Rationale for the transaction
5. The merging parties asserted that the proposed merger would give Momentum the
opportunity to expand its distribution reach and achieve greater economies of scale. From Sage’s perspective, the deal would
give Sage a capital injection to service the debts Sage incurred from its venture into the United States. The parties asserted further
that Sage’s failure to meet its debt obligations could result in the closure of all or most of Sage’s business operations
hence the proposed merger.
The relevant product market
6. Momentum is responsible for certain of the insurance, investment and multi-management activities of the FirstRand group. Momentum
also markets and distributes a variety of products of other financial and related institutions, such as risk insurance (life and
disability), investments (retirement annuities, endowments, linked unit trust investments, etc), employee benefits (pension funds,
provident funds and group lifer and disability cover), and medical aid cover.
7. FirstRand comprises a large group of companies that operate in the financial services sector. It owns a number of subsidiaries
that provides, amongst others, the following: long-term insurance products to individuals and groups; short-term insurance products,
property rental services and unit trusts.
8. Discovery Holdings Limited (“Discovery Holdings”), which is also a FirstRand subsidiary, is the holding company for
a group of companies that market and administer healthcare funding and life insurance products.
9. Sage is a life insurance and investment organisation controlling and managing assets and is also involved in related property services.
It holds 100% of the issued share capital in two of its operating companies, viz., Sage Life Ltd (“Sage Life”) and Sage
International Finance Ltd (“Sage International”). Sage Life in turn owns a number of subsidiaries.
10. The product overlap between the activities of the merging parties is in the provision of long-term insurance products (to individuals
and groups), short-term insurance products, unit trusts, and property rental services.
11. We need not confine ourselves with what the relevant product market is as the transaction is unlikely to prevent or lessen competition
substantially irrespective of any market definition adopted.
The relevant geographic market
12. The Commission’s view is that since both parties and their competitors provide long-term and short-insurance products as
well as unit trusts throughout the country, the geographic domain is national. It further appears that the geographic areas with
respect to property rental services can be segmented into different nodes as per the classification of the South African Property
Association. The Commission’s market enquiries revealed that the merging parties carry on their property rental services in
geographic areas such as Johannesburg, Sandton, Durban and Cape Town. We agree with this approach.
Effect on competition
13. The merging parties market shares will remain low post-merger. The merging parties will enjoy no more than 15.15%, 5.7%, 5.59%,
and 13.5% with regarding to long-term insurance, short-term insurance, unit trusts and property rental services respectively.
14. We are furthermore persuaded by the reasons advanced by the Commission and the merging parties that Momentum and Sage’s
vertical integrated relationship would not lead to customer foreclosure and/or input foreclosure post-merger. This is also necessitated by factors such as Sage’ relatively low pre-merger market shares, the merged entity’s low combined
market shares as well as a significant number of large and small competitors in the respective markets.
The effect of the merger on employment
15. The merger filing reflected that the proposed merger would result in negative effect on employment. From a worst-case scenario
the merging parties estimated four-hundred (400) job losses. In its recommendation the Commission concluded that “although the merger will result in approximately 400 job losses, the Commission is of the view that no significant employment concerns
would arise from the transaction, as the retrenchment process would be implemented systematically.” On the other hand, the merging parties noted that “although specific employees might become redundant, the effect of the proposed transaction on employment is a positive one since a
failure to implement the proposed transaction would probably have a worse effect on employment.” However, the merging parties’ correspondence with the Commission during its investigation process indicated that the parties
where, willing to, amongst others, facilitate redeployment within the FirstRand group, engage in voluntary retrenchment process,
assist staff with re-skilling and retraining, etc. To this end, the parties had also set up a timetable setting out how retrenchment
process will unfold.
16. It was not clear from the papers whether any employee representatives or their respective trade unions indicated their desire
to participate in the hearing of this merger. A certain Ms. Gizelle Conradie, a representative of SASBO, attended the hearing of
this merger. Upon questioning by the members of the Tribunal she asserted that SASBO is opposed to the retrenchments, but requested
that some form of conditions be imposed permitting consultation - in terms of the Labour Relations Act - by the parties with the
trade union pertaining to the retrenchment process. We were told that SASBO was not a recognised trade union, that there was no recognised trade union and that no collective bargaining
unit exists within the merging parties.
17. Notwithstanding the above, our major concern was that the merging parties might retrench as they deem fit particularly because
there was no recognised trade union or at the very least a collective bargaining unit in the merging parties who will look after
the employees’ interests and to see to it that the merging parties comply with their proposed retrenchment timetable. In his
argument, the merging parties’ legal representative was initially opposed to the imposition of conditions on structured retrenchments
saying that only 400 employees will be affected and which might even be lesser than 400.
18. Notwithstanding the merging parties’ assertion and undertaking that they would engage in a staff consultation process regarding
the integration of Sage with Momentum, we nevertheless considered it necessary that such a plan be made available to the public domain so as to ensure that the retrenchment
process gets monitored, given the lack of employee representation at the merged firm. Note that the condition imposed requires no
more of the parties than that they adhere to retrenchments in accordance with the plan they had proposed to the Commission.
19. Such a retrenchment undertaking or a plan by the merging parties was incorporated into our Order of 24 August 2005 and is therefore
unnecessary to reproduce here.
Conclusion
20. We found that the merger will not substantially lessen or prevent competition in any market. However, the merger itself may have
an adverse effect on employment hence we are satisfied that the condition imposed will obviate any substantial public interest concern.
_______________ 29 November 2005
Norman Manoim Date
Concurring: M. Moerane, M. Mokuena
For the merging parties:
Gareth Driver, Werksmans Attorneys
For the Commission:
Odie Strydom, Mergers & Acquisitions
For SASBU:
Ms. Gizelle Conradie (SASBU)
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