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[2019] ZACT 9
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Nkholi Consolidated Investments (Pty) Ltd, Kuchuma Capital (Pty) Ltd and Zolospan (Pty) Ltd v Legae Peresec Holdings (Pty) Ltd, Peregrine Securities (Pty) Ltd, Peregrine Fund Platform (Pty) Ltd and Mainstreet 749 (Pty) Ltd (LM210Nov18) [2019] ZACT 9 (11 February 2019)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM210Nov18
In
the matter between
Nkholi
Consolidated Investments (Pty) Ltd, Kuchuma
Primary Acquiring
Firms
Capital (Pty) Ltd and
Zolospan (Pty) Ltd
And
Legae Peresec Holdings (Pty)
Ltd, Peregrine
Primary Target Firms
Securities (Pty) Ltd,
Peregrine Fund Platform
(Pty) Ltd and Mainstreet 749
(Pty) Ltd
Panel
: Yasmin Carrim (Presiding Member)
: Mondo Mazwai (Tribunal Member)
: lmraan Valodia (Tribunal Member)
Heard
on
: 30 January 2019
Order
Issued on : 30
January 2019
Reasons
Issued on : 11 February 2019
REASONS
FOR DECISION
Approval
[1]
On
30 January 2019, the Competition Tribunal ("Tribunal")
unconditionally approved the proposed transaction involving
the
acquiring firms: Nkholi Consolidated Investments (Pty) Ltd
("Nkholi"), Kuchuma Capital (Pty) Ltd ("Kuchuma"),
Zolospan (Pty) Ltd ("Zolospan") and the target firms: Legae
Peresec Holdings (Pty) Ltd ("Legae Peresec"), Peregrine
Securities (Pty) Ltd ("Peregrine Securities"), Peregrine
Fund Platform (Pty) Ltd ("Peregrine Fund"), Mainstreet
749
(Pty) Ltd ("Mainstreet").
[2]
The
reasons for the approval of the proposed transaction follow.
Parties
to the transaction
Primary
Acquiring Firms
[3]
The
primary acquiring firms are Nkholi, Kuchuma and Zolospan. Nkholi is
an investment holding company that is not controlled by
a single
firm. Kuchuma is a newly established firm and as such, it does not
control any firm nor has it traded yet. Zolospan is
not controlled by
any firm. However, it does hold controlling interests in most of the
target firms.
Primary
Target Firms
[4]
The
primary target firms are Legae Peresec, Peregrine Securities,
Peregrine Fund and Mainstreet. Pre-transaction, Legae Peresec,
Peregrine Securities and Peregrine Fund were jointly controlled by
Peregrine SA Holdings (Pty) Ltd ("Peregrine SA") and
Zolospan.
[5]
Legae
Peresec and Peregrine Fund do not control any firms. Peregrine
Securities on the other hand controls four firms. In addition,
Peregrine Securities holds a significant minority interest in
Mainstreet. Mainstreet wholly owns Legae Securities (Pty) Ltd ("Legae
Securities").
[6]
The
target firms trade securities and instruments on the Johannesburg
Stock Exchange.
Proposed
transaction
[7]
The
proposed transaction is, in essence, a management buy-out of the
business of Legae Securities and Peregrine Securities by their
former
directors and employees. Hence, the proposed transaction will take
place in various stages.
[8] First, there will
be a restructuring of the target firms to simplify and rationalise
the corporate structure. Peregrine Fund, Mainstreet and a half of
Peregrine Securities' subsidiaries will be transferred to Legae
Peresec. To this end, Legae Peresec will house the firms involved in
stockbroking. The subsidiaries of Peregrine Securities which
offer
ancillary services to the stockbroking business will remain under
Peregrine Securities.
[9]
Secondly,
Nkholi will acquire Peregrine SA's shareholding in Legae Peresec and
Peregrine Securities. Zolospan's shareholding interest
in both firms
will remain unchanged post-transaction. The restructure, however,
will result in Zolospan acquiring a controlling
minority interest in
Mainstreet by virtue of Mainstreet being transferred to Legae
Peresec.
[10] Lastly, Kuchuma will
acquire more than 50% of the shares in Peregrine Securities from
Nkholi on the
same terms and conditions that Nkholi acquired its
shares.
[11] Post-merger, Nkholi and
Zolospan will jointly control Legae Peresec. Peregrine Securities
will be jointly controlled by Kuchuma and Zolospan.
Impact
on competition
[12] The Competition Commission
("Commission") considered the activities of the merging
parties and found a horizontal overlap in the market for the
provision of financial trading services. Although the services
provided
by the merging parties are offered globally, the Commission
decided to focus its investigation on South African market.
[13] In its investigation the
Commission found that the merged entity would have a combined
post-merger market share of less than 25%, with a
de minimis
share
accretion. The Commission was of the view that the post-merger market
share is relatively low and that the merged entity would
continue to
face competition from market participants such as RMB Morgan Stanley,
Investec Securities and Absa Capital Securities.
[14] In light of the above, the
Commission concluded that the proposed transaction was unlikely
to
substantially prevent or lessen competition in the relevant market.
[15] At the hearing, the Tribunal
queried about the indivisibility of the proposed transaction.
As
noted above, Nkholi will acquire Peregrine Securities. Thereafter,
Kuchuma will acquire this business that was originally acquired
by
Nkholi. The acquiring firms are two separate unrelated entities and
from a change of control perspective, it was unclear to
the Tribunal
how the onward selling to Kuchuma constituted a single indivisible
transaction.
[1]
[16] In response, the merging
parties explained the link between the commercial rationale of
the
proposed transaction and the changes in control. The original
transaction would not take place if there wasn't a subsequent
sale to
Kuchuma and vice versa.
[2]
The merging parties did not separate the businesses and then look for
onward buyers. Instead, the parties all met and Kuchuma made
it clear
that it would only invest if the businesses were separated and
restructured in the form of the original transaction. Hence
the
indivisibility of the proposed transaction.
[3]
Public
interest
[17] The merging parties confirmed
that the proposed transaction would not have any negative
effects on
employment in South Africa.
[4]
The proposed transaction raised no other public interest concerns
Conclusion
[18] In light of the above, , we
approved the proposed transaction unconditionally.
Ms
Yasmin Carrim
Ms Mondo
Mazwai and Prof. lmraan Valodia concurring.
11 February 2019
Date
Tribunal
Researcher:
Hlumelo Vazi
For
the merging parties: A Aukema and K
Tlhabanelo of Cliffe Dekker Hofmeyr
For
the Commission
N Myoli and R Maphwanya
[1]
Transcript, pages 7-9.
[2]
Transcript, page 10.
[3]
Transcript, pages 9-11.
[4]
Merger Record, pages 17 and 136.