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[2018] ZACT 69
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Cumulative Properties Ltd v Moolgem (Pty) Ltd (LM142Jul18) [2018] ZACT 69 (7 November 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM142Jul18
In
the matter between
Cumulative
Properties
Ltd
Primary Acquiring Firm
And
Moolgem
(Pty)
Ltd
Primary Target Firm
Panel
: Norman
Manoim (Presiding Member)
:
Andiswa Ndoni (Tribunal Member)
:
Halton Cheadle (Tribunal Member)
Heard on
: 10 October 2018
Order Issued on
: 10 October 2018
Reasons Issued on : 7
November 2018
REASONS
FOR DECISION
Approval
[1] On
10 October 2018, the Competition Tribunal (''Tribunal")
conditionally
approved the proposed transaction in terms of which
Cumulative Ltd ("Cumulative") is acquiring control over
Moolgem (Pty)
Ltd ("Moolgem").
[2] The
reasons for the approval of the proposed transaction follow.
Parties to the transaction
[3] The
primary acquiring firm is Cumulative. Cumulative is wholly controlled
by
Gemgrow Properties Ltd ("Gemgrow"), a listed Real Estate
Investment Trust which is controlled by Arowhead Properties Ltd
("Arrowhead"). Arrowhead also controls Vividend Management
Group (Pty) Ltd, Vivident Income Fund Ltd, and lndluplace
Properties
Ltd.
[4] Cumulative,
its controllers and sister companies will hereafter be referred to
as
the 'acquiring group'. The acquiring group invests in and controls a
diversified portfolio of commercial, retail, industrial
and
residential properties throughout South Africa.
[5]
The primary target firm is Moolgem, a newly incorporated company
established as a
joint venture investment vehicle between Gemgrow,
through Cumulative, East & West Investments (Pty) Ltd ("East
& West")
and Luvon Investments (Pty) Ltd ("Luvon").
[6] Pre-merger,
Moolgem is controlled by East & West and its subsidiary, Luvon.
Moolgem's controllers will be referred to as the 'target group'. The
target group is owned by Mr Moolman, who is also the director
of both
entities. Moolgem and its controllers will hereafter be referred to
as the 'Moolman group'.
[7] The
Moolman group controls a diversified property portfolio comprised of
retail,
office and industrial properties throughout South Africa.
Proposed
transaction and rationale
[8] Pre-merger,
the target group will transfer 26 commercial and retail properties
to
Moolgem in terms of a number of property disposal agreements.
Pursuant to the Moolman group restructure, Cumulative intends
to
acquire 75.62% of the issued shares in Moolgem. Post-merger,
Cumulative will exercise sole control over Moolgem. East &
West
and Luvon will hold a 14.38%/10% equity interest, respectively.
Relevant
market and impact on competition
[9] The
Commission did not definitively conclude on the relevant market.
However,
they assessed the effects of the proposed transaction on the
following markets: (i) the market for the provision of rentable
retail
property within a 10km radius of the target properties in
Polokwane, Makhado, Thohoyandou and Kimberley; and (ii) the market
for
the provision of rentable Grade B office and light industrial
properties within a 10km radius of the target properties in
Polokwane.
[10] In
the market for the provision of rentable retail property in
Polokwane, the Commission found that
the merging parties' market
share is below 1%, with a minimal accretion. Further, the Commission
found that the merged entity will
be constrained by other competitors
such as Resilient REIT and Theo Goosen Properties.
[11] In
the market for the provision of rentable retail property in Makhado
and Thohoyandou,
the Commission found that the merged entity will
have a market share of approximately 17.83% and 2.73% respectively,
with minimal
market share accretions. The Commission further found
that the merged entity will be constrained in those affected areas
by,
inter alia,
Theo
Goosens Properties and Flanagan & Gerard.
[12] In
the market for the provision of rentable retail property in
Kimberley, the Commission
found that the merged entity's market share
is below 1%, with a minimal accretion. The Commission further found
that the merged
entity will be constrained by,
inter
alia,
Resilient REIT and the PHG
Group.
[13] In
the market for the provision of rentable Grade-8 office space in
Polokwane, the Commission
found that the merged entity's market share
will be below 1%, with a minimal market share accretion. The
Commission further found
that the merged entity will be constrained
by, inter alia, Resilient REIT and the Anver Family.
[14] In
the market for the provision of rentable light industrial property in
Polokwane, the Commission
found that the merged entity's market share
is below 3%, with a minimal market share accretion. The Commission
further found that
the merged entity will be constrained by,
inter
alia,
Networth Properties.
[15] Due
to the low post-merger market shares, the minimal market share
accretions and the fact
that the merged entity will continue to face
competition from various industry players, the Commission is of the
view that the
proposed transaction is unlikely to substantially
prevent or lessen competition in all the affected markets. We find no
reason
to disagree with the Commission.
Information exchange
[16] However,
the Commission further found that the proposed transaction is likely
to facilitate
the exchange of economically sensitive information.
This is because the target group owns other properties in their own
right that
are deemed to be in competition with properties owned by
Cumulative and Moolgem. In addition to finding that Moolgem's
controllers
will be able to appoint directors to the board of
Moolgem, the Commission found that the target group intends to
appoint Mr Moolman
who already serves on the boards of the target
group.
[17] The
merging parties submitted that the target group is not a direct
competitor of Moolgem
in that the properties are differentiated in
size and tenant mix. The merging parties further submitted that the
target group will
not have a deciding vote in Moolgem, and therefore
are of the view that there are no competition concerns from Mr
Moolman's appointment
as director on the board of Moolgem.
[18] The
Commission is of the view that even though the target group is not a
direct competitor
of Moolgem, the target group still operates in the
property sector and has the right to appoint a directo.r on the board
of Moolgem.
Further, the Commission submitted that they are not in a
position to monitor non-notifiable future acquisitions of the target
group
which may compete directly with the merged entity. Therefore,
this still means that there is likelihood of an exchange of
competitively
sensitive information between competitors.
[19] In
order to assuage the concerns regarding information exchange, the
Commission in agreement
with the merging parties, was of the view
that the proposed transaction should be approved subject to the
condition that prohibits
Moolgem's controllers from appointing common
directors.
[20] Given
that the merging parties have agreed to the condition we do not need
to decide if an information
exchange concern is likely post-merger.
Public interest
[21] The
proposed transaction will not have any adverse effect on employment.
The proposed transaction
raises no other public interest concerns.
Conclusion
[22] In
light of the above and the agreed condition, 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. As such, we approved the
proposed transaction subject to conditions attached as "Annexure
A".
Mr
Norman Manoim
Ms
Andiswa Ndoni and Mr Halton Cheadle.
7 November 2018
Date
Tribunal
Case Manager : Kgothatso Kgobe
For the Merging Parties
: M van Niekerk of Adams and Adams
For the Commission
: R Ncheche
ANNEXURE
A
CUMULATIVE
PROPERTIES LIMITED
AND
MOOLGEM
(PTY) LTD
CC
Case Number: 2018JUL0032
CT
Case Number: LM142Jul18
CONFIDENTIAL
CONDITIONS
1.
DEFINITIONS
The
following expressions shall bear the meanings assigned to them below
and cognate expressions bear corresponding meanings -
1.1
"Acquiring
Firm"
means Cumulative;
1.2
"Approval Date"
means
the date referred to in the Competition Tribunal Order;
1.3
"Commission"
means
the Competition Commission of South Africa;
1.4
"Commission Rules"
means the Rules for the Conduct of Proceedings in the Commission;
1.5
"Competition Act"
means the
Competition Act 89 of 1998
, as amended;
1.6
"Competing Firms"
means
the Cumulative and any other entity in which East & West and
Luvon directly or indirectly hold shareholding interest that
enables
them to appoint or nominate a director/s to the board of those
entities and which entities operate in the property letting
market.
1.7
"Competitively Sensitive
Information"
means information
that is not in the public domain which is specific or precise and
which is or may reasonably be expected to be
commercially sensitive
from a competition perspective in that it relates to any of; current
or future pricing information; business
plans or strategies; customer
information including plans for approaching customers or bidding for
customer contracts; and marketing
policies, plans, studies and
forecasts as set out in the Confidentiality and Information Exchange
Undertaking;
1.8
"Conditions"
means
these conditions;
1.9
"Cumulative"
means
Cumulative Properties Limited;
1.10
“
Days”
mean
any calendar day which is not a Saturday, Sunday or an official
holiday in South Africa;
1.11
"East
& West"
means East &
West Investments (Pty) Ltd;
1.12
"Implementation Date"
means
the date, occurring after the Approval Date, on which the Merger is
implemented by the Merging Parties;
1.13
“
Luvon”
means
Luvon Investments (Pty) Ltd;
1.14
"Merger"
means
the acquisition of control by the Cumulative over the Moolgem;
1.15
"Merging Parties"
means
the Cumulative and Moolgem;
1.16
"Merged Entity"
means
the merged business operations of the Merging Parties;
1.17
"Moolgem"
means
Moolgem (Pty) Ltd;
1.18
Shareholders"
means
the initial shareholders of Moolgem, being East & West and Luvon;
1.19
"Target Firm"
means
Moolgem;
1.20
"Tribunal"
means
the Competition Tribunal.
2.
RECORDAL
2.1
On 19 July 2018, the Merging Parties filed the Merger wherein
Cumulative intends to
acquire 75.62% of the issued shares in Moolgem.
2.2
Upon the implementation of the Merger, Moolgem will be solely
controlled by Cumulative.
The balance of the shareholding in Moolgem
will be held by East & West (approximately 14.38% shareholding)
and Luvon (approximately
10% shareholding).
2.3
Post-Merger, East & West and Luvon will each be able to appoint
one director to
the board of directors of Moolgem. Consequently, East
& West and Luvon, will, by virtue of their representation on the
board
of directors of Moolgem, have access to Moolgem's Competitively
Sensitive Information. Given that each of East & West, Luvon
and
Moolgem are competitors in the broader property sector, the
Commission was concerned that the ability of East & West and
Luvon to appoint directors to the board of directors of their
competitor, Moolgem, may facilitate the exchange of Competitively
Sensitive Information between them. Accordingly, the Commission
recommended the imposition of the Conditions to address this
information
sharing concern and the Merging Parties have agreed to
the Conditions.
2.4
In order to remedy the Commission's concerns, the Commission approves
the transaction
subject to Conditions
3.
Conditions to the approval of the
merger
3.1.
Board seats and management
3.1.1. For as long as East &
West and Luvon can nominate a person to be appointed a board member
or a director to the
board of Moolgem, East & West and Luvon
shall ensure that their nominees to the board of the Moolgem:
3.1.1.1. are
not the same individuals serving, nominated and/or appointed on any
board
or management committees or sub-committee of any Competing
Firms;
3.1.1.2. shall
not receive any board documents pertaining to the property business
of Competing
Firms, to the extent that they contain Competitively
Sensitive Information;
3.1.1.3. will
not have served on the board of directors and/or management
committees of
the Competing Firms for a period of 12 (twelve) months
prior to be nominated to the board of Moolgem; and
3.1.1.4.
shall sign the Confidentiality and Information Exchange Undertaking.
3.2.
Confidentiality and Information
Exchange Policy
3.2.1. East & West and
Luvon shall not disclose to the person nominated to be appointed to
the board of Moolgem any Competitively
Sensitive Information relating
to the Competing Firms.
4.
MONITORING OF COMPLIANCE WITH THE
CONDITIONS
4.1.
The Merging Parties shall inform the Commission of the Implementation
Date within 5 (five)
Days of it becoming effective.
4.2.
The Merging Parties shall within 3 (three) months of the Approval
Date, develop and submit
a Confidentiality and Information Exchange
Policy to the Commission in line with the Conditions.
4.3.
The Commission shall provide comments to the Confidentiality and
Information Exchange Policy
contemplated in these Conditions within
15 (fifteen) Days of receipt.
4.4.
Within 20 (twenty) Days of the Implementation Date, East & West
and Luvon shall submit
to the Commission an affidavit, deposed to by
a Senior mandated official including an Investment Principal -
4.4.1.
listing the names of its representative/s on the board of Moofgem;
4.4.2. confirming
that their representatives on the board of Moolgem meet the
requirements set out
in clause 3.1 above;
4.4.3. attaching
a copy of the signed confidentiality undertaking referred to in
clause 3.2.1 above.
4.5.
For as long as East & West and Luvon can appoint a director to
the board of Moolgem,
on each anniversary of the Implementation Date,
East & West and Luvon shall provide the Commission with an
affidavit:
4.5.1.
deposed to by their respective Chief Executive Officers or a Senior
Officials
-
4.5.1.1.
attesting to compliance with clause 3.1
of the Conditions; and
4.5.1.2.
attesting to compliance with clause
3.2.1 of the Conditions.
5.
DURATION OF THE CONDITIONS
5.1. These Conditions
shall apply for as long as East & West and Luvon can have appoint
a director on the board
of Moolgem and Competing Firms.
6.
VARIATION
6.1. The Merging
Parties may at any time, on good cause shown, apply to the Tribunal
for the Conditions to be lifted,
revised or amended.
7.
BREACH
7.1. In the event that
the Commission receives any complaint in relation to non-compliance
with the Conditions, or otherwise
determines that there has been a
breach by the Merging Parties of the Conditions, the breach will be
dealt with in terms of Rule
37 of the Tribunal Rules read together
with Rule 39 of the Commission Rules.
8.
GENERAL
8.1. All
correspondence in relation to the Conditions shall be submitted to
the following email address:
mergerconditions@compcom.co.za.