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[2018] ZACT 81
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Nedbank Limited and Another v DiverCity Urban Property Fund (Pty) Ltd (LM083Jun18) [2018] ZACT 81 (23 October 2018)
COMPETITION TRIBUNAL OF SOUTH
AFRICA
Case
No: LM083Jun18
In
the matter between
Nedbank
Limited
Primary Acquiring Firms
RMH
Property Holdco 5 (Pty) Ltd
And
DiverCity
Urban Property Fund (Pty) Ltd
Primary Target Firm
Panel
:
Norman Manoim (Presiding Member)
: Yasmin Carrim (Tribunal Member)
: Medi Mokuena (Tribunal Member)
Heard
on
: 5 September 2018;
3 October 2018; and 22 October 2018 Order Issued
on
: 23 October
2018
Reasons
Issued on : 22 November 2018
REASONS
FOR DECISION
Approval
[1]
On
23 October 2018, the Competition Tribunal ("Tribunal")
unconditionally approved the proposed transaction in terms of
which
Nedbank Ltd ("Nedbank") and RMH Property Holdco 5 (Pty) Ltd
("RMHP") are acquiring control over DiverCity
Urban
Property Fund (Pty) Ltd ("DiverCity").
[2]
The
reasons for the approval of the proposed transaction follow.
Parties
to the transaction
Primary
Acquiring Firms
[3]
The
primary acquiring firms are Nedbank Limited ("Nedbank"} and
RMH Property Holdco 5 (Pty) Ltd ("RMHP").
[4]
Nedbank
is controlled by Nedbank Group Ltd ("NGL"). NGL is
controlled by Old Mutual Group Holdings (SA) (Pty) Ltd ("OMSA"),
which in turn, is ultimately controlled by Old Mutual pie ("OM
plc").
[1]
Nedbank, NGL, OMSA and OM pie will be collectively referred to as the
"Nedbank group".
[5]
The
activities of Nedbank group which are relevant to the proposed
transaction are those which relate to its investments in the
provision of rentable retail, commercial, residential and industrial
properties through Vestfund, a subsidiary of the Nedbank group.
Vestfund has a controlling shareholding in DiverCity.
[6]
RMHP
is controlled by RMH Property (Pty) Ltd ("RMH Property"),
which is in turn controlled by RMH Property AssetCo (Pty)
Ltd ("RMH
Asset"). RMH Asset is controlled by RMB Holdings Limited
("RMH").RMHP, RMH Asset, RMH and entities
under their
respective control will collectively be referred to as the "RMH
Group".
[7]
Of
relevance to the proposed transaction is RMH group's property
investments through Propertuity Development (Pty) Ltd
("Propertuity"),
Atterbury Holdings (Pty) Ltd ("Atterbury
Property Holdings") and Genesis Capital Three (Pty) Ltd
("Genesis Capital
Three") which are active in the provision
of rentable retail, office, industrial and miscellaneous properties.
Furthermore,
through the abovementioned property companies, RMH group
also has joint control over DiverCity.
Primary
Target Firm
[8]
DiverCity
is controlled by Vestfund, Atterbury Property Fund
[2]
,
Genesis Properties and Propertuity.
[3]
DiverCity's shareholders are referred to as "Seed Partners".
DiverCity controls Sterland Property Development (Pty) Ltd,
Pan
African Development, Situation East (Pty) Ltd, Vestfund Resi (Pty)
Ltd and Morwapax (Pty) Ltd.
[9]
DiverCity
is an urban property investment fund focused on investing and
developing inner-city precincts as well as renewing dense
urban
precincts on a collaborative basis with its Seed Partners.
DiverCity's property portfolio includes rentable retail space
(Sterland Centre and Pan African Mall located in Arcadia and
Alexandra respectively), and residential property located in
Pretoria,
Johannesburg and Durban.
Proposed
transaction and rationale
[10]
Pre-merger the acquiring firms have an indirect controlling interest
in DiverCity.
The pre-merger structure is set
out below:
Diagram 1; Pre-merger control
structure of the primary target firm, DiverClty
[Refer to PDF Version for
Image]
Source: Drawn from the merging
parties submission
[11]
In
terms of the
Subscription Agreements,
Nedbank and RMHP intend to acquire
18% respectively of the ordinary issued share capital in DiverCity.
Upon implementation of the
proposed transaction, RMHP and Nedbank,
along with the other Seed Partners will exercise joint control over
DiverCity. The post
merger structure is set out below:
Diagram 2: Post-merger control
structure of the primary target firm
[Refer to PDF Version for Image]
Source: Drawn from the merging
parties submission
Rationale
[12]
The
proposed transaction is in line with DiverCity's strategy of
attracting long term foundational investors who seek a strong
focus on social impact with an attractive return on investment. For
Nedbank and RMHP this represents an attractive investment vehicle
for
this type of property as envisioned in RMHP's urban renewal satellite
strategy.
Procedural Background
[13]
The
Competition Commission ("Commission") found that Nedbank
and RMH own properties that compete outside of the JV and
concluded
that while this relationship may not give rise to any unilateral
effects, it did raise a potential information exchange
concern. The
Commission therefore approved the merger subject to conditions on
cross directorships to prevent information exchanges
between
DiverCity and the acquiring firms' other property investments that
are outside the JV.
[14]
While
at first it appeared that the merging parties had acceded to the
Commission's proposed conditions, the merging parties later
rejected
the conditions on the basis that the conditions should not extend to
the Investment Committee of DiverCity as this would
affect their
business model. They proposed their own set of conditions that the
Commission, after further consultation, rejected.
The merging parties
then withdrew this undertaking and requested unconditional approval.
[15]
The
merging parties' approach to the conditions resulted in the
finalisation of the matter being delayed on several occasions. Given
the merging parties new position the matter thereafter proceeded on
an opposed basis and was heard on 22 October 2018.
Hearing
[16]
At
the hearing on 22 October 2018, the Commission maintained their
initial position and argued for a conditional approval. The
Commission did not lead any witnesses.
[17]
The
merging parties led three witnesses; Mr Louis Hiemstra (internal
legal counsel for DiverCity), Mr Brian Roberts (CEO of RMH
and
director of RMHP) and Mr Robert Bathke (from Nedbank's property
finance division) who all confirmed that there is no risk of
coordination, as the asset class of the acquiring firms' other
property investments are differentiated from that of DiverCity's,
and
thus operate in different market segments. The Commission did not
challenge this evidence in cross-examination, nor did they
elicit
evidence to the contrary.
[18]
Further,
the merging parties' witnesses testified that the prohibition on
cross directorships proposed by the Commission was problematic
for
their business models. They contended that the pool of directors with
the requisite commercial property expertise was limited.
If they had
to appoint different directors to the boards of their various
investments this would force them to appoint non
experts and
hence chill incentives to risk investment capital in these businesses
which look to the institutions primarily as a
source for funding.
[19]
The
Tribunal had to assess whether the Commission showed that the
acquiring firms each have other property investments that are
rivals
of DiverCity to the extent that an exchange of confidential
information might lead to a collusive outcome. Upon assessment
of all
the evidence and facts before the Tribunal, the Tribunal was of the
view that the Commission has not shown that either Nedbank
or RMHP
control other property firms that directly compete with DiverCity.
Further, the Commission conceded that their investigation
did not
extend to that consideration.
[4]
[20]
Given
that it has not been shown that the merging parties compete, we do
not discuss whether the acquiring firms' concerns about
the limited
pool of directors was justifiable or not.
Conclusion
on information sharing
[21]
In
light of the above, the Tribunal is of the view that there is no
plausible theory of harm that may arise from the proposed merger.
This is because the exchange of information is unlikely to have a
collusive outcome in that the merging parties have differentiated
property asset classes and cater for different market segments in the
property industry. Moreover, it appears that in the future
the
acquiring firms wish to situate their inner city or urban investments
in DiverCity. This suggests that even going forward DiverCity
will
have a different focus to these other property investment companies.
Therefore, an imposition of conditions to prevent information
exchange is unnecessary.
Public interest
[22]
The merging parties confirmed that the
proposed transaction will not have any adverse effects on employment.
The proposed transaction
raises no other public interest concerns.
[5]
Conclusion
[23]
In
light of the above, we concluded 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. Accordingly, we approved the proposed
transaction unconditionally.
Mr
Norman Manoim
Ms
Yasmin Carrim and Ms Medi Mokuena concurring.
22 November 2018
Date
Tribunal Case
Manager
: Kgothatso
Kgobe
Tribunal
Economist
: Karissa Moothoo Padayachie
For
the Merging Parties
: R Bhana
instructed by V Chetty of Vani Chetty
Competition Law
For
the Commission
: N Sakata, T Mahlangu and R Ncheche
[1]
This was the Nedbank group structure pre-merger while the proposal
was still before the Competition Authorities.
[2]
Which sold an asset into DiverCity in exchange for shares. This
transaction pushes up Atterbury Property Fund's shareholding
and
dilutes the shareholding of the remaining shareholders. See
transcript, page 4 par 2-10.
[3]
It was mentioned in the hearing that Propertuity will cease to exist
as their minority stake has been bought by Atterbury Property
Fund.
See transcript, page 4 par 4.
[4]
See Transcript , pages 175 and 178.
[5]
The merging parties led evidence that showed that the proposed
transaction is pro-public interest in that it would enable the
funding of the development and revamping of inner-city buildings.
See
Divercity Economic Impact Analysis.