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[2016] ZACT 79
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Bonitas Medical Fund v Liberty Medical Scheme (LM039JUN16) [2016] ZACT 79 (15 September 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM039Jun16
In
the
matter
betwee
n
:
BONITAS
MEDICAL
FUND
Primary
Acquiring
Firm
and
LIBERTY
MEDICAL
SCHEME
Primary
Target Firm
Panel
:
Medi
Mokuena
(Presiding
Member)
:
Anton Roskam (Tribunal Member)
:
Andiswa Ndoni (Tribunal Member)
Heard
on
: 24 August 2016
Order
Issued on
:
24 August
2016
Reasons
Issued on
: 15 September 2016
Reasons
for Decision
Approval
[1]
On
24
August
2016,
the
Competition
Tribunal
(
"
Tribunal")
approved
the
proposed
transaction between the Bonitas Medical
Fund and Liberty Medical Scheme.
[2]
The reasons for approving the proposed transaction follow
.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Bonitas Medical Fund ("Bonitas"),
a medical scheme duly registered with the Council
for Medical Schemes
("CMS") in terms of section 24(1) of the Medical Schemes
Act 131 of 1998 ("the
Medical Schemes Act"
;).
[4]
Bonitas is active in the medical schemes industry and operates as an
open medical scheme. Bonitas is neither directly nor indirectly
controlled by another firm. Further, Bonitas does not directly or
indirectly control any firm but is managed by a board of trustees.
Primary
target firm
[5]
The primary target firm is Liberty Medical Scheme ("Liberty"),
a medical scheme duly registered with the CMS in terms
of
section
24(1)
of the
Medical Schemes Act.
[6
]
Liberty is registered with the Council for Medical Schemes ("CMS")
and is neither directly nor indirectly controlled
by another firm.
Liberty does not directly or indirectly control any firm but is
managed by a board of trustees.
Proposed
transaction and rationale
[7]
The merging parties intend to amalgamate their businesses to form one
medical scheme. Liberty's medical scheme and all its assets
will be
transferred to Bonitas. The amalgamated scheme will continue under
the name "Bonitas Medical Fund". The board
of trustees will
consist of 8 of the existing Bonitas trustees and 3 of the Liberty
trustees.
[8]
The proposed amalgamation is also subject to the approval of the
Registrar of the Medical Schemes. Further, there is no purchase
consideration.
[9]
Bonitas submits that the proposed transaction is meant to enhance the
combined entity's competitive position in the relevant
market,
thereby increasing its bargaining power with suppliers. The
amalgamation will ensure that Liberty members will become members
of
a large, sustainable medical scheme (Bonitas), whereas an
amalgamation with Liberty will further enhance the Bonitas brand by
allowing it exposure to a different market segment than Bonitas'
traditional catchment market.
[10]
Liberty
submits
that
the
purpose
for
the
amalgamation
is to
secure
the
continued
cover provided by Liberty to its members
and their
beneficiaries
by: (i) mitigating the risk of insolvency (ii) stabilising and
improving the membership base through: (a) total membership
and (b)
the age profile of members and beneficiarie
s
.
Impact
on competition
[11]
The
Competition
Commission
("Commission")
found
that
the
activities
of the
merging parties
overlap
horizontally in the
provision
of
medical
aid
services
to
individuals
and companies
.
[12]
Further, the activities of the merging parties overlap with regard to
the administration
and
managed
care
services
.
However
,
these
services
are
not
carried
out
by
the
merging parties
themselves,
but
are
provided by
third parties contracted to
the merging parties.
None of the third
party
administrators
are directly
related to any of the merging parties
except through contracts
.
[13]
The merging parties submitted that both parties are active as open
medical schemes and the Commission,
thereafter
found
it
prudent to analyse the
relevant
market
at a narrow level, for
open
medical
scheme
s
,
and
at
a
broad
level,
for
open
and
closed
medical
scheme
s
.
[1]
[14]
The
merging
parties
submit
that
in the
narrow
view
of the
relevant
market for
open schemes,
Bonitas
has
a market share of
13%
and
Liberty
2.5%. The amalgamated entity will, post-merger,
have a market share of 15.5% with a
minor 2.5% increment, resulting in a relatively small change to the
structure of the market.
[15]
If the
broader
market for
open
and
closed
schemes
is
looked
at
the
amalgamated entities
market share decreases to 9% with
Liberty
only accounting for
1.4%. Discovery
and GEMS
account
for
approximately
50%
of
the
relevant
market
in
the narrow and broad markets, respectively
.
The merging parties further submit that
they
will face effective competitors in both the open and
closed schemes markets, and such competitors will remain as
constraints post-merger.
[16]
The Commission found that the merging parties do not provide products
and/or services to each other. Therefore no vertical
foreclosure
effects arise from the proposed transaction.
[17]
The Commission received concerns from the CMS regarding the proposed
transaction, however these concerns specifically relate
to the
merging parties conduct. The concerns appear to be non-merger
specific and largely appear to be beyond the Commission's
jurisdiction.
[18]
The Commission therefore concluded that the proposed transaction is
unlikely to substantially prevent or lessen competition
in any
relevant market.
[19]
We agree with the Commission's conclusion that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in any relevant market.
Public
interest
[20]
The merging parties submit that there is no effect with respect to
employment on either Bonitas or Liberty. The primary acquiring
firm
will become the successor-in title of the primary target firm.
Therefore all the employees of the target firm will be
transferred in
terms of section 197 of the Labour Relations Act.
[21]
The Commission
contacted
both
employee
representatives
at
Liberty
and
Bonitas,
who
confirmed
receipt
of
the
merger
filing.
Neither
employees
of
Liberty
nor
of
Bonitas raised concerns about the transaction.
[2]
[22]
Accordingly, the proposed transaction will not have adverse effect on
employment, because retrenchments will not result from
the proposed
transaction.
[23]
The proposed transaction further raises no other public interest
concerns
.
Conclusion
[24]
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 transaction.
Accord
i
ngly,
we
approve
the proposed transaction
unconditionally
.
15
September
2016
DATE
___________________________
Ms
Medi Mokuena
Mr
Anton Roskam and Ms Andiswa Ndoni concurring
Case
Manager:
Kameel Pancham
For
the merging parties:
Natalia Lopes of ENS Africa
For
the Commission:
Thelani Luthuli
[1]
The
Commission
engaged
CMS
who
confirmed
that
medical
cover
is
provided
within
two-subsectors
,
namely
:
restricted
schemes
and
open schemes
.
Membership
in
closed
schemes
is
restricted to
professionals
and
companies
in
sectors
of
the
economy
.
Open
schemes
are
open
to
private
individuals,
and
companies
that
elect
to
purchase
cover
on
behalf
of
their
employees
in
open schemes. Therefore the products offered in
open
and restricted scheme environments are not
close
substitutes, rendering
the
open
and
restricted
environments
as
separate
markets.
See
also,
Transcript page
5,
lines
12-21
where
Mr
Gerhard
van
Emmenis
(the
chief
operating
officer
of
Bonitas)
and Mr
Andrew
Edwards (the
principal
officer
of
Liberty) both
confirmed
that
the
respective schemes both
operate
within
the
open
market.
[2]
Merger
Record
inter
alia
page
39.