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[2017] ZACT 36
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Swanvest 120 Proprietary Limited v RMB-SI Investments Proprietary Limited (LM146Oct16) [2017] ZACT 36; [2017] 1 CPLR 393 (CT) (2 March 2017)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM1460ct16
In
the matter between
Swanvest
120 Proprietary
Limited
Primary Acquiring
Firm
And
RMB-SI
Investments Proprietary
Limited
Primary Target Firm
Panel
: Ms Andiswa Ndoni (Presiding Member)
: Prof lmraan Valodia
(Tribunal Member)
: Mr Enver Daniels
(Tribunal Member)
Heard
on
: 8 February 2017
Order
Issued on
: 8 February 2017
Reasons
Issued on : 2 March 2017
REASONS
FOR DECISION (NON-CONFIDENTIAL)
Approval
[1]
On 8 February 2017, the Competition Tribunal ("the Tribunal")
approved the large merger between Swanvest 120 Proprietary
Limited
and RMB-SI Investments Proprietary Limited.
[2]
The reasons for the approval are as follows.
Parties
to the transaction
Primary
Acquiring Firm
[3]
Swanvest 120 Proprietary Limited ("Swanvest") is an
investment holding company that is wholly controlled by Santam
Limited ("Santam"), which is listed on the Johannesburg
Stock Exchange ("JSE"). Santam wholly controls a number
of
other subsidiaries including Centriq Insurance Holdings and MiWay
Group Holdings ("MiWay"), which are collectively
referred
to as the Santam Group.
[4]
Santam
Group engages in the business of short-term and long-term
insurance.
Furthermore, it provides value added products (VAPs) which are added
to the short-term insurance policies to enhance
the overall value
offer.
[1]
Primary
Target Firm
[5]
The primary target firm is RMB-SI Investment (Pty) Ltd ("RMB-SI")
and its wholly owned subsidiaries, associates and
strategic
investments, collectively referred to as the RMB-SI Group. RMB-SI is
controlled by Rand Merchant Investment Holdings
(RMI), a public
company listed on the JSE.
[6]
RMB-SI
is a short-term and long-term insurance provider that offers, amongst
other insurance products, value-added products in the
form of
auto-body care and maintenance benefits which provide benefits
relating to motor-vehicle scratches and dents as well mechanical
and
electrical warranty products.
[2]
Proposed
transaction and rationale
[7]
In terms of the Sale of Shares Agreement, the Santam Group intends to
purchase, through Swanvest, the entire issued
share
capital of the RMB-SI Group (excluding Truffle Capital Proprietary
Group). Post-merger, the Santam Group will exercise
sole control over
the RMB-SI Group.
[8]
Santam Group submits that the proposed transaction will be a good
strategic fit and that Santam is well positioned to provide
a
platform for future growth of the RMB-SI business.
[9]
RMI submits that the proposed transaction will enable RMB-SI to be
more optimally positioned within a large insurance group.
As such,
Santam Group will provide RMB-Si's business with efficient
infrastructure while retaining the entrepreneurial culture
of
independence.
Relevant
market and impact on competition
[10]
The proposed transaction presents a horizontal overlap in the broad
market for the provision of short-term and long-term insurance.
[11]
The narrow short-term insurance market is further delineated into:
[11.1]
the narrow market
for
commercial short-term
insurance products.
[11.2]
the narrow market for personal short-term insurance products.
[11.3]
the narrow market for corporate short-term insurance products.
[11.4]
the narrow market for short-term property insurance.
[11.5]
the narrow market for short-term transport insurance.
[11.6]
the narrow market for short-term motor insurance.
[11.7]
the narrow market for short-term accident and health
insurance market.
[11.8]
the narrow market for short-term guarantees insurance market.
[11.9]
the narrow market for short-term liability insurance.
[11.10]
the narrow market for short-term engineering insurance. [11.11]
the narrow
market for short-term miscellaneous insurance.
[11.12]
the narrow motor VAPs market namely:
[11.12.1]
the narrow market for the provision of mechanical and electrical
warranty.
[11.12.21
the narrow market for the provision of insurance bodyline cover
(scratch and
dent).
[12]
The Commission, in its investigation of the broad short-term
insurance market, found that the merging parties would have an
estimated combined market share of approximately 25% with an
accretion of less than 2%. In addition, the merging parties will
continue to face competition from other incumbent players such as
Hollard, Guardrisk, Mutual and Federal, Outsurance and Zurich
Insurance within the market.
[13]
With
respect to the market for commercial and personal short-term
insurance, the Commission found that the merging parties will
have
market shares of approximately 42% and 24% respectively with market
share accretions of less than 2%.
[3]
With respect to corporate insurance, however, the Commission found
that there will be no market accretion due to the minimal presence
of
RMB-SI in that market.
[14]
In
the narrow markets for the provision of short-term property,
transportation, motor, accident and health, guarantee, liability,
engineering
miscellaneous
insurance products, the Commission found
that
the market share
of
the
merging parties is approximately 34% with an accretion of less than
1%.
[4]
Upon further analysis,
the Commission concluded that despite high market share in the market
for the provision of short-term transportation
products, the merging
parties will face competition from many competitors such as the likes
of Zurich, Outsurance, Mutual and Federal,
Guardrisk and Hollard
across all
segments
of the short-term insurance market.
[15]
In
the VAPs market for the provision of mechanical and electrical
warranty insurance and bodyline cover (scratch and dent cover),
the
merging parties submitted that RMB-SI does not engage its business in
the motor vehicle trade market nor is its products described
as VAPs.
RMB-SI considers its insurance policy, the
Prime
Motor Assist, to
be
a stand-alone insurance product that is not sold in the market where
VAPs are sold nor in the market served by motor traders.
With
reference to the Commission's findings in the proposed intermediate
merger between Hollard and Motovantage, the
Commission
found that RMB-SI was not a competitor in
that
market. In the current transaction, the Commission's investigation
revealed that the merging parties are minor participants
in the VAPs
market unlike their competitors. The proposed transaction is unlikely
to confer any market power onto the merging parties.
Post-merger, the
merging parties will possess a market share of 0.3% in
the
mechanical and electrical warranty market and a market share of 6% in
the bodyline insurance market.
[5]
As such, the Commission concluded that the proposed transaction
within this VAPs market is unlikely to raise competition concerns.
[16]
In the broad market for the provision of long-term insurance, the
Commission's investigation revealed that, post-merger, the
merging
parties will have a market share of at least 11% which represents an
accretion of less than 1% The Commission concluded
that the proposed
transaction is unlikely to substantially prevent or lessen the
competition in the broad market for the provision
of long term
insurance.
[17]
A competitor within the insurance market raised numerous concerns
with the Commission regarding the effect of the proposed
transaction
within in the relevant markets. It was submitted that the control of
a quarter of the market by Santam Group will place
it in a dominant
position thus granting it market power over the supply chain in the
motor value chain. Furthermore, the proposed
transaction will reduce
the local reinsurance premiums that are required to build and support
the balance re-insurance portfolios.
[18]
With
regards to the first concern, the Commission submitted that the
merging parties would have market shares of approximately 29%
- that
is in the motor insurance market - with an accretion of approximately
1.5%. The insignificant market share accretion is
a compelling
indication that the proposed transaction would not confer dominance
on the merging parties within the motor insurance
industry.
[6]
Furthermore, the Commission found that there are reputable
competitors including the likes of Hollard, Mutual and Federal,
Guardrisk
and Outsurance that the merged entity will have to compete
with in the motor insurance market.
[19]
With
regards to the second concern, the Commission found that RMB-SI
possess approximately 1.5% of the total reinsurance pool
contribution.
The Commission was of the view that the above
contribution is minute in comparison to the overall domestic
reinsurance market.
[7]
The
proposed transaction is therefore unlikely to change RMB-Si's
reinsurance pool nor alter the dynamics of the market therein.
The
Commission further engaged other reinsurers, none of which raised
concerns regarding the proposed transaction.
[20]
In the relevant markets, the Commission found that the market share
accretions were minimal and therefore did not raise any
competition
concerns.
Restraint
of trade
[21]
Contained
in the Sale Agreement is a restraint of trade clause whereby RMI (the
seller) undertakes to the acquiring firm that it
shall not within a
three year period, in the territory initiate any business for its own
account or acquire any assets or an interest
in any undertaking that
constitutes a competing
activity.
[8]
[22]
The
merging parties submit that the restraint of trade clause is
reasonable in the circumstances as it is concluded for commercial
reasons and intends to protect the RMB-SI Group's goodwill and
Santam's rights in respect of the know-how and clients of the RMB-SI
Group from
RMl.
[9]
[23]
The Commission assessed the restraint of trade clause and concluded
that the duration was reasonable and justifiable in the
circumstances
and this it is unlikely to substantially prevent of lessen
competition in the market. We are accordingly satisfied
with the
rationale provided by the merging parties and have no doubt as to the
Commission's conclusion regarding the restraint
of trade clause.
[24]
In view of the above, we are of the view that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in the relevant market.
Public
interest
[25]
The merging parties submit that the proposed transaction will not
result in merger specific retrenchments nor give rise to
any negative
effects on public policy considerations.
[26]
Based on the above, the Commission was of the view that the proposed
transaction would not result in any job losses. Furthermore,
the
proposed transaction did not raise other public interest concerns.
Conclusion
[27]
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 other public interest issues arise
from the proposed transaction. Accordingly, we approve
the proposed
transaction unconditionally.
2
March 2017
Date
___________________
Prof.
Imraan Valodia
Ms
Andiswa Ndoni and Mr Enver Daniels concurring
Tribunal
Researcher:
Ndumiso Ndlovu
For
the merging parties:
Lebogang Phaladi and Ryan Goodman for ENSafrica
For
the Commission:
Portia Sele
[1]
Pg. 2 of the Transcript.
[2]
Ibid.
[3]
Pg. 3 of the Transcript.
[4]
Pg. 3 of the Transcript.
[5]
Pg. 4 of the Transcript.
[6]
Pg. 5 of the Transcript.
[7]
Pg. 6 of the Transcript.
[8]
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[Confidential information]
[9]
Pg. 12 of the Transcript.