[5]
ABSA Capital has entered into two linked but not interdependent agreements for the acquisition of shares in Thebe. The first agreement
involves ABSA Capital’s acquisition of Investec’s 8,473% shareholding in Thebe and its 1000 A preference shares representing
100% of the issued A preference share capital of Thebe. The amount of any dividends in respect of the preference shares, which have not been declared and/or paid at the date of implementation
of this transaction is payable along with the purchase price.
[6]
A second share sale agreement with Old Mutual in terms of which ABSA Capital will purchase of a further 7% of the issued share capital
of Thebe.
[7]
The net result of this transaction is that ABSA Capital will own 15,47% of the issued share capital of Thebe. The existing agreements
between the shareholders of Thebe will have the effect that ABSA Capital will acquire joint control of Thebe. Clause 10 of shareholders’ agreement, read with clause 11.6.1 and 11.6.3 (Record p421).
RATIONALE FOR THE TRANSACTION
[8]
ABSA Capital views this transaction as a good medium to long-term private equity investment which has a lot of growth potential.
ABSA Capital believes it is acquiring the stake in Thebe at a discount to fair value.
[9]
Both Investec and Old Mutual entered into the transaction in order to realise their investments in Thebe, thereby disposing of their
shareholding.
THE PARTIES’ ACTIVITIES
[10]
ABSA Capital is an integrated financial services group that provides a wide range of products and services. Its products include retail
banking, commercial banking, insurance, investment, brokerage services and asset management.
[11]
Thebe is a black empowerment investment holding company. Thebe’s investments are held in financial services, tourism, and strategic
investments. Financial services cover all of Thebe’s investments in the financial services industry. Tourism covers Thebe’s
investments in travel co-ordination and adventure activities. Strategic investments relate to all strategic investments held by Thebe
and these include Thebe’s investment in Shell Marketing (South Africa) (Pty) Ltd.
Non-overlapping activities
[12]
The merging parties’ non-overlapping activities include investment research, healthcare administration services, financial
management services, consumer credit collection and risk management, tax advisory and property management. Record pp15-19.
Overlapping activities
[13]
The merging parties’ activities overlap minimally in the areas of long-term insurance, short term insurance brokerage, corporate
finance, personal finance facilities or micro-lending, administration, consultancy and brokerage services for employers.
Record pp10-15. In addition to these activities, Thebe owns 21.05% of Intsika Capital (Pty) Ltd (‘Intsika’), whose major
business will relate to the provision of collective investment products. Intsika is not yet active in this market. The acquiring
group is involved in the provision of collective investment products market, with a market share of approximately 11%. Given that
Intsika is not yet active in the relevant market, the transaction is not likely to have any negative effect in such market. It is
thus not necessary to assess this overlap further.
As shall be shown below, these product overlaps are minimal and do not raise serious competition concerns.
RELEVANT MARKETS
[14]
Both the merging parties are active in the short-term brokerage market. The Short Term Insurance Act No. 53 of 1998 classifies short-term
insurance products into eight classes of insurance. These are health and accident, engineering, guarantee, miscellaneous, liability,
property, motor and transportation.
The Financial Services Board has also classified this broad market as the primary short-term market that is made up of the different
segments including transportation, property, motor, miscellaneous, liability, health and accident, guarantee and engineering. (Registrar
of Short Term Insurance Anuual Report for 2004).
The Commission submitted that due to the parties’ low post-merger market shares it is not necessary to explore the market definition
further.
[15]
With regards to long term insurance, stock brokerage, corporate finance, personal finance facilities, micro-lending, administration,
consultancy and brokerage services for employers, the Commission submitted that it is not necessary to define the relevant market
since the merger will have minimal effects on those markets and the parties’ post-merger market shares are very low.
[16]
The parties are also active in the vertical market of provision of IT systems. In this upstream market they are active in of the provision
of IT systems for payment and electronic money transfer services. They are also active in a downstream market of providing IT systems
for the administration of home loans, personal loans and debit cards
Horizontal Effect
[17]
The Commission and the parties submitted that the relevant geographic market is national since the products offered by the parties
are offered largely on a national basis.
Table 1: Market shares for merging parties in other overlapping services
Market |
ABSA (%) |
Thebe (%) |
Post- merger (%) |
|
| Long term insurance |
0.86 |
0.16 |
1.02 |
|
| Short term insurance brokerage |
8.3 |
6.5 |
14.8 |
|
| Stock brokerage |
2.5 |
<1 |
<3.5 |
|
| Corporate finance |
8.5 |
0.2 |
8.7 |
|
| Personal finance facilities or micro-lending |
1.2 |
<0.1 |
1.3 |
|
| Administration, consultancy and brokerage services for employers |
8 |
0.04 |
8.04 |
|
[18]
The highest post-merger market share will be in the short-term brokerage market with a total market share of 14.8%, which is relatively
low. There are several other players that will compete with the merged entity and these include Alexander Forbes, Glenrand and FirstLink.
[19]
In other overlapping activities ABSA Capital and Thebe will have a combined post-merger market share of less than 15% in all identified
markets. These market shares are relatively low and do not raise serious competition concerns.
Vertical Effect
[20]
IT services are provided to banks for the administration of home loans, personal loans and debit card. The parties and the Commission
opted to segregate the administration of the downstream market of home loans, personal loans and debit cards as separate and distinct
markets.
[21]
In the upstream market for the provision of IT systems for payment and electronic money transfer services on an outsourced basis,
Emid, a subsidiary of Thebe, is currently the only service provider in South Africa. Most banks currently have their own internal
IT services. At the hearing of this matter, the parties confirmed that Emid does not have any of the major banks as its clients other
than a particular service provided for a division of First National Bank. Transcript p2. The major banks have internal departments performing their own IT services. Transcript p2. Any bank that outsources its IT services is required to fulfil the requirements in the Banks Act Circular 14/2004, dealing with outsourcing
functions within banks. Transcript pp3-4. A service provider who intends providing IT services to a bank does not need regulatory approval from the Reserve Bank. All that
the Reserve Bank requires is that bank itself fulfil the requirements of Circular 12/2004. The parties submitted that the barriers
to entry in this market are not high and there is potential import competition.
[22]
There is no need to analyse the downstream market for the administration of home loans, personal loans and debit card, since most
banks, with the exception of a division of First National Bank, provide their own IT services and do not rely on Emid to administer
these products.
[23]
The Commission and the parties concluded that the relevant geographic market in the upstream and downstream market is at least national
since services offered by both merging parties are largely offered on a national basis.
[24]
The Tribunal finds the competition effect of the transaction in the horizontal market is likely to be relatively low since the market
share accretion is small and the merged entity will face competition from several large players. In the vertical market, there seem
to be no competition effect since most banks provide their own IT services and there are no regulatory barriers fro service providers
who intend providing IT services to banks.
PUBLIC INTEREST
[25]
There are no public interest issues.
CONCLUSION
[26]
This transaction does not raise serious competition concerns. There are no public interest issues. The transaction is approved accordingly.
________________
30 January 2007
Y Carrim
DATE
Tribunal Member
DH Lewis and N Manoim concur in the judgment of Y Carrim
Tribunal Researcher:
R Kariga
For the merging parties:
J Roodt and S du Toit, Roodt Incorporated.
For the Commission
:
S Maphumulo (Mergers
and Acquisitions)
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