The Competition Tribunal has recently unconditionally approved a large merger between Pareto Limited and Fountainhead Property Trust Collective Investment Scheme in Property, which has an interest in Westgate Mall. The transaction resulted in the acquisition of sole control by Pareto in Westgate, which has been jointly controlled by the merging parties pre-transaction.
The Tribunal accepted the product market definition identified by the Competition Commission as the market for the provision of rentable retail space in comparative centres. Interestingly, the Commission departed from the traditional approach to product market definition in the retail property industry, which was primarily based on the size of the retail centre concerned. The Commission acknowledged that, while Westgate is a super-regional centre in terms of size, size alone is not determinative of the substitutability of other centres. The Commission, in conducting a more intensive investigation into the market, noted that "centres of vastly different sizes do in fact constrain one another." The Commission therefore elected to define the market as the market for comparative centres.
In terms of geographical market definition, the market was assessed by reference to a 15km radius. It was found that retail space beyond this radius would not exert a competitive constraint on Westgate.
Based on this market definition, the Tribunal found that the transaction would not result in a substantial prevention or lessening of competition in the relevant market. The Tribunal noted that while Pareto already controls a number of retail spaces in South Africa, Pareto's only interest within the relevant market is its sole ownership of Cresta Shopping Centre. Additionally, the Tribunal found the transaction would not result in any market share accretion as Pareto would continue to hold between 16% and 27% of the market post-merger.
In determining whether the transaction would incentivise Pareto to engage in anti-competitive conduct, the Commission found that post-merger rental rates would be determined solely by Pareto. In light of this, the Commission contacted various tenants to ascertain whether the transaction would enable Pareto to increase rental prices. The majority of tenants contacted by the Commission indicated that they were already in the process of renewing their lease agreements which would extend into Pareto's term as sole controller of Westgate. The Commission also stated that Pareto would not be able to exercise market power post-merger as it would be constrained by other comparative centres.
The decision is a reminder of the necessity to notify transactions in respect of which the acquiring firm already has a pre-existing interest in the target entity, but will be acquiring a form of unfettered control by virtue of the transaction. The decision furthermore suggests that the retail property market is not solely determined by the size of the shopping centres concerned, but by various factors that are relevant to the determination of substitutability.