Hospitality takeover wins approval with terms

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The commission's concern is that Southern Sun will gain access to competitively sensitive information through the deal in its current form.

Hospitality's shareholders last month voted in favour of a new capital structure and a share deal that would see it become the hotel arm of gaming and leisure group Tsogo Sun, which owns Southern Sun Hotels.

It was agreed Tsogo, which is headed by Marcel von Aulock, would inject 10 hotels, valued at about R1.8bn, into Hospitality, in exchange for more than 50% of Hospitality's ordinary shares, on condition that it adopts a single share structure.

"The Competition Commission has recommended to the Competition Tribunal that the large merger, whereby Southern Sun Hotels intends to acquire Hospitality Property Fund, be approved with conditions," the commission said.

The commission found that in various cities assessed including Johannesburg, Durban, Port Elizabeth, and Cape Town, the merging parties would continue to face competition from other hotel properties with three-, four- and five-star grades.

These were owned and operated by the Protea Group, Holiday Inn, Premier Group and Legacy Hotels, among others.

"Given that Hospitality Property Fund currently leases hotel properties to Southern Sun Hotels' competitors, the commission is of the view that the merged entity is likely to have the ability and incentive to exclude such competitors by not renewing their lease agreements post-merger. Southern Sun Hotels may also have the incentive to take over operations of Hospitality Property Fund hotels upon termination of lease agreements," the commission said.

"In order to address this concern, the commission has recommended to the tribunal that Southern Sun Hotels intends to take over operations of Hospitality Property Fund hotels." The commission also found that Southern Sun Hotels was likely to have access to "competitively sensitive information about its competitors through Hospitality Property Fund", which could lead to collusion.

"It is for this reason that the commission has recommended to the tribunal that the proposed merger be approved subject to conditions," it said.

Grindrod Asset Management's Ian Anderson, said Hospitality and Tsogo would need to publish announcements on the JSE soon, detailing the conditions. These might be forward-looking, and might not change the merger's terms.

Source: BDpro via I-Net Bridge