On 24 July 2012 the Competition Tribunal (Tribunal)
unconditionally approved the large merger involving Life Healthcare
(Proprietary) Limited (Life Healthcare) and Joint Medical Holdings
Limited (JMH), following the Competition Commission's
(Commission) recommendation to the Tribunal that the merger be
Life Healthcare is a listed private hospital group that owns and operates private hospitals throughout South Africa; while JMH owns and operates five private hospitals situated in the Durban city centre and surrounding areas. The parties' activities overlap in providing private healthcare services in the greater Durban area. Prior to the merger, Life Healthcare held 49% of the share capital of JMH. In terms of the proposed transaction, Life Healthcare made a public offer to the other JMH shareholders (comprising some 300 private doctors, their families and trusts) to acquire an additional 21% of JMH's shares. The merger would increase Life Healthcare's interest in JMH to 70%.
The merger was notified to the Commission in August 2011. Following an extensive six-month investigation, in which the Commission sought numerous extensions for its investigation (which the parties ultimately had to resist), the Commission referred the merger to the Tribunal, recommending that it be prohibited.
The Commission opposed the merger on the grounds that it would allegedly result in a lessening of competition, and that it would, in particular:
- result in higher prices for uninsured patients and notional regional medical schemes operating in the Durban area;
- reduce other independent hospitals' ability to be included in designated service provider (DSP) networks established by medical schemes; and
- reduce the ability of independent hospitals in the Durban area to compete for medical specialists.
The merging parties in turn submitted that:
- the transaction would not result in anti-competitive effects, as it simply involved a move by Life Healthcare from its current position of "joint" control to "sole" control;
- as Life Healthcare already includes the JMH hospitals in its tariff and DSP arrangements with medical schemes, which are negotiated annually on a national basis, the transaction would not result in any change in the competitive dynamics that currently exist in the market; and
- the merger would not result in higher prices for uninsured patients, nor would it reduce other hospitals' ability to compete for specialists.
The matter was set down for an eight-day hearing before the
Tribunal during May and June 2012. It involved extensive pre-trial
procedures, including an encompassing discovery process by the
merging parties; the preparation and filing of numerous factual
witness statements and economic reports both by the Commission and
the merging parties' expert economists; and the presentation of
additional factual and expert economic evidence during the Tribunal
hearing and in heads of argument filed before the closing
Following the completion of the hearing, the Tribunal informed the parties that it wished to take the very unusual step of appointing its own expert to consider and advise it on certain economic analyses conducted by the expert economists during the hearing. This, in turn, prompted the Commission to apply to the Tribunal to admit further new evidence into the record of evidence. The merging parties resisted both the appointment of the Tribunal's expert and the Commission's application to admit new evidence.
On 24 July 2012 the Tribunal issued its order approving the merger without any conditions; and will issue its reasons within 20 business days.
This matter highlights the current challenges and extensive litigation procedures that parties face in opposed merger proceedings before the South African competition authorities. Notably, it took nearly a year from the date the Commission was notified of the proposed merger for the matter to be considered by the Tribunal and ultimately approved.
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