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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM084Aug20
In the matter between
AFHCO Holdings (Pty) Ltd Primary Acquiring Firm
And
Calgro M3 JCO Holdings (Pty) Ltd Primary Target Firm
Panel : Mr AW Wessels (Presiding Member)
: Mr E Daniels (Tribunal Member)
: Prof. F Tregenna (Tribunal Member)
Additional submission
received on
: 10 September 2020
Heard on : 14 September 2020
Order issued on : 14 September 2020
Reasons issued on
: 4 November 2020
REASONS FOR DECISION
UNCONDITIONAL APPROVAL
[1] On 14 September 2020, the Competition Tribunal (“Tribunal”) unconditionally
approved the proposed transaction between AFHCO Holdings (Pty) Ltd
(“AFHCO”) and Calgro M3 JCO Holdings (Pty) Ltd (“Calgro JV Co”).
[2] The reasons for the approval of the proposed transaction follow.
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PARTIES TO THE PROPOSED TRANSACTION
Primary acquiring firm
[3] The primary acquiring firm is AFHCO. It controls several firms. AFHCO is a
wholly owned subsidiary of SA Corporate Real Estate L imited (“SACREL”).
SACREL is not controlled by any one firm . AFHCO and SACREL and all the
firms controlled by them shall be jointly referred to as the “acquiring group”.
[4] The acquiring group owns residential properties in Gauteng . Of specific
relevance to the competition assessment of the proposed transaction is the
acquiring group’s activities relating to its ownership of 382 residential sectional
title units located in Northriding, Randburg. 1 These units are leased or sold to
private customers.
Primary target firm
[5] The primary target firm is Calgro JV Co, a joint venture between Calgro M3
Real Estate (Pty) Ltd ("Calgro") (holding 80% of the issued share capital ) and
HJC Holding (Pty) Ltd (“HJC Holding s”) (holding 20% of the issued share
capital). Calgro is a wholly owned subsidiary of Calgro M3 Holdings Limited.
[6] Calgro JV Co was established for purposes of the development and acquisition
of residential sectional title units known as The Falls Lifestyle Estate Sectional
Title Scheme (“The Falls Lifestyle Estate”). The Falls Lifestyle Estate situated
in Wilgeheuwel, Roodepoort in Gauteng consists of 480 residential sectional
title units . 160 of the se units have been completed and trans ferred into the
name of The Falls Rental Company (Pty) Ltd (“The Falls Rental”) , a wholly
owned subsidiary of Calgro JV Co, with the remaining 320 units still in various
stages of construction. This property will be referred to in these reasons as “the
target property”.
1 These units form part of two residential sectional title schemes: Northgate Heights (comprising 226
residential sectional title units) and 252 Montrose (comprising 156 residential sectional title units).
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PROPOSED TRANSACTION AND RATIONALE
[7] The proposed transaction involves two steps. Firstly, AFHCO intends to acquire
Calgro’s 80% of the issued share capital in Calgro JV Co. Secondly, AFHCO
exercising an option to acquire HJC Holdings’ interest in Calgro JV Co in the
immediate future.
[8] Upon completion of the proposed transaction, AFHCO will own and control
Calgro JV Co and effectively control the residential letting enterprise known as
The Falls Lifestyle Estate through The Falls Rental.
[9] The acquiring group submitted that the rationale for the proposed transaction
is consistent with its growth strategies relating to the development and
expansion of high-quality residential portfolios. Calgro, as the party exiting from
Calgro JV Co, seeks to divest some of its assets.
IMPACT ON COMPETITION
[10] The Competition Commission (“Commission”) considered the activities of the
merging parties and found an overlap in the product market for rentable
residential properties.
[11] With regards to the relevant geographic market , the Commission found that
there is no geographic overlap between the merging parties’ rentable residential
properties. This the Commission argued was because the acquiring group’s
relevant residential propert ies in Northriding, Randburg are more than 8 k m
away from the target propert y situated in Wilgeheuwel, Roodepoort (i.e. the
relevant properties are approximately 10 km apart) . However, no reasons and
/ or evidence were provided for why consumers would not, in response to a
hypothetical post -merger SSNIP,2 consider the merging parties’ relevant
properties in the potential overlapping geographic area as substitutes.
[12] We requested further submissions from the merg ing parties on the effects of
the proposed transaction on competition if one assumes a geographic overlap
2 A small but significant non-transitory increase in price.
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between their relevant residential properties situated in Northriding, Randburg
and Wilgeheuwel, Roodepoort respectively.
[13] The merg ing parties submitted that on the assumption that consumers may
consider t heir two developments to be reasonably interchangeable, the
proposed transaction is nonetheless unlikely to substantially prevent or lessen
competition in the market for rentable residential property because (i) there is
a prevalence of closer competing sp ace in respect of each of the implicated
properties, and they provided details of these properties i.e. their size and
where they are located ; and (ii) the market is growing with substantial new
developments (including components of the implicated properties which are still
under development or newly developed).3 Based on this additional information
that shows that there will be a number of properties that could post merger
constrain the merging parties’ properties in the overlapping area, we conclude
that, from a horizontal perspective, the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market.
[14] Given the above, there is no reason for us in this matter to determine the exact
scope of the re levant geographic market since our conclusion remains the
same regardless of the precise geographic market delineation i.e. we leave the
geographic market definition open.
[15] The Commission furthermore assessed whether the proposed transaction
results in a potential vertical overlap since the acquiring group provides property
management services and intends to take over the management of the target
property after the proposed transaction. The Commission however found that
the acquiring group only provides property management services for its own
properties (i.e. in -house) and does not provide such services to any third
parties. Furthermore, the current provider of property management services to
the target prope rty indicated that it had no concerns with the proposed
the target prope rty indicated that it had no concerns with the proposed
transaction. Accordingly, the Commission found that the proposed transaction
would not give rise to any vertical concerns. We concur with this finding.
3 Letter from Cliffe Dekker Hofmeyr Inc dated 10 September 2020.
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PUBLIC INTEREST
[16] The merger parties confirmed that the proposed transaction will not have any
adverse effect on employment. Particularly, no retrenchments or job losses will
arise as a result of the proposed transaction.4
[17] The proposed transaction does not raise any other public interest concerns.
CONCLUSION
[18] In light of the above, we conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market. In addition,
no public interest concerns arise from the proposed transaction.
[19] Accordingly, we approve the proposed transaction without conditions.
4 November 2020
Mr Andreas Wessels Date
Mr Enver Daniels and Prof. Fiona Tregenna concurring
Tribunal Case Manager:
P Kumbirai
For the Merging Parties: A Aukema and D Mogapi of Cliffe Dekker
Hofmeyr Inc
For the Commission: T Loate and W Gumbie
4 Merger Record, pages 6 and 45.