About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Tribunal
SAFLII
>>
Databases
>>
South Africa: Competition Tribunal
>>
2019
>>
[2019] ZACT 77
|
|
Brookfield Asset Management Inc v Oaktree Capital Group LLC (LM081Jul19) [2019] ZACT 77 (7 November 2019)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM081Jul19
In
the matter between:
Brookfield
Asset Management Inc
Primary
Acquiring Firm
And
Oaktree
Capital Group LLC
Primary
Target Firm
Panel
: M Mazwai (Presiding Member)
: E Daniels (Tribunal Member)
:
A Ndoni (Tribunal Member)
Heard
on
: 09 October 2019
Order
issued on
: 09 October
2019
Reasons
issued on
: 07 November 2019
REASONS
FOR DECISION
CONDITIONAL APPROVAL
[1]
On
09 October 2019, the Competition Tribunal ("Tribunal")
conditionally approved the large merger between Brookfield Asset
Management Inc and Oaktree Capital Group LLC. The conditions are
attached marked Annexure A.
[2]
The
reasons for the conditional approval follow.
PARTIES TO THE TRANSACTION
Primary Acquiring Firm
[3]
The
primary acquiring firm is Brookfield Asset Management Inc
("Brookfield"), a company incorporated in accordance with
the company laws of Ontario, Canada. Brookfield is co-listed on the
New York Stock Exchange. Brookfield is controlled by Partners
Ltd,
which has the ability to elect half of the directors of Brookfield
through the 100% of the Class B limited voting shares in
Brookfield
it owns.
[1]
[4]
Brookfield
is an asset management company that owns and operates assets through
the firms it controls in South Africa. The activities
of these firms
range from real estate, renewable power, infrastructure private
equity and public securities. Brookfield does not
have registered
funds in South Africa.
Primary Target Firm
[5]
The
primary target firm is Oaktree Capital Group LLC ("OCG"), a
company incorporated in accordance with the company laws
of the
United States of America. OCG is listed on the New York Stock
Exchange. Oaktree Capital Group Holdings L.P ("OCGH LP")
holds 100% of OCG's Class B units while the shareholding of Class A
units are held in the following respect, 99.98% are held by
Public
Investors and 0.02% by OCGH LP.
[2]
[6]
OCG
and OCGH LP are controlled by Oaktree Capital Group Holdings GP, LLC
(OCGH GP), OCGH GP is in turn controlled by senior executives
within
OCG who are entitled to designate all the members of the OCG board of
directors. OCGH LP and OCG respectively hold 54% and
46% economic
interest in the entities referred to as "Oaktree Operating
Group".
[7]
Similar
to the primary acquiring firm, OCG is an asset manager with an asset
portfolio in credit, private equity, real estate and
listed equities.
It also does not have any registered funds in South Africa. As part
of its investments in private equity, OCG
controls three entities in
South Africa which include New Pier, GSM Manufacturing and GSM
Trading, which are involved in the retail
and wholesale supply of
active sports and/or lifestyle footwear, apparel and accessories in
South Africa.
PROPOSED
TRANSACTION
[8]
The
transaction comprises two phases, the first involves Brookfield and
OCGH LP acquiring joint control in OCG and the second will
be the
sole acquisition of OCG by Brookfield.
[9]
The
Commission assessed the indivisibility of the transaction and found
that these phases are interdependent as the second phase
of the
transaction will not take place without the fulfilment of the first
phase of the proposed transaction from a factual and
legal point of
view. Furthermore, in its assessment, the Commission looked at the
length differential between the two phases and
found that it may take
the merging parties up to 7 years to reach the second phase of the
proposed transaction.
[10] In
assessing the indivisibility of the two phases, the Commission relied
on the Tribunal decisions
in the Crown Gold Recoveries (Pty) Ltd and
Industrial Development Corporation of South Africa Limited and; Khumo
Bathong Holdings
( Pty) Ltd ("Crown Gold/Khumo Bathong merger")
and concluded that the transactions were indivisible since the second
phase of the transaction will not happen without the first phase.
[3]
[11]
Regarding the lengthy period between
phase one and two, the Commission was concerned about possible
changes in market conditions
over time since the trigger events for
sole control could occur at any time between phase one and two in the
7 years. The Commission
has recommended a condition which requires
the merging parties to notify the Commission should Brookfield fail
to establish sole
control over OCG within the Interim period of 2
years.
COMPETITION ANALYSIS
[12]
When considering the activities of the
merging parties, the Commission found that there is a horizontal
overlap in the provision
of asset management services on the
international level. This overlap constituted a product overlap and
not a geographical overlap
as neither of the firms has registered
funds in South Africa nor do they hold licenses from Financial Sector
Conduct Authority
(FSCA) to carry out asset management services in
South Africa.
[13]
No horizontal overlaps between the
activities of the South African entities controlled by the merging
parties were identified as
the OCG controls entities active in the
manufacturing and distribution of clothes, while Brookfield controls
entities active in
energy and infrastructure. Consequently, the
Tribunal is of the view that the proposed transaction is unlikely to
result in any
substantial preventing or lessening of competition in
any market since the parties' asset management portfolios do not
overlap
in South Africa.
PUBLIC INTEREST
[14]
During
the merger investigation, the Commission engaged with various
employee representatives. South African Clothing and Textile
Workers
Union (SACTWU) advanced concerns of potential job losses and
requested that the Boardriders/Billabong conditions to be
extended.
These conditions emerge from an intermediate merger were OCG, through
Boardriders Inc, acquired Billabong International
Ltd. The merger was
approved subject to an employment condition that the merging parties
do not retrench any employees as a result
of the merger for the
period of two years from the implementation date.
[15]
The merging parties submitted that the
merger transaction will not negatively affect employment in terms of
retrenchment or job
losses. The merging parties undertook to ensure
compliance with the current Boardriders/Billabong conditions.
7
CONCLUSION
[16]
In light of the above, we approved the
transaction subject to the conditions agreed to by the Commission and
merging parties attached
hereto marked
Annexure
A.
Ms
Mondo Mazwai
Mr
Enver Daniels and Ms Andiswa Ndoni
07 November 2019
Date
Tribunal
Case Manager :Lumkisa Jordaan
For
the merging parties :Richard Bryce and
Tamara Dini of Bowmans Law
For the Commission
:Tumiso Loate, Thabelo Masithulela and Raksha Darji
[1]
Brookfield controls a number of companies outside of South Africa
referred to as "Clarios Firms". It also controls
various
companies in South Africa.
[2]
The current principals and employees of OCG hold interests through
OCGH LP.
[3]
Competition Tribunal case number 31LMMAY02.
7
Commission Case No: 2018JAN0023