
the
Labour
Relations
Act no.
66
of
1995
(as
amended);
1.5.
"Sales
Ag
r
eement"
means
the
Sales
Agreement
entered
i
n
to
between
ABSA
I
nsurance
Com
p
any
Lim
i
ted and
Santam
Lim
i
ted
on
13
April 2016
;
1.6.
"
Santam"
means Santam L
i
m
i
ted
;
1.7.
"Specified Employees" means
those employees as defined in
clause
6.1
and 6
.
2
of the Sales Agreement.
2.
CON
D
I
TIONS
2.1.
F
or a
period of one (1)
year
from the date of approval of th
i
s
mer
g
er
,
Santam will
n
ot
retrench any
Specified
Em
p
l
oyees
.
2.2.
For
the
sake of
clar
i
ty
,
retrenchments
d
o not
include
:
2.2.1.
Voluntary retrenchments
;
2.2.2.
Voluntary early retirement packages;
2.2.3.
Unreasonable
refusals to
be redeployed
i
n
accordance
with
provisions with the
Labour Relations Act; and
2.2.4.
Termination due to resignation or
retirement.
3.
MONITORING
3.1.
Santam shall
n
ot
i
fy
all
i
ts
employees of the conditions with
i
n
seven (7) business days of the order.
3.2.
As
proof
of compliance therewith,
Santam
shall,
with
i
n
five
(5)
business days of giving
n
otice
of
the
conditions,
provide
the
Commission with
an
affidavit
by
a
sen
i
or
official attesting to the fact and attach a copy of the notice sent.
3.3.
Any
employee
who
believes
that
h
i
s/her
employment
with
Sa
n
tam
has
been
terminated
i
n
contravention
of
these conditions may approach the Commission with his or her
complaint.
3.4.
All
correspondence in
relation
to
these
conditions shall
be
submitted
to
the
followi
n
g
email
address: mergerconditions@compcom.
co.za.
[1]
I
n
terms
of
the
sale
agreement Sanlam w
il
l
acquire
:
ASSA
policies
in
force
at
the effective
date
,
insurance
assets, ASSA
intermediary
agreements
,
specified
employees, working cap
i
tal
,
goodwill,
employee liabilities and the insurance liabilities in respect of AIC
intermediated Commercial lines bus
i
ness
.
[2]
ABSA
Insurance
Company limited "Circulated resolution by
the
directors
of the abovementioned
company"
Ex
h
i
bit
T3,
found
at
page
396 of the merger record.
[3]
See
Swanvest
120 (Pty) Ltd
and
lndwe Broker Holdings Limited LM058Sep10 and Sanlam limited
and
Emerald
I
nsurance
Company Lim
i
ted
LM025Aug09.
[4]
These
sub-markets
were
the markets for short-term commercial products relating
to
property,
motor,
liability
and
engineering
insurance.
[5]
Barclays
Africa Corporate Development MProject Hermes
;
GIC
Submission" 16
July
2015 page 6
found
at
Page 403 of the merger record
.