Growthpoint DesignSquare

The judgment

The court's own file

competitiontribunal south africa fax form to Vani Chetty/Mamta Nathoo fax Vani Chetty Competition Law (Pty) 011 880 5773 Ltd Legal Services 44283 Competition Commission ref 75/LM/Nov10 date 07 April 2011 from Tebogo Mputle pages 6 (including this page) re Reasons This message is intended only for the use of the addressee and may contain information that is privileged and confidential. If you are not the intended recipient, you are hereby notified that any dissemination of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by telephone. Attached please find the Tribunal’s reasons for the decision in the above matter. Regards Tebogo Mputle CC: Aiex Cunsiantinou - 44445 3rd Floor, Mulayo, the dti Campus, 77 Meintjies Street, Sunnyside, Pretoria Tel: +27 (12) 394 3300 Fax: +27 (12) 394.0169 Email: ctsa@comptrib.co.za (& Private Bag X24, Sunnyside 0132 Website: http:/Avww.comptrib.co.za competiiontribunal poueh a febe COMPETITION TRIBUNAL OF SOUTH AFRICA Case No:75/LM/Nov10 In the matter between: GROWTHPOINT PROPERTIES LIMITED Acquiring Firm And DESIGN SQUARE (PTY) LTD Target Firm Panel : Norman Manoim (Presiding Member), Yasmin Carrim (Tribunal Member) Merle Holden (Tribunal Member) Heard on : 30 March 2011 Order issued on : 30 March 2011 Reasons issued on : 07 April 2011 Reasons for Decision Approval [1]On 30 March 2011 the Competition Tribunal (‘Tribunal’) approved the large merger between Growthpoint Properties Limited and Design Square (Pty) Ltd, in respect of their retail properties known as Brooklyn Mall and Design Square Shopping Centre respectively. The reasons for approving the proposed transaction are set out below. The Parties to the transaction

[2]The primary acquiring firm is Growthpoint Properties Limited (Growthpoint), ‘ a company incorporated in terms of the laws of the Republic of South Africa and listed on the Johannesburg Stock Exchange (JSE). Major shareholders in " http:/Awww.growthpoint.co.za/Default.aspx 1 Growthpoint are the Public Investment Corporation, a BEE Consortium, Old Mutual, Stanlib, Investec and Investment Solutions. Growthpoint owns Brooklyn Mall, a mall next to Design Square Shopping Centre.

[3]The target firm is Design Square (Pty) Ltd (Design Square), a company incorporated in terms of the laws of the Republic of South Africa, which is a wholly owned subsidiary of Highgrove Property Holdings (Pty) Ltd which is ultimately owned by Atterbury Investment Holdings (“AIH’)*. Design Square owns Design Square Shopping Centre.

[4]In essence, the transaction is a share swap agreement between the owners of the two _adjacent_shopping centres (Brooklyn Mall & Design Square Shopping Centre). The transaction will result in Growthpoint owning 82% in Design Square while Design Square will acquire 18% in Brooklyn Mall. This transaction only relates to these two properties.

[5]After the implementation of the transaction ownership in the two centres will therefore be as follows; a. Growthpoint— 82% share in Brooklyn Mall and 82% share in Design Square. b. Design Square ~ 18% share in Design Square and 18% share in Brooklyn Mall. The activities of the parties

[6]Growthpoint is a property investment holding company with Assets valued at over R24 billion, with a diversified portfolio made up of 430 properties comprising retail, office and industrial properties situated throughout South Africa. In respect of the current transaction, Growthpoint owns Brooklyn Mall, a regional sized centre, situated in Brooklyn, Pretoria which comprises of rentable retail space and B-grade office space. In respect of further office space in the area, Growthpoint owns a single A-grade office in the Brooklyn area. Growthpoint also has in its portfolio Hatfield Plaza, Hatfield Mall, Campus Building, Standard Plaza, Arcadia Shopping Centre and Kolonnade Shopping Centre.

[7]Design Square owns a single asset being Design Square Shopping Centre comprising of rentable retail space and A-grade office space. The Atterbury Group which owns Design Square, also controls inter alia Glenfair Centre in Lynwood Manor and Aiterbury Value Mart. The Atterbury Group’s Assets are valued at over R7 billion and its diversified portfolio consists of 12 properties comprising of rentable retail space, rentable office properties and rentable industrial properties.

[8]The relationship between the parties is a broadly horizontal one in respect of retail and office space and there is no vertical relationship between the parties. The Rationale

[9]The parties have drafted and submitted a Memorandum of Understanding in terms of which they will have joint management and control of the two centres after the implementation of this transaction. ? http:/Avww.atterbury.co.za/index.aspx 2

[10]The parties further believe that this joint structure will enable them to compete with bigger centres, something they could not do individually due to their size and structure.

[11]The parties further believe that they can effectively operate and symbiotically benefit from each other by providing more options for their tenants. To this end, the parties have identified that certain tenants at Brooklyn Mall are more suited to being located at Design Square and certain tenants at Design Square are more suited to being located at Brooklyn Mall.

[12]Effectively the parties and their tenants, some of which were interviewed by the Commission in its investigation, believe that numerous efficiencies can be gained from exploring and exploiting the synergies between the parties’ two properties.

[13]The continued separate operation and existence between Brooklyn Mall and Design Square does not put the parties in a position to best serve the needs of their customers. Together or as a more combined structure both physically and through their management the two centres can compete better with larger centres such as Menlyn and Woodland Boulevard. The relevant market and the impact on competition

[14]The parties are of the view that the relevant product market is rentable retail space for community centres and rentable A-grade office space. An overlap exists between the two parties only in relation to rentable A-grade office space.

[15]In the parties view Brooklyn Mall should be classified as a regional centre, as it has a wide variety of stores and is more geared towards the convenience shopper, whereas Design Square should be classified as a lifestyle centre because its tenant mix is geared toward restaurants, decor and design shops.

[16]In its assessment, the Commission submitted that there is no overlap to consider between the parties in terms of retail space. The properties controlled by Growthpoint in the area are not lifestyle centres like Design Square. Even in the overlapping in geographical area between the parties, the market share increment is minimal and therefore will be unlikely to cause a substantial prevention or lessening of competition in the Brooklyn node.

[17]Thus both the parties and the Commission treat shopping centres as differentiated products the implication being that centres sufficiently differentiated may not act as constraints on one another.

[18]The parties independently own other retail properties in the Pretoria area that do not form part of the merger. The Tribunal at its hearing raised concerns that the joint management committee to run the Brooklyn and Design Square Properties would create a forum for meeting between the managements of the rival property owing groups that could facilitate co-ordination in respect of these other properties as well.° Mr Wilken from AIH reassured the Tribunal that it would be difficult for the parties to coordinate their behaviour to drive up rental prices in > As per the Joint Management Committee to be formed in terms of the Memorandum of Understanding. This Committee will also hold meetings. 3 other properties (that they separately own in the area) and the current properties (Brooklyn Mall and Design Square) due to rentals being linked to turnover and also to the positioning of tenant.In addition most leases are of long duration and cannot be altered prior to expiry.

[19]The Commission arrives at the conclusion that the merger does not result in any substantial accretion in market share. Further the Commission is of the view that the market in which the parties operate is fragmented, there are low barriers to entry and the post merger market shares are low.

[20]In light of the above, the Commission found that the transaction would not substantially prevent or lessen competition in the relevant markets. Public Interest {21] The transaction will have no effect on employment as no redundancies or overlapping positions will result from it.

[22]There are also no public interest issues to consider in this transaction and the tenants in the two properties only had positive feedback with regards to the merger. CONCLUSION

[23]The Tribunal has considered the relevant information in this transaction as well as the Commission’s modified approach in analysing the relevant market and geographic area. We do not need to accept that the differentiation contended for by the Commission justifies the conclusion that the centres are not competitors and hence that the merger does not lead to a substantial lessening and prevention of competition. Even if they exerted some constraint on one another pre-merger there appears to be sufficient competition still in the area post merger. We accept as well that co-ordination whilst facilitated by the merger would still be difficult to implement due to the nature of the industry as explained by Mr Wilken.

[24]“ the. merger is approved without conditions. i , ‘ | / 07 April 2011 N Manoj / DATE Y Carrim and M Holden concurring. Tribunal Researcher: For the merging parties: For the Commission: Songezo Ralaraia Vani Chetty of Vani Chetty Competition Law Jabulani Ngobeni Alex Constatinou Grace Mohammed x kK OX Date/Time: File No. Mode VApr. 2011 17:12 7201 Memory TX tebogo 44983 44445 roerror Communication Result Report ( Destination 00118805773 Pg TL Apr 2011 17:44) x x x No Page Result Not Seat fo - 1) Hang up or Tine fail E.2) Busy E. 3) No answer E.4) No facsimile connection E.5) Exceeded max. E-mail size competitiontribunal reuck africa <4 to Vani Chetty/Mamta Nathoo Fax Vani Chetty Competition Law (Pty) 041 886 5773 Ltd Legal Services 44283 Competition Commission ref 75/LMINov10 date 07 April 2014 from Teboge Mputle pages 6 (including this page) re Reasons ‘This message is intended only for the use cf the adidresese and may contain Information that is privileged and confidential. ff you are not the intended recipient, you are hereby notified that any dissemination of this communication is etrictly prohibited. if you have received this communication in error, please notify us immediately by telephone. Attached please find the Tribunals reasons for the decision in the above matter, Regards Ga. Teboge Mputle CC: Alex Cunstantinot - 44445 3" Floor, Mulayo,the dti Campus, 77 Meinties Street, Sunnyside, Pretoria Private Bag X24, Sunnyside 0132 Tet: +27 (42) 3943300 Fax: +27 (12) 3840160 Ema ctsaGQcomptib.coza Website: bticnww.comptib.aa.za