competition trlbunal
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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM103SEP16
In the matter between:
FORTRESS INCOME FUND LIMITED
And
LODESTONE REIT LIMITED
Panel
Heard on
Order Issued on
Reasons Issued on
APPROVAL
: Norman Manoim (Presiding Member)
: Yasmin Carrim (Tribunal Member)
: Medi Mokuena (Tribunal Member)
: 1 O November 2016
: 10 November 2016
: 7 December 2016
Reasons for Decision
Acquiring Firm
Target Firm
[1] On 1 O November 2016, the Competition Tribunal approved a large merger
between Fortress Income Fund Limited ("Fortress") and Lodestone Reit Limited
("Lodestone").
[2] The reasons for the approval follow.
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PARTIES TO THE TRANSACTION AND THEIR ACTIVITIES
Primary Acquiring Firm
[3] Fortress is a public company listed on the Johannesburg Securities Exchange,
not controlled by any firm. Fortress controls six other firms which, as a group,
own a property portfolio comprising industrial, retail and office properties in the
Gauteng, Western Cape, Kwa-Zulu Natal, Mpumalanga, Eastern Cape,
Limpopo, Free State and North West provinces.
Primary Target Firm
[4] Lodestone is a public company listed as a Real Estate Investment Trust on the
Alternative Exchange Index of the JSE and is not controlled by any firm.
Lodestone controls four subsidiaries which, as a group, own a property portfolio
comprising industrial, retail and residential properties in the Gauteng, North
West, Kwa-Zulu Natal, Limpopo, Western Cape, Northern Cape and
Mpumalanga provinces.
PROPOSED TRANSACTION AND RATIONALE
[5] The proposed transaction involves an acquisition by Fortress of the entire
issued share capital of Lodestone, after which Fortress will have sole control
over Lodestone.
[6] In terms of rationale, Fortress submitted that the acquisition of Lodestone's
assets presents a beneficial long term investment and that the supplementing
of its human capital with a highly regarded and competent management team
was also a motivating factor.
[7] Lodestone submitted that the transaction provides an opportunity for Lodestone
shareholders to dispose of their shares at a premium and enhance their
liquidity, thereby enhancing their ability to retain the investment exposure of
their choice.
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RELEVANT MARKETS AND IMPACT ON COMPETITION
[8] Fortress and Lodestone both provide rentable space in light industrial property
and retail convenience centres in various geographic nodes in the KZN,
Gauteng, Limpopo and North West provinces.
[9] In the market for the provision of retail space in convenience centres, the
Commission identified four geographic nodes within which there was an
overlap. In all but one of the nodes, the post-transaction market share of the
merged entity does not exceed 6.5% nor does the market share accretion
exceed 5%. In the outlier, namely the provision of rentable space in
convenience centres within a 1 Okm radius of Lodestone's Makhado Square
convenience centre, located in the Limpopo province, the merged entity would
have a post-transaction market share of 15.88% with market share accretion of
5.05%.
[1 O] In the market for the provision of rentable space in light industrial property, the
Commission identified nine nodes within which there was horizontal overlap. In
none of the nine nodes does the post-transaction market share exceed 23%,
nor does market share accretion exceed 3%.
[11] In both sub-markets and the corresponding geographic nodes, the Commission
found that the merged entity will continue to face strong competition from
numerous competitors, constraining its ability to prevent or lessen competition.
[12] The proposed merger thus does not create any competition concerns.
CONCLUSION
[13] Although presenting horizontal overlaps, the low post-merger market shares in
such markets as well as the presence of strong competitors will render such
overlaps nugatory.
[14] The proposed transaction does not raise any public interest concerns.
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[15] Accordingly, the transaction was approved without conditions.
7 December 2016
Date
Yasmin Carrim and Medi Mokuena concurring.
Tribunal Researcher: Alistair Dey-Van Heerden
For the merging parties: Nazeera Mia of Cliffe Dekker Hofmeyr
For the Commission: Raebetswe Molotsi
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