Tribunal - Why it dismissed HCI and Tsogo Sun's application
NOTE: Applicants – HCI and Tsogo Sun have appealed the Tribunal’s order. It is to be heard by the Competition Appeal Court on Monday, 2 October, 2017
Hosken and Tsogo Sun actions meant they were not entitled to approach the Tribunal directly
The Competition Tribunal has issued its reasons for dismissing an urgent application by Hosken Consolidated Investment Ltd (“HCI”) and Tsogo Sun Holdings Ltd (“Tsogo”) for a declaratory order for specific relief regarding a proposed transaction with Niveus Investment Limited (“Niveus”).
The application to the Tribunal arose out of an advisory opinion from the Competition Commission (“Commission”), who after being approached by HCI, advised, on 17 August 2017, that the proposed transaction be notified as a merger with the Commission.
On 12 September 2017, the day the declaratory order was issued by the Tribunal, HCI and Tsogo lodged an appeal with the Competition Appeal Court. The applicants had asked the Tribunal that an order be urgently issued without reasons ahead of a shareholders meeting that week.
The appeal is to be heard on Monday, 2 October 2017.
In its application to the Tribunal, heard on 8 September, HCI and Tsogo requested, by way of a declaratory order, that the transfer of gaming interests owned indirectly by Niveus, to Tsogo is not notifiable, contrary to the Commission’s advisory opinion.
HCI and Tsogo argued that the proposed transaction does not constitute a merger but a consolidation of its gaming interests, other than its sports betting and lottery interests, in Niveus into Tsogo. HCI also argued that it already has a controlling shareholding in Tsogo and a controlling interest in Niveus and the transaction amounted to an internal restructuring.
The applicants said they were not required to notify the transaction because HCI was, in their opinion, the ultimate sole controller of the two groups and that they had received approval in the 2014 transaction for achieving more than 50% in Tsogo.
The 2014 Tsogo Transaction involved the exit of minority shareholder, SABMiller plc (“SABMiller”), and the acquisition by HCI (through TIHC) of additional shares in Tsogo. Prior to 2014, Tsogo was subject to the joint control of HCI (through various subsidiary companies) and SABMiller. In 2014, SABMiller divested itself of its shares in Tsogo, leaving HCI as the sole controller of Tsogo.
The Commission advised the merger be notified because as HCI through Tsogo Investment Holding Company (Pty) Ltd (“TIHC”) would increase its shareholding in Tsogo from below 50% to more than 50% resulting in HCI beneficially owning more than half of the issued share capital of Tsogo within the contemplation of section 12(2)(a) of the Competition Act. The crossing of 50%, known as crossing the bright line, triggers the notification of a merger, it said.
The Tribunal in its reasons issued on Friday, 29 September, 2017 said:
“The 2014 transaction only involved a sale of shares and a share buy-back within Tsogo. It did not as the proposed transaction contemplates involve the transfer of one business (held under GameCo) into another (Tsogo) and the buying out of minorities. This is why the Commission is concerned about whether there would be overlapping functions which could have adverse employment consequences, a matter which the applicants have still not addressed. “
The Tribunal went on to say Commission’s advisory opinion is not binding on the applicants and that notification of a transaction to the Commission is a jurisdictional requirement for the Tribunal to exercise its functions. The applicants have not notified their transaction and the Tribunal accordingly lacks jurisdiction therein. The applicants are therefore not entitled to approach the Tribunal directly for the order that they seek.”
Further, the Tribunal found that the urgency of the application was self-imposed as the transaction was already contemplated at the end of 2016 and that as a listed company, HCI should have been aware and factored in regulatory requirements.
Tsogo’s, gaming interests are held through Tsogo and Tsogo Sun Gaming (Pty) Ltd. The Tsogo Group, through subsidiary companies, operates 14 gaming and entertainment complexes in South Africa. Its non-casino hotel interests are held through Southern Sun Hotels and Southern Sun Offshore and respective subsidiaries, collectively referred to as Southern Sun Hotels.
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