Southern Sun and Hospitality merge
Competition Commission in approval
THE PROPOSED merger between Southern Sun Hotels and JSE-listed Hospitality Property Fund has been approved by the Competition Tribunal, subject to a number of conditions related to the potential exchange of information.
These conditions include that the merging parties ensure that Hospitality Property Fund has its own executive management team, which will be responsible for the day-today operations of the fund and this team will not include anyone who is involved in management in any capacity at Southern Sun.
Fiduciary duties
In addition, any directors appointed to the board of Hospitality Property Fund will comply with their fiduciary duties in respect of the fund and not disclose any information relating to any hotels leased from Hospitality by third parties to employees of Southern Sun.
The merging parties are also required to submit a copy of the conditions to third party operators and send a copy of the confidentiality and information exchange policy to the commission.
Southern Sun is also required for a period of three years from the approval date to notify the commission of the termination of any change of the third party operators at a specific hotel property owned by Hospitality.
These conditions were imposed on the merger because of concerns expressed by the commission that because Hospitality leased hotel properties to competitors of Southern Sun Hotels, the merged entity
Southern Sun’s projected shares in Hospitality
had the ability to potentially exclude competitors by not renewing their lease agreements and share sensitive competitive information.
Ruan Mare, appearing for the commission, said yesterday that the issues in dispute had been resolved by the agreement on the conditions by the merging parties. He said that in terms of the transaction Southern Sun Hotels would increase its shareholding in Hospitality from 27.1 percent to effectively 51 percent.
In exchange, Hospitality would acquire 10 hotel properties and also the letting business from Southern Sun Hotels. That exchange would take place by Hospitality acquiring 100 percent of the shares in a newly formed Southern Sun Hotels subsidiary.
Mare added that Southern Sun Hotels would, however, continue to operate or manage the 10 properties, because Hospitality was an owner of hotel properties and not a hotel operator. He said it was unlikely that there would be increased prices as a result of any foreclosure by Southern Sun Hotels after the merger, because of continued competition in the market.
David Unterhalter, appearing for the merging parties, said the Southern Sun Hotels and Hospitality had been prepared to live with the conditions imposed on the merger despite not being in agreement that there was any significant lessening in competition.
There was not any scope for the precautionary application of conditions without showing that the merger resulted in a significant lessening of competition, he said.