Summary of Judgment

1. Introduction

These proceedings concerned a large merger notified to and determined by the Competition Tribunal of South Africa under Case No: LM183Mar24. The matter involved an application for approval of a transaction in terms of which Rand Merchant Bank and Investments Advisory (Pty) Ltd (“RMBIA”) and Investec Bank Limited (“Investec Bank”) (together, the primary acquiring firms) intended to acquire joint control of Azrapart (Pty) Ltd (“Azrapart”) (the primary target firm) and its controlled entities.

The Tribunal heard the matter and issued its order on 17 April 2024, and subsequently issued reasons on 7 May 2024. The Tribunal conditionally approved the merger.

The dispute concerned the competitive and public-interest implications of a transaction that was linked to a debt restructuring arising from prior loans made by the acquiring firms to Azrapart in relation to Fourways Mall Shopping Centre (“Fourways Mall”), a super-regional shopping centre in Fourways, Johannesburg. The principal competition focus of the Tribunal’s reasons was whether joint ownership arrangements could facilitate information sharing among shareholders who also compete through other shopping centres in the relevant area.

2. Material Facts

RMBIA is a South African incorporated company controlled by FirstRand Investment Holdings (Pty) Ltd, which is in turn controlled by FirstRand Limited, a company listed on the Johannesburg Stock Exchange. RMBIA’s relevant activities included holding a portfolio of retail properties in the Johannesburg area, including within the area where the target property is situated.

Investec Bank is a South African incorporated company controlled by Investec Limited, also listed on the Johannesburg Stock Exchange. Investec Bank similarly held interests (including a retail property portfolio) in the Johannesburg area relevant to the location of the target asset.

Azrapart is a South African incorporated company controlled by Eriologix (Pty) Ltd, which is in turn controlled by the Michael Family Trust. Azrapart’s sole business activity related to the joint ownership and management of Fourways Mall. Fourways Mall was held in equal undivided shares (50/50) by Azrapart and Accelerate Property Fund Ltd (“Accelerate”).

The proposed transaction was structured as a debt restructuring. Under the draft transaction agreements, RMBIA and Investec Bank would each subscribe for 50% of the A Shares in Azrapart, with the A Shares collectively carrying voting rights that would entitle RMBIA and Investec Bank, in aggregate, to exercise 90% of the total votes exercisable by shareholders at a general meeting of Azrapart. The effect of the transaction would be that Azrapart would be jointly controlled by RMBIA and Investec Bank post-merger.

The Tribunal recorded that the transaction raised a horizontal overlap because the acquiring firms and the target firm were active in the provision of rentable retail space within the same area as Fourways Mall. The Commission assessed market shares and competitive constraints and reported that the merged entity would have a market share of less than a confidentially-redacted figure, with a limited accretion, and that the merged entity would continue to face competition from several other comparative centres in the area (including Sandton City, Mall of Africa, North-Gate Mall, Fourways Crossing, Woodmead Retail, Hyde Park, Rosebank Mall, and Clearwater Mall, among others). The Tribunal also recorded that no third parties (customers or competitors) raised concerns.

A central factual consideration related to information exchange risk. Post-merger, Fourways Mall would be jointly owned by three shareholders—Accelerate, RMBIA, and Investec Bank—who, through other property holdings, could compete within the relevant area. The Commission considered the possibility that Fourways Mall could become a conduit for the exchange of competitively sensitive information among these shareholders. The Tribunal noted the steps taken by the acquiring firms, including the appointment of a third-party representative (not related to or formally employed by the acquiring firms) to represent them on the board of Fourways Mall, and that the directors appointed by the other shareholders to the Executive Committee did not hold board positions in centres around the Fourways precinct. However, the Tribunal accepted that there remained a possibility that the acquiring firms might discontinue the use of such a third-party nominee post-merger, which justified conditions addressing potential future changes.

On public interest facts, the merging parties submitted that the transaction would not result in job losses, and employee representatives raised no concerns. Regarding the spread of ownership, the Tribunal recorded that FirstRand Limited had an HDP shareholding of 28.96% and Investec Bank had an HDP shareholding of 20.37%, whereas Azrapart had no HDP shareholding. The Tribunal accepted that the transaction would therefore increase HDP shareholding in the target firm.

3. Legal Issues

The Tribunal was required to determine whether the proposed large merger was likely to result in a substantial prevention or lessening of competition in any relevant market, with particular attention to the horizontal overlap in the provision of rentable retail space within “comparative centres” in the relevant area.

The Tribunal also had to assess whether the transaction raised competition concerns through co-ownership governance structures, specifically whether joint ownership could enable the exchange of competitively sensitive information among shareholders who also compete via other shopping centres. This required an evaluative assessment of the likelihood and significance of such information exchange and whether it could be mitigated through conditions.

In addition, the Tribunal had to consider the relevant public interest factors addressed in the reasons, namely the effect on employment and the effect on the spread of ownership, including increased ownership by Historically Disadvantaged Persons (HDPs).

Overall, the dispute predominantly concerned the application of competition law principles to the facts (market definition approach and competitive effects assessment), coupled with a value judgment regarding the sufficiency of safeguards and the appropriateness of imposing conditions to address the identified information exchange risk.

4. Court’s Reasoning

The Tribunal approached the competitive assessment by identifying the relevant economic context for retail property competition. It referred to its prior acceptance of classifying retail properties according to the Investment Property Database (IPD) and to its prior finding that minor regional, regional, and super-regional shopping centres fall within “comparative centres.” Without making a definitive finding on market boundaries, the Tribunal assessed the merger in the market for the provision of retail space within comparative centres.

On the geographic dimension, the Tribunal referred to its prior approach of considering comparative centres within a radius of approximately 15 km from the target shopping centre. For purposes of assessment (again without finally determining the geographic market), it considered a geographic scope of at least 15 km from Fourways Mall.

In assessing competitive effects, the Tribunal relied on the Commission’s market share and concentration analysis and accepted that the merged entity would have a market share below a confidentially-redacted figure and that the market share accretion would be limited. It also accepted that the merged entity would continue to face competition from multiple alternative comparative centres in the area. The Tribunal treated the absence of third-party complaints as consistent with the Commission’s assessment that the merger was unlikely to raise significant unilateral concerns.

The Tribunal’s most developed competition analysis focused on information sharing concerns arising from post-merger ownership and governance arrangements. It accepted the Commission’s view that, because Accelerate, RMBIA, and Investec Bank would jointly own Fourways Mall and also own other centres of varying sizes in the affected area, there was a likelihood that competitively sensitive information could be shared in a manner detrimental to competition. The Tribunal considered measures already adopted, including the use of a third-party representative to serve on the board of Fourways Mall on behalf of the acquiring firms, and the fact that other directors involved in Fourways Mall’s executive decision-making did not hold board positions in competing centres around the relevant precinct.

However, the Tribunal reasoned that such measures could potentially be altered in future, specifically that the acquiring firms might discontinue using the third-party nominee post-merger. In that context, the Tribunal concluded that it was necessary to impose conditions to address the risk of future changes that could facilitate the exchange of competitively sensitive information. The Tribunal thus treated conditions as a targeted remedy aimed at preserving competitive safeguards in relation to governance and information flows.

On public interest, the Tribunal accepted the merging parties’ submissions that the transaction would not result in job losses, noted the absence of concerns from employee representatives, and concluded that the merger was unlikely to have a negative effect on employment. In relation to the spread of ownership, it accepted the evidence of HDP shareholding within the acquiring groups and the absence of HDP shareholding in Azrapart, and concluded that the transaction would increase HDP shareholding in the target firm. It therefore found no public interest concerns arising from the transaction.

Drawing these strands together, the Tribunal concluded that the merger was unlikely to substantially prevent or lessen competition in any market, and that potential information exchange concerns were adequately addressed through the imposed conditions.

5. Outcome and Relief

The Tribunal conditionally approved the large merger whereby RMBIA and Investec Bank would acquire joint control of Azrapart.

The approval was subject to conditions (recorded as “Conditions, marked Annexure A”) directed at addressing concerns relating to the potential exchange of competitively sensitive information, particularly in light of the joint ownership and governance arrangements at Fourways Mall and the possibility of future changes to representation structures.

The reasons provided do not record any costs order.

Cases Cited

Hyprop Investments Limited and Attfund Retail Limited [LM092Jan11] CTZA.

Pareto Limited and Fountainhead Property Trust Scheme [LM199Feb14] CTZA.

Legislation Cited

No legislation was expressly cited in the provided text of the reasons.

Rules of Court Cited

No rules of court were expressly cited in the provided text of the reasons.

Held

The Tribunal held that the proposed large merger was unlikely to lead to a substantial prevention or lessening of competition in any relevant market assessed, including the market for the provision of retail space in comparative centres within at least a 15 km radius of Fourways Mall.

It further held that, although co-ownership and competing interests among the shareholders created a potential risk of competitively sensitive information exchange, that risk could be adequately addressed through merger conditions imposed by the Tribunal (Annexure A), particularly given the possibility that existing arrangements (such as third-party board representation) could change in future.

On public interest considerations addressed in the reasons, the Tribunal held that the merger was unlikely to have a negative effect on employment and that it would result in an increase in HDP shareholding in the target firm, and therefore raised no public interest concerns.

LEGAL PRINCIPLES

The Tribunal applied the principle that, in merger assessment, the relevant market may be approached pragmatically by reference to established classification frameworks (such as the IPD classification for retail properties) and prior Tribunal determinations regarding categories such as comparative centres, while still assessing competitive effects without finally determining precise market boundaries where unnecessary for outcome.

It applied the principle that geographic market assessment in retail property mergers may be evaluated by reference to a radius-based approach around the relevant shopping centre, consistent with prior Tribunal practice, while again allowing for an effects-based assessment without conclusively fixing geographic boundaries.

The Tribunal applied the principle that merger assessment includes consideration not only of market shares and concentration, but also of the competitive dynamics and constraints posed by alternative centres, and it treated the absence of third-party complaints as a relevant factual indicator consistent with a low likelihood of competitive harm.

It applied the principle that mergers involving joint ownership of a competitively relevant asset may raise concerns about the asset becoming a conduit for competitively sensitive information exchange among shareholders who compete in related markets, and that such concerns may warrant behavioural or governance-related conditions to prevent anti-competitive coordination.

The Tribunal applied the principle that public interest assessment encompasses, at minimum on the facts addressed, the likely effects on employment and the spread of ownership, and that a transaction resulting in increased HDP ownership in a target with no prior HDP shareholding may be treated as raising no adverse public interest concern on that dimension where no countervailing harm is shown.