Summary of Judgment

Introduction

The proceedings concerned an application for approval of an intermediate merger before the Competition Tribunal of South Africa. The matter was heard by a Tribunal panel comprising Andreas Wessels (Presiding Member), Andiswa Ndoni (Tribunal Member), and Medi Mokuena (Tribunal Member).

The primary acquiring firm was Futuregrowth Asset Management (Pty) Ltd, acting as agent for Old Mutual Life Assurance Company (South Africa) Limited (OMLACSA). The primary target firms were Citiq Treasury (Pty) Ltd and Citiq Property Services (Pty) Ltd (CPS).

Procedurally, the merger was investigated by the Competition Commission and then considered by the Tribunal at a hearing on 8 August 2018. The Tribunal issued an order on 8 August 2018 approving the merger unconditionally, with written reasons issued on 22 August 2018.

The dispute concerned whether the proposed transaction would be likely to substantially prevent or lessen competition in any relevant market and whether any public interest concerns arose, with the competitive assessment focused on markets for rentable property space (office, retail convenience centres, residential rentals, and student accommodation).

Material Facts

Futuregrowth, operating within the Old Mutual group, was relevant to the assessment because the Old Mutual group held a diversified portfolio of immovable properties and rental enterprises. Futuregrowth itself was wholly owned by Old Mutual Investment Group Holdings (Pty) Ltd (OMIG), and it acted in the transaction as agent for OMLACSA.

The target firms, Citiq Treasury and CPS, were wholly owned by Citiq (Pty) Ltd. Citiq was described as being jointly controlled by Stanislaus Investments (Pty) Ltd and OMLACSA. Citiq Treasury operated as a property holding company, while CPS was the property administration and rental management division of Citiq.

The transaction was implemented through multiple steps, in terms of which Futuregrowth would acquire from Citiq the entire issued share capital in, and all claims against, Citiq Treasury and CPS.

On the competition assessment, the Commission identified horizontal overlaps between the merging parties in four product markets, namely the markets for rentable office space, rentable retail property classified as convenience centres, rentable residential space, and rentable residential property used for student accommodation. The Tribunal expressly indicated that it left the exact scope of the relevant geographic markets open because doing so did not affect the ultimate conclusion.

In relation to rentable office space, the Commission found no geographic overlap between office properties owned by the merging parties.

In relation to convenience centres, the target firms owned a retail property known as 27 Boxes in the Melville area. Without adopting a definitive geographic market, the Commission assessed competitive effects within an 8 km radius of 27 Boxes based on customer interviews. On that basis, the merged entity’s post-merger market share was found to be less than 20%, and the Commission identified nearby centres that would constrain the merged entity, including Campus Square Shopping Centre, Game Building Shopping Centre, and Northcliff Corner.

In relation to rentable residential space, the merging parties owned properties in Berea, Bellevue, Hillbrow, and Rosettenville. For each area, the Commission estimated relatively low post-merger shares, being below 20% in Berea, below 10% in Bellevue, below 20% in Hillbrow, and below 5% in Rosettenville. The Commission also found that numerous alternative residential property owners would continue to constrain the merged entity in each of these areas.

In relation to student accommodation, the Commission found an overlap in the Johannesburg CBD. The Tribunal questioned both the Commission and the merging parties about the geographic overlap, the methodology used to calculate market shares, and the sources of information for those calculations. The Commission explained that it calculated shares based on the number of beds offered by each provider and that it had contacted several providers in the Johannesburg CBD to obtain information. Following the Tribunal’s request, the Commission provided further details of its market investigation after the hearing. The Commission’s investigation confirmed a post-merger market share of less than 15% for the merged entity in student accommodation in the Johannesburg CBD, and it identified competitors including Respublica, MMI Property Management, South Point Management Services, the University of Johannesburg, and the University of the Witwatersrand.

On public interest, the merging parties confirmed that the transaction would have no negative effects on employment in South Africa, and no other public interest concerns were identified in the reasons.

Legal Issues

The central legal questions were whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market and whether the merger raised any public interest concerns requiring conditions or refusal.

The dispute primarily concerned the application of competition-law standards to economic facts, including market definition (left open in certain respects), the assessment of horizontal overlaps, the evaluation of market shares and competitive constraints, and the consideration of public interest factors, particularly employment effects.

Court’s Reasoning

The Tribunal proceeded from the Commission’s delineation of four relevant product markets in which horizontal overlaps arose. It expressly stated that it took no view on the exact scope of the relevant geographic markets for each of these product markets because leaving geographic delineation open did not affect the result. This reflected an evaluative approach in which precise geographic market definition was not treated as necessary where the competitive outcome was clear on the available evidence.

In rentable office space, the reasoning was straightforward: because the Commission found no geographic overlap between the office properties of the merging parties, the merger did not raise competitive concern in that market on the facts accepted.

In the convenience centre market, the Tribunal relied on the Commission’s approach of assessing effects within an 8 km radius of the 27 Boxes property, supported by customer interviews. The Tribunal accepted the Commission’s conclusion that the merged entity would have a post-merger share below 20% and that the presence of identified nearby shopping centres would provide competitive constraint. On these facts, the Tribunal accepted that the transaction was unlikely to result in a substantial lessening of competition in that market.

In rentable residential space, the Tribunal accepted the Commission’s suburb-level analysis, which produced post-merger shares that remained relatively low across the relevant areas (below 20% in three of the suburbs identified and below 10% or 5% in the others). The Commission’s additional finding of numerous alternative residential property owners functioning as continuing constraints supported the overall conclusion that competitive harm was unlikely.

The Tribunal’s most detailed engagement related to student accommodation in the Johannesburg CBD. The Tribunal scrutinised the Commission’s geographic overlap analysis and, in particular, the methodology used for market-share calculations and the sources of underlying information. The Commission’s use of beds as the unit of capacity for calculating market shares was accepted after the Commission explained its data collection process, including contacting accommodation providers to obtain bed numbers and providing additional investigatory details after the hearing. On the Commission’s confirmed finding that the merged entity would hold less than 15% post-merger, together with the identification of multiple competitors (including private providers and major universities), the Tribunal accepted that the merger was unlikely to substantially prevent or lessen competition in student accommodation.

On public interest, the Tribunal relied on the merging parties’ confirmation that there would be no negative employment effects and noted that no other public interest concerns arose on the record. The absence of public interest harm supported unconditional approval.

Overall, the Tribunal stated it had no reason to disagree with the Commission’s conclusion that the transaction was unlikely to substantially prevent or lessen competition in any relevant market, and that no public interest concerns arose.

Outcome and Relief

The Competition Tribunal approved the proposed transaction unconditionally.

No merger conditions were imposed. The reasons did not record any costs order.

Cases Cited

No cases were cited in the Tribunal’s written reasons for decision.

Legislation Cited

No legislation was expressly cited in the Tribunal’s written reasons for decision.

Rules of Court Cited

No rules of court were cited in the Tribunal’s written reasons for decision.

Held

The Tribunal held that the proposed acquisition by Futuregrowth (acting as agent for OMLACSA) of the entire issued share capital in, and claims against, Citiq Treasury and CPS was unlikely to substantially prevent or lessen competition in any relevant market, including the identified overlapping markets for rentable office space, convenience-centre retail property, rentable residential space, and student accommodation in the Johannesburg CBD.

The Tribunal further held that the transaction raised no public interest concerns, including no adverse employment effects, and therefore warranted unconditional approval.

LEGAL PRINCIPLES

The decision applied the principle that a merger should be prohibited or conditioned only where it is likely to substantially prevent or lessen competition in a relevant market, assessed through an examination of overlaps, market structure, market shares, and the presence of effective competitive constraints.

The reasons reflected that, in appropriate circumstances, a competition authority may leave precise geographic market delineation open where doing so does not affect the ultimate competitive assessment, particularly where market shares and constraints indicate no substantial competitive harm on any plausible delineation considered.

The decision also applied the principle that, in markets such as student accommodation, market shares may be assessed using an appropriate measure of competitive capacity, and in this matter the Commission’s use of the number of beds as the metric for market shares formed part of the accepted evidentiary basis for evaluating competitive effects.

Finally, the Tribunal applied the principle that merger approval must also consider public interest factors, including employment, and where the record indicates no negative employment effects and no other public interest concerns, this supports unconditional approval.