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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM021May20
In the matter between
Capitalworks Atlanta GP (Pty) Ltd, acting in its capacity
as the general partner of Project Atlanta Investment
Partnership III
Primary Acquiring Firm
And
Peregrine Holdings Ltd Primary Target Firm
Panel : Mr E Daniels (Presiding Member)
: Ms M Mazwai (Tribunal Member)
: Prof. H Cheadle (Tribunal Member)
Heard on : 29 July 2020
Order Issued on : 30 July 2020
Reasons Issued on : 20 August 2020
REASONS FOR DECISION
Conditional approval
[1] On 30 July 2020, the Tribunal conditionally approved the proposed transaction
in terms of which Capitalworks Atlanta GP (Pty) Ltd (“CWAGP”), acting in its
capacity as general partner of Project Atlanta Investment Partnership III (“PAIP
III”) acquires control over Peregrine Holdings Ltd (“PGR”).
[2] The reasons for the conditional approval of the proposed transaction follow.
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Parties to the transaction
[3] CWAGP and PAIP III are collectively referred to as “Capitalworks”. The
acquiring firm, Capitalworks is an investment special purpose vehicle which is
an affiliate of the Capitalworks private equity fund partnerships. Capitalworks
wholly owns two subsidiaries, namely Business Venture Investments No. 2137
(RF) Ltd (“InvestCo”) and Business Venture Investments No. 2138 (RF) (Pty)
Ltd (“BidCo”), which will be necessary for the implementation of the proposed
transaction. Capitalworks, its controllers and the firms it controls will be
collectively referred to as the “Acquiring Group”.
[4] The Acquiring Group provides private equity management services.
[5]The primary target firm, PGR is listed on the JSE and A2X stock exchanges.
PGR is not controlled by any one shareholder. PGR solely controls Peregrine
SA Holdings (Pty) Ltd (“PGR SA”) with a majority stake. The remaining non-
controlling stake in PGR SA is held by PGR’s broad-based black economic
empowerment (B-BBEE) partner, Nala PGR SA Holdings (Pty) Ltd (“Nala”).
Nala’s majority shareholding is held by Nala Empowerment Investment
Company Holdings (Pty) Ltd (“NEICH”), with PGR owning the remaining non-
controlling stake. NEICH is in turn controlled by trusts that represent historically
disadvantaged individuals (HDIs), viz., Peregrine Educational Trust, Peregrine
Community Development Trust, and Employee Portfolio Investment Trust.
[6]PGR SA holds interests in the following South African operational subsidiaries
of PGR: (i) Peregrine Capital (Pty) Ltd; (ii) Citadel Holdings (Pty) Ltd; and (iii)
Java Capital (Pty) Ltd. PGR and all the firms it controls will be collectively
referred to as the “Target Group”. The Target Group invests on behalf of clients
and provides comprehensive advice across three business operations, viz.,
wealth management, asset management and advisory services.
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Proposed transaction
[7] The proposed transaction is an acquisition that will be entered into by
Capitalworks through BidCo and InvestCo. The proposed transaction involves
a series of indivisible steps which will culminate in the following:
(a) The delisting of PGR on the JSE and A2X securities exchanges;
(b) The acquisition of Nala by the Acquiring Group;
(c) The reinvesting PGR shareholders will be placed in InvestCo; and
(d) The ultimate acquisition of control of the Target Group by the Acquiring
Group, through BidCo.
Competition Analysis
[8] The merging parties submitted that their activities do not overlap horizontally
because the Acquiring Group is active in private equity fund management whilst
the Target Group is active in asset management, wealth management and
advisory services. However, the Competition Commission (“Commission”)
followed the approach adopted by the European Commission in matters like
GE Capital/Heller 1, where a merger was assessed on the basis that private
equity fund management is a sub-segment of asset management.
Notwithstanding that the Target Group is not active in the private equity sub-
segment of asset management, the Commission assessed the worst case
scenario that the activities of the merging parties overlap horizontally in the
market for the provision of asset management services in South Africa.
[9] In assessing the impact of the merger in the asset management market, the
Commission found that the merged entity would account for a minimal market
share in the relevant market. The Commission further found that the merged
entity is likely to be constrained by competitors like Allan Gray, Investec and
Sanlam. In view of the above, the Commission concluded that the proposed
transaction is unlikely to substantially prevent or lessen competition in the
relevant market.
1 EC Case No: COMP/M.2577.
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Public interest
Employment
[10] The Commission found that the proposed transaction will result in involuntary
retrenchments of four employees (“Affected Employees”) from the Target
Group’s head office. This is because the proposed transaction will result in
redundancies among the Affected Employees who are responsible for
compliance with the JSE and A2X listing requirements. Due to the delisting,
there will no longer be a need for the same level of reporting, investor relations
and compliance with the listing requirements that were required in a listed
environment. As such, the Affected Employees will be retrenched.
[11] The Minister of the Department of Trade, Industry and Competition (“the
Minister”) raised concerns regarding the merger’s impact on employment. As a
result, the Minister proposed a moratorium on all job losses, requiring the
merged entity to maintain the aggregate number of employees employed on
the merger approval date for several years post-merger. In assessing the
merger’s impact on employment and the Minister’s concerns, the Commission
found that the proposed retrenchments of the Affected Employees are merger
specific, but constitute a negligible number of the Target Group’s aggregate
workforce. The Commission was also of the view that the Affected Employees
do not appear to be vulnerable as they all possess post matric qualifications,
are highly skilled and employed in managerial positions.
[12] The Commission found that the process followed by the merging parties to
determine which of the Affected Employees will be retrenched as a result of the
proposed transaction, was rational. Notwithstanding the above, the
Commission proposed conditions in order to limit any merger specific
retrenchments to the Affected Employees, and also imposed a moratorium on
any further merger-specific retrenchments.
BEE
[13] The Commission found that the proposed transaction will lead to a reduction in
the ultimate HDI shareholding in the Target Group. The Commission assessed
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whether the proposed transaction raises public interest concerns by displacing
the current B-BBEE ownership in the Target Group. Upon request by the
Commission for further clarity in that regard, the merging parties submitted that
the proposed transaction will yield certain benefits for the B-BBEE
shareholders. NEICH (HDI group) will receive the following benefits: (i) NEICH
will receive [<20%] of the shares in the Acquiring Group (in InvestCo) and will
remain indirectly invested in the Target Group; (ii) NEICH will receive a
premium for each of its shares in Nala; and (iii) NEICH’s shareholding in the
merged entity will expose it to a bigger global footprint than is the case pre-
merger. The Commission was satisfied with the merging parties’ submissions.
The Commission further notes that the NEICH shareholders passed a special
resolution authorising the disposal of the Nala shares to the Acquiring Group.
This is an indication that NEICH supports the proposed transaction.
[14] In view of the above, the Commission concluded that the proposed transaction
will not raise competition concerns and any other public interest concerns. We
find no reason to disagree with the Commission.
Conclusion
[15] Due to the above, we concluded that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market. In addition,
no other public interest issues arise from the proposed transaction. Accordingly,
we approved the proposed transaction subject to the conditions marked
hereunder as “Annexure A”.
20 August 2020
Mr Enver Daniels Date
Ms Mondo Mazwai and Prof. Halton Cheadle concurring.
Tribunal Case Manager : Kgothatso Kgobe
For the Merging Parties : C Charter and N Loopoo of Cliffe Dekker Hofmeyr
For the Commission : R Mokolo and W Gumbie
ANNEXURE A
Capitalworks Atlanta GP Proprietary) Limited, (acting in its capacity as the
general partner of Project Atlanta Investment Partnership III)
And
Peregrine Holdings Limited
CC CASE NUMBER: 2020MAY0013
CT CASE NUMBER: LM021MAY20
CONDITIONS
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1.DEFINITIONS
The following expressions shall bear the meanings assigned to them below and cognate
expressions bear corresponding meanings: –
1.1 "Acquiring Firms" means Capitalworks, BidCo and InvestCo;
1.2 "Affected Employees" means up to 4 Target Firm employees that are responsible
to facilitate the various administrative and governance functions that are required
from the Target Firm as a listed entity , who will be retrenched as a result of the
Merger;
1.3 "Approval Date" means the date referred to in the Competition Tribunal’s merger
clearance certificate (Form CT10);
1.4 "BidCo" means Business Venture Investments No. 2138 (RF) Proprietary Limited;
1.5 "Business Day" means any calendar day which is not a Saturday, Sunday or public
holiday in South Africa;
1.6"Capitalworks" means Capitalworks Atlanta GP Proprietary Limited ("Capitalworks
Atlanta GP") (acting in its capacity as the general partner of the Project Atlanta
Investment Partnership III) ("Capitalworks Partnership"). Capitalworks Atlanta GP
and Capitalworks Partnership are collectively referred to as ("Capitalworks");
1.7 "Commission" means the Competition Commission of South Africa;
1.8 "Competition Act" means the Competition Act, No. 89 of 1998, (as amended);
1.9 "Conditions" mean these conditions;
1.10 "Implementation Date" means the date, occurring after the Approval Date, on which
the Merger is implemented by the Merging Parties;
1.11 "InvestCo" means Business Venture Investments No. 2137 (RF) Limited;
1.12 "LRA" means the Labour Relations Act, No. 66 of 1995, (as amended);
1.13 "Merger" means the acquisition of the Target Firm by the Acquiring Firms;
1.14 "Merging Parties" means the Acquiring Firms and the Target Firm;
1.15 "Minister" means the honourable Minister for the Department of Trade, Industry and
Competition;
1.16 "Moratorium" means a period of 2 years from the Approval Date;
1.17 "Rules" mean the Rules for the Conduct of Proceedings in the Competition
Commission and the Rules for the Conduct of Proceedings in the Competition
Tribunal;
1.18 "Target Firm" means Peregrine Holdings Limited including its subsidiaries in South
Africa; and
1.19 "Tribunal" means the Competition Tribunal of South Africa.
2.CONDITIONS TO THE APPROVAL OF THE MERGER
2.1 Other than the Affected Employees, the Merging Parties shall not retrench any
employees as a result of the Merger for a period of 2 (two) years from the Approval
Date.
2.2 For the sake of clarity, retrenchments do not include (i) voluntary separation
arrangements; (ii) voluntary early retirement packages; (iii) retrenchments as a result
of unreasonable refusals to be redeployed in accordance with the provisions of the
LRA; (iv) resignations or retirements in the ordinary course of business; (v)
retrenchments lawfully effected for operational requirements unrelated to the Merger;
(vi) terminations in the ordinary course of business, including but not limited to,
dismissals as a result of misconduct or poor performance; and (vii) any decision not
to renew or extend a contract of a contract worker.
3.MONITORING OF COMPLIANCE WITH THE CONDITIONS
3.1 The Merging Parties shall circulate a copy of the Conditions to all their employees
within 5 (five) Business Days of the Approval Date.
3.2 As proof of compliance with 3.1 above, a director of each Merging Party shall within
10 (ten) Business Days of circulating the Conditions, submit to the Commission an
affidavit attesting to the circulation of the Conditions and provide a copy of the notice
that was sent to the employees in that regard.
3.3 The Acquiring Firms shall inform the Commission of the Implementation Date within
5 (five) Business Days of its occurrence.
3.4 The Acquiring Firms shall, on each anniversary of the Implementation Date, during
the period referred to in 2.1 above submit an affidavit confirming compliance with the
condition 2.1 above.
3.5 In the event that the Commission receives any complaint in relation to non-
compliance with the above Conditions, or otherwise determines that there has been
an apparent breach by the Merging Parties of these Conditions, the breach shall be
dealt with in terms of Rule 39 of the Competition Commission Rules read together
with Rule 37 of the Competition Tribunal Rules.
3.6 Any individual who believes that the Merging Parties have not complied with or have
acted in breach of these Conditions may approach the Commission.
4.VARIATION
4.1 The Merging Parties may at any time, on good cause shown, apply to the Commission
for the Condition to be lifted, revised or amended. Should a dispute arise in relation
to the variation of the Conditions, the Merging Parties shall apply to the Tribunal, on
good cause shown, for the Condition to be lifted, revised or amended.
5.GENERAL
5.1 All correspondence in relation these conditions must be submitted to the following
email address: mergerconditions@compcom.co.za.