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[2019] ZACT 63
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Peermont Holdings (Pty) Ltd v LCI (Overseas) Investments (Pty) Ltd (LM059Jun19) [2019] ZACT 63 (2 October 2019)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM059Jun19
In
the matter between:
Peermont
Holdings (Pty) Ltd
Primary Acquiring Firm And
LCI
(Overseas) Investments (Pty)
Ltd
Primary Target Firm
Panel
: Ms Mondo Mazwai (Presiding Member)
:
Mr Enver Daniels (Tribunal Member)
:
Ms Yasmin Carrim (Tribunal Member)
Heard
on
: 04 September 2019
Order
Issued on : 04 September 2019
Reasons
Issued on : 02 October 2019
REASONS
FOR DECISION
Approval
[1]
On 04 September 2019, the Competition Tribunal ("Tribunal")
unconditionally approved a large merger transaction whereby Peermont
Holdings (Ply) Ltd ("Peermont") intends to acquire
the
entire issued share capital of LCI (Overseas) Investments (Ply) Ltd
("LCI Overseas Investments"). Hereunder, we collectively
refer to Peermont and LCI Overseas Investments as the "merger
parties".
[2]
The reasons for our approval follow.
Parties
to the transaction
Primary
Acquiring Firm
[3]
Peermont is a hospitality and entertainment company that owns and
operates
casino complexes and short-term accommodation and
conference/banqueting facilities in South Africa and Botswana. In
South Africa,
Peermont operates 8 casino complexes. Of relevance to
the proposed transaction is Emperor's Palace located in Gauteng.
[4]
Peermont is ultimately owned by Peermont Global Holdings (Ply) Ltd
("Peermont
Holdings"). Peermont Holdings is jointly
controlled by Golden Tree Asset Management LP and MIC Leisure (Ply)
Ltd.
Primary
Target Firm
[5]
LCI Overseas Investments operates a casino complex in South Africa
through
Emerald Safari Resort (Ply) Ltd ("Emerald").
Emerald also provides short-term accommodation and
conferencing/banqueting
facilities.
[6]
LCI Overseas Investments controls Emerald as to 70%. The remaining
shareholding
is held by Modirapula Leisure (Ply) Ltd ("Modirapula")
(20%) and Marung Investments Ltd ("Marung") (10%). LCI
Overseas Investments is controlled by London Clubs Holdings Ltd
("London Clubs") which is ultimately owned by Caesars
Entertainment Corporation ("Caesars").
The
proposed transaction
[7]
There are two transactions envisaged in this merger notification.
[8]
In the first transaction, in terms of the Share Repurchase
Agreements,
Emerald will repurchase its shares from Modirapula (20%)
and Marung (10%). Upon completion of this transaction, LCI Overseas
will
hold a 100% interest in Emerald ("Minority transaction").
In the second transaction, in terms of the Share Purchase Agreement,
Peermont will acquire 100% of the issued share capital in LCI
Overseas Investment. Post-merger, Peermont will exercise control
over
LCI Overseas Investments ("Majority transaction").
[9]
The merger parties submitted that both the minority and the majority
transactions
are to be considered as a single indivisible transaction
because the majority transaction would not take place without the
minority
transaction. In other words, both transactions are legally
and factually indivisible. The Commission considered these
submissions
in light of the Tribunal's case law on this point and
concluded that both minority and majority transactions constituted a
single
indivisible transaction.
[1O]
In addition, we noted that the proposed transaction was
notified to the Gauteng Gambling Board ("GGB")
on 21 June
2019. The Commission was informed by the GGB that the process to
complete the evaluation of the transaction would take
3 - 6 months.
At the time of the hearing, the merger parties and the Commission
were
yet
to receive any views regarding the status of transaction from the
GGB.
Relevant
market and impact on competition
Market
definition
[11]
When investigating the effect on competition as a result of
the proposed transaction, the Commission did not conclude on a
relevant
market. It did, however, consider the merger in the narrow
market for casino venues/complexes in Gauteng as a worst-case
scenario.
Product
market
[12]
The Commission had regard to previous large merger
transactions and submissions made by the merger parties and found
that the merger
parties are involved in the provision of casino
gaming and offer ancillary services such as hotel
conferencing/banqueting facilities.
[13]
The Commission considered demand and supply substitutability
dynamics in the market. It found that there were different product
offerings in casinos from other entertainment forms since casinos do
not compete with other entertainment facilities that are found
outside casino complexes such as movie theatres, restaurants and
night clubs. In essence, gambling offerings are unlikely to be
substitutable from a demand point of view. From a supply side
perspective, other types of gambling venues are unlikely to switch
to
operating casinos due to regulatory constraints and therefore are
unlikely to be in competition with one another.
[14]
With
regards to barriers to entry, the Commission found that entry into
the market is not easy due to regulatory barriers imposed
by
legislation. The National Gambling Act
[1]
permits only 41 casino licences in South Africa of which 39 have been
issued. In Gauteng, all available licences have been issued.
[15]
Based on the information it received, the Commission found
that there is no consensus regarding product market definition and
submitted
that even if it left the product market open, it would not
affect the outcome of its investigation.
Geographic
market
[16]
The Commission considered that the two casinos relevant to the
proposed transaction (Emperor's Palace and Emerald) are approximately
100 kilometres (km) apart.
[17]
The
Commission found that casinos derive more than 60% of their revenue
within a 25km radius and the percentage of revenue decreased
with
increases in distance, with less than 10% revenue generated from a
radius of 51-70kms. In this matter, Sun International submitted
that
it considered Emperor's Palace as a competitor,
[2]
not Emerald. In addition, a large amount of the hotel's income is
derived from patrons that are located within a 25km radius. Tsogo
Sun
submitted that it did not consider any of the merger parties as
competitors
[3]
. Akin to Sun
International, a large amount of Tsogo's income is derived from
gamblers within a 25km radius.
[18]
If the Commission were to assess the merger within a 25km
radius, it would imply that the merger parties were not competitors.
A
50km radius on the other hand would imply that there was minimal
competition. As such, the Commission did not conclude on a precise
geographical market and considered the transaction within the Gauteng
region.
Competition
Assessment
[19]
The Commission assessed the merger parties market shares, by
considering i) the number of casinos owned by each market participant
and ii) each firm's revenues.
[20]
In terms of casinos owned my market participants, the
Commission found that the merged entity will have a combined
post-merger market
share of 28,6%, and in terms of revenues, the
merged entity will have a combined post-merger market share of 27,1%.
Based on these
market shares, the Commission concluded that the
proposed transaction is unlikely to substantially affect the
structure of the
casino market in Gauteng. Post-merger, the merger
parties will continue to face competition from Tsogo Sun and Sun
International.
[21]
In view of the above analysis, we concurred with the
Commission's findings and concluded that the proposed transaction is
unlikely
to result in a substantial prevention or lessening of
competition in the relevant market even on a worst-case scenario.
Public
interest
[22]
Peermont's
employees at various casinos are represented by the National Union of
Public Service & Allied Workers ("NUPSAW')
and Future of
South African Workers Union ("FOSAWU") whereas Emerald's
employees are represented by an employee representative
(Ms Mantu
Dlamini, the Human Resources Executive).
[4]
NUPSAW and FOSAWU did not raise any employment concerns.
[23]
The
Commission noted that Emerald's employees raised some concerns. These
concerns, however, were alleviated when the management
of Emerald
assured the employees that no retrenchments were anticipated as a
result of the proposed transaction. To this end, the
employees are
supportive of the transaction.
[5]
[24]
The Commission noted that in September/October 2017, Emerald
retrenched 79 employees and a further 3 employees in March and
September
2018. In their merger filing, the merger parties explained
that the retrenchments were as a result of the following: i)
Emerald's
poor financial performance since 2014; ii) Emerald's
attempt to provide service cost-effectively, and efficiently and iii)
to promote
job security.
[25]
The Commission found that the timing of the retrenchments did
not overlap with the timing of the proposed transaction. The parties'
legal representatives confirmed this during the hearing.
[26]
The merger parties also undertook at the hearing to not
retrench any employees as a result of the proposed transaction.
Conclusion
[27]
In view of the above, we concluded that the proposed
transaction is unlikely to result in a substantial lessening and
prevention
of competition in any market. In addition, the proposed
transaction will not result in any job losses nor does it raise
concerns
on any of the other public interest grounds. Accordingly, we
approved the proposed transaction unconditionally.
2
October 2019
Ms
Mondo Mazwai
Mr
Enver Daniels and Ms Yasmin Carrim concurring.
Tribunal
Case Manager: :
Ndumiso Ndlovu
For
the Primary Acquiring Firm : J Lurie of Bowmans
For
the Primary Target Firm : J Katz of
ENSafrica
[1]
Act No 7 of 2004.
[2]
Sun lnternational's Carnival City and Time Square Casino's are
located 21km and 49km from Emperor's Palace respectively.
[3]
Tsogo's closest casinos are located approximately 39.9km and 92.7km
from Emperor's Palace
[4]
See Record pg. 1165, 1166, 1202 and 1204
[5]
See Record pg. 1170: Ms Dlamini's e-mail of 22 July 2019.