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Phodiclinics (Pty) Ltd & Others and Protector Group Medical Services (Pty) Ltd & Others (122/LM/Dec05 ) [2007] ZACT 17 (21 February 2007)

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COMPETITION TRIBUNAL OF SOUTH AFRICA

Case No: 122/LM/Dec05

In the matter between:

Phodiclinics (Pty) Ltd

DJF Defty (Pty) Ltd

Medi-Clinic Corporation Ltd

Phodiso Clinics (Pty) Ltd

Phodiso Holdings Ltd Acquiring firms

and

Protector Group Medical Services (Pty) Ltd (in liquidation)

President Pharmacy (Pty) Ltd

Capstone 177 (Pty) Ltd

Blue Dot Properties 446 (Pty) Ltd

Limosa Investments 93 (Pty) Ltd

Capensis Investments 403 (Pty) Ltd

New Protector Group Holdings (Pty) Ltd (in liquidation) Target firms

and

Supreme Health Administrators (Pty) Ltd

Network Healthcare Holdings Ltd

Council for Medical Schemes Intervening parties

______________________________________________________________

Panel : Y Carrim (Presiding Member) M Mokuena (Tribunal Member) and L Reyburn (Tribunal Member)

Heard on : 04-08 September 2006 and 17-20 October 2006

Decided on : 31 October 2006

Reasons released: 21February 2006

Reasons [Non-confidential version]

Introduction

1. On 31 October 2006 the Tribunal unconditionally approved the large merger involving the acquisition by Phodiclinics (Pty) Ltd and DJF Defty (Pty) Ltd of the assets of New Protector Group Group Holdings (Pty) Ltd together with assets of the other target companies. The reasons for the Tribunal’s order are set out below.

The transaction

2. Phodiclinics (Pty) Ltd (“Phodiclinics”) together with DJH Defty (Pty) Ltd (“Defty”) are acquiring the assets owned by New Protector Group Holdings (Pty) Ltd (“New Protector”), a company that was placed under provisional liquidation on 2 September 2004.¹ The assets consist of four hospitals: the Medivaal Hospital in Vanderbijlpark, Kathu Hospital in Kathu, Marapong Hopital in Marapong and Kingsley Hospital in Pretoria, and the respective pharmacies that operate within these hospitals, namely Grootgeluk Pharmacy (Marapong), Employees Dispensary Pharmacy (Vanderbijlpark), Ferrochem Pharmacy (Kathu) and President Pharmacy (Kingsley Centre Pretoria).² Upon conclusion of the transaction Phodiclinics will control these businesses.

3. Medi-Clinic Investments (Pty) Ltd, a wholly owned subsidiary of Medi-Clinic Corporation Ltd (“Medi-Clinic”), owns 51% of Phodiclinics. The remaining 49% is owned by Phodiso Clinics (Pty) Ltd, a wholly owned subsidiary of Phodiso Holdings Ltd, which is a 94.4% black owned company. Medi-Clinic through its various subsidiaries operates and controls numerous hospitals throughout South Africa. Medi-Clinic controls Defty in terms of section 12(2) (g) of the Competition Act. Defty owns most of the pharmacies in the Medi-Clinic hospitals and provides pharmaceutical services to and on behalf of the Medi-Clinic hospitals.³ For ease of reference I will refer to the acquiring firm as Medi-Clinic or Phodiclinics.

Background to the transaction

4. New Protector was established when Glenrand MIB sold its 65% stake in old Protector Group⁴ to an empowerment consortium named Tradeworx. Tradeworx consisted of seven black individuals of whom one is Dr Clarence Mini of Supreme Health. The shareholders in New Protector were Tradeworx owning 51% of the shares and Freefall Trading 65 (Pty) Ltd with 49%. The shareholders of Freefall Trading 65 included two directors from the old Protector Group namely Leon van Rensburg and Marc Seelenbinder. The BEE transaction was funded by the IDC and was valued at R130 million.⁵ This transaction was approved by the Competition Commission (“the Commission”) in June 2004.

5. No sooner had New Protector obtained its approval certificate than it was hit by a series of misfortunes, which led ultimately to its liquidation and its arrival before this Tribunal as the subject of the proposed acquisition.

6. On 3 March 2006 the Commission recommended to the Tribunal that the proposed transaction be approved without conditions. A pre-hearing was held on 13 March 2006 during which Network Health Holdings Ltd (“Netcare”), Supreme Health Administrators (Pty) Ltd (“Supreme Health”) and the Council for Medical Schemes (“the CMS”) indicated to the Tribunal that they wanted to intervene in this matter. The Tribunal granted them leave to intervene on 24 April 2006. A further pre-hearing took place on 9 July 2006 during which a timetable was agreed upon, setting hearing dates for interlocutory applications and the hearing of the main matter.⁶

7. The merger hearing took place on 4 to 8 September 2006 and continued on 17 to 20 October 2006. The CMS,⁷ Netcare⁸ and Supreme Health⁹ opposed the merger on a number of grounds which are dealt with below.

8. The following witnesses were called during the hearing of the main matter:

Witnesses called by the merging parties

1. Mr Johan du Plessis, Head of Workout and Restructuring at the Industrial Development Corporation (“the IDC”)

2. Ms Sonja Keulder, Senior Account Manager at the IDC

3. Mr TW van den Heever, Insolvency Practitioner and Managing Director of D&T Trust (Pty) Ltd

4. Mr G Swiegers, Financial Director of Medi-Clinic Corporation Ltd

5. Dr N Theron of Econex

Witnesses called by Netcare and Supreme Health

1. Dr Clarence Mini, Director of Supreme Health Administrators (Pty) Ltd

2. Ms Petro Bester, Hospital Manager, Vaalpark Hospital

Witnesses called by the CMS

1. Mr Alex van den Heever, Senior Advisor, Council for Medical Schemes

2. Dr Jonathan Bloomberg, General Manager of Strategy and Health Policy at Discovery Holdings Ltd

3. Mr Mbasa Mxenge, Principal Officer of Polmed Medical Scheme

Commission’s recommendation

9. The Commission recommended that the transaction be approved unconditionally, on the basis that it was unlikely to lead to a substantial lessening of competition. The Commission noted that New Protector was in liquidation and considered it to be a failing firm for purposes of merger analysis but expressed concern about a likely increase in tariffs at each of the hospitals to be acquired because, post-merger, Medi- Clinic would implement its national tariffs.¹⁰ (The Commission had found that Protector’s tariffs were generally lower than those of Medi-Clinic.) The Commission also expressed concern about the increasing concentration occurring in the hospital industry.¹¹ The Commission however found that the strong countervailing presence of the medical schemes in this industry - 90% of all patients using the Medivaal hospital belong to medical schemes - and the fact that New Protector was a failing company substantially lessened the anti-competitive effects of the transaction. It therefore recommended that the transaction be approved.

Netcare’s contentions

10. Netcare and Supreme Health (which we refer to below collectively as Netcare¹²) contended that the transaction ought to be prohibited on several grounds. Netcare argued that the Tribunal should have regard not only to the national market shares of the merged entity but also the local market shares, especially in the Vaal Triangle and Kathu. It submitted, inter alia, that Medi-Clinic would become dominant in the Vaal Triangle if it acquired the Medivaal hospital.

11. Such dominance, Netcare contended, would have an adverse effect on the referral patterns of specialists and would provide Medi-Clinic with an incentive to deny patients emanating from Netcare’s hospital in Sasolburg access to the ICU facilities at the Medivaal hospital in Vanderbijlpark and access to Medi-Clinic’s hospital in Veereniging. Medi-Clinic would also be in a better position to attract specialists away from the hospitals of its rivals at which these specialists had rooms, and thereby attract more patients away from rival hospitals. Furthermore, by acquiring the Protector hospital in Kathu, Medi-Clinic intended to keep Netcare out of the Northern Cape in order to maintain its dominance in that province. Moreover, Netcare contended, the merging parties had failed to discharge the onus identified by this Tribunal previously¹³ which falls on those who wish to rely on the failing firm doctrine.

12. Netcare claimed that there were a number of alternative options to the proposed merger, including an acquisition by Netcare itself of the Protector assets, which would lead to a less anti-competitive outcome in the Vaal Triangle and elsewhere.

The CMS’ contentions

13. The CMS asserted that the acquisition of the Protector assets by Medi-Clinic ought to be prohibited because, in its view, the extent of concentration in the hospital industry, brought about by progressive acquisitions of independent hospitals by the three large groups, Netcare, Medi-Clinic and Life (previously Afrox), had resulted in an unacceptably high increase in hospital costs over time. The CMS contended that the three major hospital groups had been acquiring independent hospitals in a succession of “creeping mergers” over a number of years. While a particular transaction, or many of these transactions on their own, might not have given rise to any competition concerns, the cumulative effect of these transactions was a high degree of concentration in the private hospital market, with these three players having the lion’s share of it. ¹⁴ According to the CMS, the three hospital groups enjoyed market power at a national level, and had exercised it. This was evident from the sharp increase in hospital costs during the time in which these creeping mergers had occurred. Medical schemes did not have countervailing power. In the CMS’ view the three major hospital groups ought not to be allowed to acquire any more independent hospitals.

14. A second argument advanced by the CMS was that the Tribunal should be concerned about local or regional markets in the private hospital market. It argued that regional dominance for a hospital group was important because it provided the group with national leverage in its tariff negotiations with medical schemes. Regional dominance also constrained the ability of medical schemes to negotiate preferred provider agreements.

15. Finally, the CMS argued that even if Protector was a failing firm, which it denied, the Protector hospitals ought to have been sold by the liquidator and the IDC to another independent hospital group¹⁵. The CMS supported Netcare’s definition of the relevant market.

Merging parties’ contentions

16. Medi-Clinic contended that, according to its definition of the relevant market, the transaction would not lead to a substantial lessening or prevention of competition at a national level. Nor was it Medi-Clinic’s intention to deflect referrals by specialists away from its rivals’ facilities in the Vaal Triangle. Medi-Clinic had never denied the use of its facilities to patients referred to them by doctors practising at its competitors’ hospitals, and had no intention or incentive to do so in the future. While the transaction would lead to an increase in tariffs at the Protector hospitals, this would only affect patients who were not members of medical schemes and these constituted only approximately 10% of all private hospital patients. The tariff increase would be in the region of 10%.¹⁶ A tariff increase would be inevitable if any one of the three major hospital groups acquired the Protector assets because Protector’s tariffs were generally lower than those of the three main groups.

17. In the event that the Tribunal found that the relevant market was the local market (as opposed to the national market) and that Medi-Clinic would have a relatively high market share in the Vaal Triangle, this would not lead to a substantial lessening of competition because Protector was a failing firm. After it had been placed in provisional liquidation the liquidator had attempted to obtain as many unconditional offers as possible for Protector’s assets as a going concern, but at the date of conclusion of the sale had received only one such offer, namely that from Phodiclinics.

18. The hearing in this matter was preceded by an aggressive discovery process, and encompassed a large amount of documentary evidence and witness testimony.

Tribunal’s findings

19. This Tribunal considers that new Protector was a failing firm – or more precisely a failed firm -- within the meaning of the Competition Act, 1998 (“the Act”) at the time of the merger transaction, and considers further that the failing firm consideration outweighs any potential loss to competition that may arise as a result of this transaction.

20. We have therefore approved the merger. In these reasons for that decision, we find that the merging parties have discharged the onus required Act in relation to what is often called the failing firm defence, also satisfying the criteria applicable in the USA in relation to that defence. Having considered the extent of competitive harm alleged by the intervenors, we have concluded that such harm as exists was overstated by the intervenors, and is outweighed by the failing firm factor.

Competition Analysis

The relevant product market

21. The Commission identified the relevant product market as the market for the provision of private hospital services. These consist of a range of specialist hospital services, also referred to as a cluster of services, such as obstetrics and gynaecology, neonatal intensive care unit, paediatrics, general surgery and urology.¹⁷

22. In addition to the specialist services above, both parties to the merger provide emergency units, including intensive care, high care, theatre facilities and pharmacies, although, not all of these facilities exist at all of the Protector hospitals .

23. In the case of Protector the above services are offered mainly by the Medivaal hospital, with the Marapong, Kathu and Kingsley hospitals offering limited facilities that can be regarded as catering for primary services rendered by general practitioners. Marapong, Kathu and Kingsley do not have ICU units. At Kathu some minor procedures are rendered by specialists, mostly travelling from Kimberley.

24. It was not contested by any party to the proceedings that the relevant product market was the market for the provision of private hospital services.

The relevant geographic market

25. The Protector hospitals are situated in:¹⁸

• The Vaal Triangle: Medivaal hospital with 155 beds

• Northern Cape Province: Kathu hospital with 25 beds

• Limpopo Province: Maropong hospital with 12 beds

26. Medi-Clinic owns 44 private hospitals in eight provinces in South Africa. Those closest to the target hospitals are:

• Vaal triangle: Vereeniging Medi-Clinic with 237 beds

• Northern Cape province: Kimberley Medi-Clinic with 234 beds, Upington Medi-Clinic with 40 beds

• Limpopo province: Limpopo Medi-Clinic with 193 beds, Tzaneen private hospital with 64 beds and Curamed Thabazimbi hospital¹⁹ with 19 beds.

27. According to Medi-Clinic, 86% of its income is derived from medical schemes and less than 10% from private patients, the balance being derived from government medical funds. Medi-Clinic has contracts with all of the medical schemes in the country. Tariffs charged by Medi-Clinic vary from one medical scheme to the next. For each medical scheme it has a single tariff that operates nationally. It therefore considers the market serving medical scheme patients to be national. In its view a local market definition is relevant only in the case of patients who are not funded by medical schemes.

28. Hospitals compete with one another at several levels. While they may compete on price (tariffs) at a national level in their negotiations with medical schemes, at a local level they tend to compete for patients on a non-price basis. Hence hospitals may compete on the quality of their facilities, the quality of care provided in these facilities, the location of the hospital, and the nature of the specialist services available at the hospital. The Commission therefore followed a multi-perspective approach in defining the geographic market. It considered the effect of the transaction firstly within a national geographic market and then in a local market.

29. In this analysis, the Commission relied on previous Tribunal decisions, which have held that the market is national, based on the fact that hospital groups adopt a centralised, national pricing policy.²⁰ At a national level, the Commission found that this transaction would lead to market share accretion of 0.8% for Medi-Clinic and that any price increases following from the merger would be absorbed with minimal premium cost increases by medical scheme patients, who represent 90% of the market.

30. However the Commission was cognisant of the fact that a relevant national market may not adequately address the impact of such a transaction on competition in a local or regional market. According to the Commission, local or regional markets are important because dominance by a particular hospital group in a particular region may have a negative impact on the ability of medical schemes to negotiate preferred provider agreements with such a group. This would have an impact on pricing and would limit the ability of medical schemes to deliver affordable products to the consumer.

31. The Commission defined local or regional markets by utilising a fixed radius test. This involved taking into account the alternatives available to patients in each area within a fixed radius of 60km (“the fixed radius test”). On the basis of this test the Commission identified the Vaal Triangle as a relevant geographic market in which the merging parties competed.

32. In Kathu, situated in the Northern Cape, the Commission found that 1.7% and 1.9% of all admissions to Kimberley Medi-Clinic and Upington Medi-Clinic respectively were from Kathu. Given the distance of more than 100 km between Kathu and other towns such as Upington, Kimberley, Vryburg and Bloemfontein, the Commission found that there was no geographic overlap between the merging parties in this area on the basis of a fixed radius of 60km.

33. The Commission also concluded that that there was no geographic overlap between Morapong Private Hospital and Limpopo Medi-Clinic because of the distance of more than 200 km between Lephalale and Polokwane, both situated in the Northern province.

34. The merging parties did not accept the Commission’s definition of the Vaal Triangle market and argued that they competed in two separate markets, Vanderbijlpark and Vereeniging. Dr Theron of Econex, who gave expert economic testimony on behalf of the merging parties, agreed that the merger had both a national and local dimension but refrained from defining the geographic market conclusively. Dr Theron utilised a number of tests to determine the relevant market, the primary one being the Elzinga-Hogarty Test (“E-H test”) which she applied to patient flow data. ²¹ She argued that based on both versions of the E-H test, the weaker 75% and the stronger 90% patient flow test, no competition implications arose from this merger. She submitted that if the 75% E-H test is applied then the Medivaal hospital at Vanderbijlpark and the Medi-Clinic hospital at Vereeniging are in separate geographic markets and do not compete. If the 90% E-H test is applied, the Medivaal and the Medi-Clinic hospitals would fall into the same geographic market which should then also include hospitals from areas such as Sasolburg (9% of patients are from Sasolburg), Vereeniging (7% of patients are from this town) and Sebokeng (1% of the patients are from this town).

35. Netcare did not lead an expert witness. However, by cross-examining a number of witnesses, it sought to define the geographic market as the Vaal Triangle – a view it sought to base on the opinions of market participants, internal documents of Medi-Clinic, and the close proximity of the hospitals to each other. Netcare also criticized the use of the E-H test and said that it was not clear that the E-H test could ever be used in hospital merger analysis because of the “silent majority” fallacy.²² It also pointed out that the economists who developed the E-H test had observed that it was not readily applicable to heterogeneous products such as hospital services.

36. The CMS argued that the geographic market of a hospital should be defined by considering the hospital’s catchment area.²³ It regarded the Vaal Triangle, Marapong, Kathu, Kimberley and Upington as separate catchment areas.

37. Patient flow data has been criticised by some scholars on the basis that it could lead to an overestimation of the geographic market by ignoring relevant factors such as specialist referral patterns. The Federal Trade Commission (“FTC”) and the Department of Justice (“DoJ”) of the USA, in a joint report on healthcare recommend that the delineation of relevant markets in an industry as complex and differentiated as hospital services should not rely on tests such as E-H test, which are designed primarily for homogenous product markets. Instead, regard should be had to a number of indicators such as the testimony of key witnesses, strategic internal documents of the parties, industry views, and location. ²⁴

38. Such an approach has been utilised by this Tribunal in other mergers involving product markets with a high degree of differentiation.²⁵ In our view, there is no need for us to decide whether the E-H test is an appropriate or accurate tool in this transaction. At best, in this matter, it represents an initial and tentative view of the relevant market, which needs to be supported by other tests.²⁶

39. In our view the close proximity of the hospitals and documentary evidence as well as the testimony of certain witnesses strongly suggests that Medi-Clinic regards Medivaal as a rival within the same local geographic market.²⁷ The hospitals are within short distances of each other.²⁸ Moreover, the hospital manager of Medi-Clinic’s Vereeniging Hospital clearly sees his hospital as operating within the Vaal Triangle.²⁹ Handwritten notes by Mr Heyns also refer to the fact that should Medi-Clinic increase the rates at Medivaal, patients would be able to turn to Midvaal and Vereeniging Medi-Clinic.³⁰ This leads us to conclude that the relevant local market is the Vaal Triangle.

40. Kathu and Marapong hospitals have limited facilities and are not regarded as significant competitors of Medi-Clinic at a national level. However some competition concerns were raised by Netcare in relation to Medi-Clinic’s acquisition of Kathu. We thus accept for purposes of considering Netcare’s contentions that Kathu is also a relevant local market.

Market shares

41. Post merger, Medi-Clinic will be the only private hospital group in Kathu.

42. The following hospitals operate in the Vaal Triangle area:

• Vereeniging Medi-Clinic with 165 beds

• Medivaal (Protector) with 155 beds

• Midvaal Vereeniging (independent) with 92 beds

• Netcare Sasolburg with 68 beds

43. In addition to the four listed above, the merging parties had also listed Clinix Private Hospital in Sebokeng. Smaller rivals such as Cormed (a day clinic) were also included in the Commission’s list of market participants although the Commission did not regard them as providing the same range of services as those provided by the merging parties.³¹

44. With regard to Clinix in Sebokeng, Dr Theron conceded that she did not have any data indicating that patients living outside Sebokeng would travel to Clinix’s hospital.³²

45. If we were to consider Cormed and Clinix as competitors, then the market shares in the Vaal Triangle would be:³³

46. Excluding Cormed and Clinix, the market shares would be:

47. If we exclude Clinix and Cormed on the basis that they were not effective competitors, then, based on the number of beds, the merged entity will, after the transaction, hold a market share of 71% in the Vaal Triangle with an HHI of 5041 and a change in HHI of 3192. A market share of 71%, with an accretion of 3192, will clearly be of concern to any competition agency. Medi-Clinic will by far be the largest player in the Vaal Triangle with its closest rivals having relatively small market shares in comparison. Midvaal Vereeniging, an independent group, will have a market share of 17% and Netcare Sasolburg 12%. The stark figures are however mitigated by a number of factors to which I return later in this decision.

Failing Firm

48. The Act requires this Tribunal to evaluate the competition effect of mergers and acquisitions taking into account a number of factors, one of these being “ whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail.”³⁴

49. The Tribunal, in Iscor Ltd and Saldanha Steel (Pty) Ltd, Case No 67/LM/Dec01, found that: “a merger would not be regarded as lessening competition if the conditions laid out in the more stringent EU test can be satisfied.”³⁵ However it also considered that one could, depending on the anti-competitive effect of the transaction, use the less stringent US test if a party fell short of the “market share would have gone to us” requirement. The merging parties submit that while they have not been able to discharge the onus of the EU requirement of “market share will go to us”, they have been able to discharge the onus pertaining in the US test.

50. The US failing firm defence provides for the following:³⁶

“A merger is not likely to create or enhance market power or facilitate its exercise if the following circumstances are met:

1. the allegedly failing firm would be unable to meet its financial obligations in the near future;

2. it would not be able to reorganize successfully under Chapter II of the Bankruptcy Act;

3. it has made unsuccessful good-faith efforts to elicit reasonable alternative offers of acquisition of the assets of the failing firm that would both keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger; and

4. absent the acquisition, the assets of the failing firm would exit the relevant market.”³⁷

51. The Tribunal also pointed out that when the competitive loss is low, one may be less exacting in requiring a showing of all the elements of the traditional failing firm defence. It noted in par 105 of the decision that:

“If the failing firm concept was a defence, in the sense that the efficiency defence is, then this type of flexibility would be impermissible and one would have to satisfy all the elements of a test that the legislature had provided before it could be invoked.”

52. Netcare submits that the Protector hospitals, as business units, were not failing but that the Protector group was failing as a result of factors explained in the evidence -- fraud by its erstwhile managers and the loss of its medical scheme administration contract and the losses incurred by its pharmacies.³⁸ Hence, Netcare contended, the hospitals ought not to have been liquidated at the instance of the IDC. Furthermore, Netcare contended that the merging parties had not discharged the onus described by this Tribunal in Iscor and Saldanha Steel (Pty) Ltd, cited above.

53. Let us consider the circumstances of Protector’s failure.

Unable to meet its financial obligations and reorganise successfully

54. On 25 November 2003, the IDC Board approved a leveraged buy-out of Protector Group Holdings (i.e. Old Protector), a holding company with trading subsidiaries, which was owned by Glenrand MIB Ltd, holding 65% and Protector Group Management Company (“Manco”) holding 35% of the ordinary shares. As a result of the transaction a new holding company, New Protector Group Holdings (I,e, New Protector) was formed to hold the same trading subsidiaries, with Tradeworx owning 51% and a new Manco, Freefall Trading 65 (Pty) Ltd, holding 49%.

55. The core business of New Protector’s subsidiaries comprised 4 hospitals, 34 pharmacies and two medical scheme administration businesses. The funding of the LBO transaction involved R70 million cash in order to purchase the shares and claims of Glenrand MIB and a further R60 million in guarantees. The transaction was hailed as a BEE transaction effected by Glenrand. Marc Seelenbinder, the chief operating officer of the group, and Dr Mini, who had been a member of the Old Protector board, were seemingly the central figures in the transaction.

56. In February 2004, the IDC paid over approximately R70 million, as part of the purchase price, into New Protector’s bank account. This money was never seen again. The only persons who had signing powers over New Protector’s accounts were the two directors of Freefall, Leon van Rensburg and Marc Seelenbinder, whose whereabouts now seem to be unknown.³⁹ In July 2004 one of New Protector’s subsidiaries lost its administration contract with the Protector Health medical scheme to another administrator, Medscheme, and in doing so New Protector lost its major cash-generating business, then earning revenue of R5.4 million per month.

57. A short time before the IDC-funded transaction was completed, Old Protector had acquired or was in the process of acquiring another entity called The Medicine Chain (“TMC”) for R1,00 (one rand) with liabilities of R42 million. The IDC’s valuation took into account the possible acquisition of TMC. However, it later emerged that the acquisition was done without a proper due diligence having been conducted by Old Protector. TMC required additional working capital by way of cross-subsidy from the other business units. New Protector was not able to turn around the businesses in time. On 23 July 2004 the major banks exercised their securities and froze the bank accounts of New Protector and its subsidiaries. None of these banks were willing to extend any further facilities to these companies.

58. New Protector therefore had no cash flow or overdraft facilities available for its subsidiaries’ trading operations. It had no money to pay salaries of staff, to buy food or provisions for patients, to pay its rent, or to service its debt. The situation was aggravated by the departure of Messrs Seelenbinder and Van Rensburg,⁴⁰ leaving the company with very few, if any, people on its board who were skilled and experienced in the management of a business of that size or nature.

59. New Protector turned to the IDC, its major creditor, for assistance. The IDC settled some debts with the banks, thus increasing its exposure, and then attempted to find a durable solution to New Protector’s difficulties.⁴¹ The IDC attempted to facilitate negotiations with Clinix Hospital Group⁴² in the hope that Clinix could rescue New Protector. Both the IDC and Tradeworx explored the possibility of bringing in an experienced partner such as Clinix or Medi-Clinic.⁴³ Attempts were made by the IDC’s personnel to engage with the managers of New Protector and its subsidiaries and develop a rescue plan for the group. A rescue plan was proposed by New Protector which contemplated cost savings in the long run but which in the short term required a capital injection from IDC for retrenchments, the restart of business, and working capital. The extent of this cost had not been calculated but was expected to be high.⁴⁴ The rescue plan did not provide for any repayments to the IDC while requiring an increase in exposure for the IDC. The IDC was also expected to take an equity stake in the business, which would have increased its exposure further.⁴⁵

60. In the meantime, the IDC had already advised New Protector that it was seeking to protect its own interests as a creditor and was not willing to increase its exposure any further.⁴⁶ During this time, another smaller creditor of New Protector applied for its liquidation. While the company defended the action, the liquidation application, together with the exercise by the banks of their securities, served as a trigger for action by several other creditors. Furthermore New Protector had been evicted from some of the TMC pharmacy premises because it was unable to pay its rent.⁴⁷ New Protector was indeed in dire circumstances. Though it seems that the IDC’s original intention was to restructure New Protector and assist it in trading out of its financial difficulties⁴⁸ this was abandoned because, according to the IDC, it was uncertain that New Protector would be ever able to service the level of additional debt that such a rescue operation required. Events were in any case overtaken by the actions of other creditors.⁴⁹

61. At that point New Protector’s major creditors were Nedbank (R59.5 million), ABSA (R27 million), FNB (R23 million), the IDC (R72 million) and SARS (R16.86 million). Trade creditors were owed R48.23 million of which R19.37 million was in arrears for 90 days or more. The group’s total assets were approximately R35 million while its total liabilities were approximately R250 million. The group employed about 800 people and was unable to pay salaries at the end of August 2004 or buy food and essential provisions for its hospitals.

62. On 2 September 2004 New Protector was placed in provisional liquidation at the instance of the IDC, and liquidation of its subsidiaries followed soon thereafter. The IDC agreed to provide New Protector with a loan of R27 million as liquidation expenses which would in that capacity be secured from other creditors.⁵⁰ At the hearing the intervenors suggested that the IDC had placed the company in liquidation simply to protect its R27 million against the claims of other creditors. ⁵¹ This does seem to have been a factor that the IDC had in mind when it decided to liquidate the company. But it was not the only one.⁵² The evidence clearly indicates that the IDC was not confident that New Protector would be able to repay its existing debts, let alone service any additional funding that it obtained from the IDC. Liquidation proceedings by a number of creditors were pending, none of the banks were willing to extend any further overdraft facilities and there was no money to pay its rent, buy food or pay salaries, it had been evicted from some of its pharmacy premises, it was continuing to trade in insolvent circumstances, and its directors were at risk of incurring personal liability.

63. A liquidator, Mr Theo van den Heever, was appointed on 2 September 2004. He set about trying to assess the extent of the financial distress, conducted a valuation process and ensured that the hospitals continued operations. He found that the company‘s financial records were in total disarray. There were no financial statements available after 30 June 2003. Trading results until 28 February 2005 showed a loss for the group of about R8 million. If interest to the IDC, which was owed but not paid, was taken into account then the group had made a loss of R16 million.⁵³ Moreover, post liquidation rent owed to the IDC but not yet paid over amounted to R22.6million.

64. Continued trading was only made possible by the injection mentioned above of R27 million in cash by the IDC. Moreover, it transpired during an investigation by chartered accountants SAB&T that the sale of Glenrand’s 65% stake in Old Protector had initially been made to Freefall, a company owned and controlled by Messrs Seelenbinder and Van Rensburg, and not to TradeWorx, as Glenrand had claimed in press announcements. The investigation also revealed that the shares of the operating companies that ought to have been transferred to New Protector had not in fact been transferred. The effect of this was that New Protector did not have any control over Old Protector or the subsidiary companies in which all the trading assets were held.⁵⁴ A transfer of shares could therefore not be effected to any interested buyer, nor could the group pursue any outstanding awards granted to Old Protector without protracted and costly litigation since ownership did not vest in New Protector.⁵⁵ The companies in which the hospitals were located were all sureties of each other’s and the pharmacies’ debts. Hence each of the companies was liable for the accumulated liabilities of the group and a loss in the one would attach to another even if the other was operationally in better financial health.

65. What is evident from the above is that significant efforts were made by the IDC to assist New Protector. The company itself, and its other shareholder, Tradeworx, clearly lacked the experience and expertise to reorganise its structure and operations without the ongoing assistance of the IDC.⁵⁶

66. In our view, there is no doubt that New Proteector was already a failed firm and was unable to reorganise itself successfully by the time it was provisionally liquidated. Subsequent to the liquidation it became apparent that New Protector’s finances and ownership structure were in greater disarray than initially anticipated. ⁵⁷ As the liquidator put it:⁵⁸

“So I don’t know what the definition is of a failing firm, I just know this company is in liquidation, it is badly in liquidation and post liquidation we are making massive losses because that’s just the way it is.”

Good faith effort and reasonable alternatives

67. Netcare argued that the liquidator had not been able to show that good faith efforts had been made to find reasonable alternatives posing a less severe danger to competition than did the proposed merger. According to Netcare there were offers on the table from other interested parties, including Netcare, which were reasonable alternatives to the Phodiclinics offer and which would lead to a less anti-competitive outcome. The CMS argued that the liquidator ought to have designed a process, in consultation with the IDC, to find a buyer independent of the three major groups.⁵⁹

68. Let us consider the liquidator’s efforts and the offers he received, bearing in mind that New Protector and its subsidiaries were already in provisional liquidation.⁶⁰

69. The liquidator was appointed on 2 September 2004. In accordance with his mandate and with the support of the IDC he embarked on finding a buyer for the assets of the group as a going concern, rather than selling them in a fire sale.⁶¹ He ensured that the hospitals and pharmacies continued trading, using the liquidation funds advanced by the IDC, while he attempted to find a purchaser for the businesses. Information packs were made available on 20 October 2004 and collected by various interested parties, including Medi-Clinic, Netcare and Dr Mini.⁶²

70. On 9 December 2004 Phodiclinics submitted a cash offer of R120 million, which was acceptable to the IDC and was subsequently accepted by the liquidator. (Phodiclinics had submitted an earlier cash offer of R90 million through Chestnut Hill, a Medi-Clinic/BEE consortium, for all the businesses dealt with in the information pack excluding the Kingsley hospital and pharmacy, and the liquidator had sought to improve on that offer.)⁶³

71. Prior to that, on 15 November 2004, the liquidator had received an offer from Tradeworx (“the first Tradeworx offer”). Tradeworx offered to purchase the assets for R44 739 076⁶⁴ plus 80% of the total stock value. However the structure of this offer required the IDC to provide further funding or guarantees, over and above its current exposure, of approximately R60 million. The liquidator testified that such an offer would not be approved by the Master of the High Court, as the final voice in the liquidation process, unless there was certainty that a majority of creditors would agree to the offer and there was certainty that the condition would be fulfilled.⁶⁵ The IDC declined to support the offer as it was not willing to increase its exposure.⁶⁶

72. The merging parties argue that the offer was also unreasonable in that the amount offered was less than half of what had been offered by Phodiclinics. Certainly the cash portion of the offer was approximately that of the fire sale valuation of the assets of the company.⁶⁷ Of critical importance, however, was that the offer was conditional upon the IDC’s agreement to provide further funding. The offer collapsed when the IDC declined to provide such further funding.

73. On 30 November 2004 Tradeworx submitted a revised offer (“the second Tradeworx offer”) in a letter addressed to the IDC directly and not to the liquidator, to purchase, inter alia, the IDC’s claim of R157 million against NPGH for R90 million, which apparently was later orally increased to R95 million in cash and R10 million in preference shares.⁶⁸ Although the liquidator was informed of this offer by the IDC, it was never submitted to him for consideration. Of critical importance is that this offer required the IDC to provide an even greater amount of finance to Tradeworx than had the first Tradeworx offer: the IDC was expected to guarantee an overdraft of R16 million and pay R64 million for 49% of the equity.⁶⁹ Once again, the offer was conditional upon the IDC providing funding or guarantees which it declined to give. Once again the offer – if it was that – collapsed.

74. Mr van den Heever testified that despite the fact that the liquidation was well advertised no other potential bidders registered any interest in the separate hospitals or the assets as a whole even after he had actively pursued and invited other potential bidders, including Netcare, to submit offers.⁷⁰ He informed all the creditors towards the end of November that an offer of R90 million was on the table but that he believed, based on past experience, that this offer could be increased to R120 million.⁷¹

75. Early in December 2004 Nulane Investments,⁷² a Netcare/BEE consortium, submitted an unsigned offer to the IDC (“the Nulane offer”) and not to the liquidator, to purchase the claims of the IDC against New Protector and Clinix for R90 million -- not the business of New Protector as a going concern. Clinix was not the subject of the liquidation process. The price of R90 million was not allocated between New Protector and Clinix. Hence the offer was considered vague and indeterminable in relation to New Protector.

76. The Nulane offer was also subject to various conditions precedent. It stated that Nulane would only be able to purchase the assets of New Protector it after it had obtained a definitive opinion from its tax advisors on certain matters. No indication was provided by Nulane of the amount which it would be prepared to offer for these assets. Then, it required the IDC to warrant that a dividend on its (the IDC’s claim) against New Protector would be at least R90 million, less the realisation costs contemplated in s89 of the Insolvency Act. However, the size of the dividend the IDC would get was dependent on how much Nulane itself was prepared to pay for Protector’s assets.

77. Of significance once again was that the offer was conditional upon the IDC’s involvement through commitments which the IDC declined to provide. This offer was never submitted to the liquidator for his consideration. Even if it had been, the offer was not capable of being accepted by him since the IDC had refused to grant the undertaking to Nulane on which it was dependent.

78. The IDC, acting on the liquidator’s advice, indicated that it would accept an offer of R120 million from Phodiclinics. On 9 December 2004 Chestnut Hill, the Phodiclinics vehicle, increased its offer to R120 million. The liquidator informed Tradeworx of the increased offer but Dr Mini indicated orally to the liquidator that Tradeworx would never offer R120 million.⁷³ A letter was also sent to Mr Dewald Dempers of Nulane Investments to ascertain if it was still interested in making an offer but he indicated that Nulane was not interested.⁷⁴

79. On 20 December 2004 the IDC indicated its acceptance of Phodiclinic’s offer of R120 million. However, during February 2005, the IDC invited Nulane Investments and Tradeworx to submit further and final proposals to purchase the assets of NPGH. The IDC embarked on this extended invitation after it had received a letter from Tradeworx complaining about the process that had been followed by the liquidator and referring to an earlier restructuring plan it had suggested to the IDC.⁷⁵ The IDC indicated in a letter dated 4 February 2005 that the final proposals had to be submitted by the close of business on 25 February 2005. In the same letter the IDC stated that the proposals should include irrevocable commitments from the offerors’ shareholders and financiers for the financing of the proposal. It also stated that should any of the offerors wish to take New Protector out of liquidation and propose a scheme of arrangement, a detailed proposal including offers to creditors should be included in the proposal.⁷⁶

80. The IDC had made it abundantly clear when rejecting all of the conditional offers that it did not wish to increase its exposure, and reinforced this stance by requiring irrevocable undertakings of financing from offerors.⁷⁷ It had provided the other two interested parties, Tradeworx and Netcare (whether or not in a consortium) a further opportunity to submit offers and also an opportunity to take New Protector out of liquidation.

81. On 25 February 2005, a restructured offer by Grand Bridge Trading (“the Grand Bridge offer”), consisting of the shareholders of Tradeworx, a BEE healthcare group named Community Hospital Group (Pty) Ltd, and Netcare, was submitted to the IDC. The Grand Bridge offer consisted of a purchase price of R130 million of which R90 million was a cash portion to be provided by Netcare. The balance of R40 million was to be paid by the IDC by abandoning the R27 million of post-liquidation funding it had provided and abandoning R13 million of any rights to a dividend paid on its claim.

82. This offer too required the IDC to maintain if not increase its exposure. The IDC requested Grand Bridge to guarantee a return of R40 million for the proposed equity stake of 10%, which it declined to provide.⁷⁸ In the liquidator’s view, this offer was not capable of being accepted because it was conditional upon the IDC paying the balance of the purchase price, which the IDC declined to do.⁷⁹

83. The offers made by Tradeworx, Nulane and Grand Bridge were all conditional upon the fulfilment of a condition that the IDC, in some manner or other, whether through equity, guarantee, cash, abandonment or waiver, contribute towards the purchase of the group by the offeror. None of these offers stated that should the conditions be unfulfilled by the IDC, the cash portion of the offer should be considered as a cash offer for the assets of New Protector. Once the IDC rejected the condition, the offer was no longer capable of being fulfilled and was therefore not capable of being accepted by the liquidator. The offers simply became void.

84. No evidence was led that any of these offerors returned to the liquidator, after being notified of the IDC’s rejection of the condition, with a revised offer excluding the involvement of the IDC,⁸⁰ even if lower in value than the Phodiclinics offer. Nor did the IDC receive any proposals amounting to a re-organisation of New Protector which would allow it to be taken out of liquidation.

85. If these offerors intended to make such offers they could have done so easily. There was ample time to do so and they were provided with many opportunities to do so.

86. Instead, the offerors, despite being aware that the IDC wished to limit or decrease its exposure rather than increase it and that it was not willing to accept such conditions,⁸¹ persisted in submitting proposals conditional upon the IDC’s involvement and all having the effect of increasing or maintaining the IDC’s exposure. Hence there was only one offer capable of being accepted by the liquidator, namely the final Phodiclinics offer.

87. In fact, Mr Du Plessis of the IDC also explained that in the IDC’s mind there was only one offer, and that even at the late stage when it arrived the IDC would have welcomed a feasible rescue plan:⁸²

“Let me repeat myself, we never decided to abandon. We’ve been waiting for a plan, which we never got and then all that we could do was to look at offers on the table, and there was the cash offer and therefore we proposed that eventually to go with that offer. If at any point in time there was a rescue plan that would’ve made sense, we would definitely have considered that, but it was never there…...”

88. The liquidator in consultation with the IDC thus decided to accept the R120 million cash offer of the Medi-Clinic consortium on 31 March 2004.

89. In our view the circumstances explained to us by Messrs Du Plessis and Theo Van den Heever at the hearing, and summarised above, clearly demonstrate that the liquidator took great pains and made more than reasonable efforts in good faith to elicit interest in the sale of the hospitals and to contact all potential buyers he could identify.⁸³

Assets will exit the market absent the acquisition

90. According to the Commission a representative of the IDC confirmed in a telephone conversation with it that it was highly likely that the New Protector assets would be broken up and disposed of piecemeal if the merger transaction did not proceed.⁸⁴

91. At the time that New Protector was liquidated it was losing experienced staff and specialists and was facing declining patient admissions.⁸⁵ But for the IDC’s liquidation funding it would have been unable to pay salaries and rent and provide food for its patients. It had been evicted from some of its pharmacies. Its accrued debts were unpaid. In short, it was unable to run its hospital business. Furthermore, it is clear that New Protector lacked not only the financial resources but also the operational expertise to run a hospital business successfully. Tradeworx and Dr Mini also lacked the requisite experience to turn around the business.⁸⁶ The IDC is an investor and is not in the business of managing the operations of a hospital. It is not surprising, therefore, that the IDC attempted to find an experienced partner such as Clinix to rescue NPGH. When that attempt failed, it sought to find a purchaser on a going-concern basis as a final rescue attempt. The liquidator described the situation as follows:⁸⁷

“… so they are not viable as they stand right now. I mean I’ve been following the argument with regard to the rise in prices if another medical group takes it over. Protector at its current level is not viable and had it not been for the Medi-Clinic in 2004 we would have most probably closed the business down long ago, because its only the fact that we had realised R 80 million more than fire sale value, that has vindicated us in saying let’s keep these businesses operational.”

92. The IDC stated on various occasions that it was not prepared to invest more funds in the business or to increase its exposure, and that it was merely keeping the business afloat because it wanted to preserve the hospitals as much as possible, since these were essential services, and only until it found a willing buyer for the businesses as a going concern. The liquidator indicated that he had been willing in the last resort to sell the assets piecemeal or in a fire sale.⁸⁸

93. Medi-Clinic testified that it would have to spend R 14.5 million in order to upgrade the infrastructure and to buy new equipment for the Protector hospitals, of which R 13.71 million related to essential upgrading of medical equipment and infrastructure and a further R800 000 to the adoption and upgrading of IT systems.⁸⁹

94. It is thus reasonable to conclude that, in order to keep these assets in the hospital market and to attract future referrals from specialists, New Protector urgently required operational expertise and a substantial capital injection. Only Medi-Clinic had offered unconditionally to provide both.

95. The CMS argued that if the Tribunal were to prohibit this transaction the IDC would continue to fund Protector through a fresh round of negotiations. However there was no evidence that the IDC would agree to continue funding Protector through any further round of negotiation, let alone the process which the CMS would wish to see, involving the building of consortia in which independent stakeholders would be predominant. Indeed the evidence suggests quite the opposite, namely that the IDC was not prepared to continue funding the company. In his witness statement Mr Du Plessis of the IDC described its position, should the merger be prohibited, as follows:⁹⁰

“I do not know whether there would in fact be alternative offers for the businesses if the current merger were prohibited. If there were, and if Netcare were to be involved, I anticipate that merger approval might be contested. I can foresee that the IDC would be reluctant to continue funding the Protector group where the duration and outcome were uncertain. And, of course, there is the risk of staff losses, migration of doctors and loss of patient loyalty.”

96. The liquidator puts it equally strongly in his witness statement, indicating that it is doubtful that the hospital could be kept afloat for another round of negotiations and competition approval:⁹¹

“…Upon rejection of the current merger there is a real prospect that the businesses will immediately close down (as they would have done nearly two years ago had the IDC not provided crises funding) and the assets will be sold off piecemeal by the liquidators.”

97. In fact the IDC, as early as September 2004, was contemplating whether New Protector should continue trading under the dire circumstances it found itself in or whether the assets should be sold.⁹²

98. We are satisfied that, absent the acquisition by Phodiclinics, the assets of NPGH are likely to exit the private hospital market.⁹³

99. Counsel for Netcare argued that it would be better for competition had the IDC accepted the Grand Bridge offer.

100. While both Netcare and the CMS urge us to consider alternative scenarios, this Tribunal can only assess this transaction on its own merits. We have found that Protector was a failing firm as contemplated in the Act and that but for the Phodiclinics offer, there were no other offers capable of being accepted by the liquidator. But even if we were to, for arguments sake, consider the Grand Bridge offer as capable of being accepted by the liquidator, from the CMS’ point of view the competition outcome would be much the same if any of the three, Medi-Clinic, Netcare or Life, had acquired Protector.

101. In any event this is speculation rather than evaluation. There was no other offer on the table capable of being fulfilled and accepted by the liquidator at the time when the liquidator accepted Medi-Clinic’s offer (“the liquidation stage”). This brings us to the proposal or offer tabled by Netcare and Tradeworx in the course of the hearing (“the competition evaluation stage”).

102. At the commencement of the proceedings in September 2006, Dr Mini advised the Tribunal in his witness statement that in the event that this transaction was prohibited, he had with the assistance of Netcare, obtained funding from Imperial Bank of R90 million to purchase New Protector’s business. In the course of the proceedings a document was put up to the Tribunal by Netcare indicating that the funding had increased to R100 million. No reasons were provided by either Dr Mini or Netcare why such an offer had not been made to the liquidator at the time when the Medi-Clinic offer was accepted.

103. In our view the existence and the terms of this belated offer are irrelevant to these proceedings⁹⁴ and the Tribunal does not regard it as a valid offer existing at the time when the merger transaction was concluded. “Reasonable alternatives” as contemplated in the Iscor case must exist at the time when offers are procured by the liquidator and a transaction is concluded, not at some indeterminate time in the future.

104. The EU and US guidelines require that a failing firm demonstrate, at the time when the transaction is being evaluated for competition implications, to the competition authority that it “has made unsuccessful good-faith efforts”. The word “has” is the singular present tense of the word “have”. In the context of the requirement that the merging parties prove the elements of the failing firm doctrine, the parties are required to show, at the time at which they seek approval from the Competition Authorities, that they “have made” good faith efforts to find reasonable alternatives to the offer they have accepted and for which they seek approval. The Act does not require parties to provide an undertaking that they “will continue to make” efforts to find reasonable alternatives. Such an interpretation would lead to an absurdity, since the authority would never be able to approve a transaction to which a party must continuously strive to find an alternative offer.

105. If Netcare and Dr Mini had been desirous of submitting an offer capable of being accepted by the liquidator (and not conditional upon the involvement of the IDC) they had ample opportunity and information at their disposal to do so during the period June 2004 to April 2005. They elected not to do so. Their failure to do so then, linked with the tabling of the belated offer in these proceedings, is nothing more than a cynical attempt to manipulate both the liquidation proceedings and the proceedings of this Tribunal.

106. At the time that the Phodiclinics offer was accepted by the liquidator there was no other offer capable of being accepted by the liquidator on the table, let alone an offer that was a reasonable alternative that would pose a less severe danger to competition than does the proposed merger.

107. We accordingly find that New Protector was a failing firm as contemplated in s 12A(2)(g) of the Act and that the merging parties have discharged the onus as required of them in the US test. We find further that there was only one offer that was capable of being accepted by the liquidator.

Effect on Competition in the Vaal Triangle and Kathu

108. In this section we deal with the concerns raised by Netcare first and thereafter consider those of the CMS.

109. Netcare alleges that Medi Clinic would engage in a number of exclusionary acts which would have an anti-competitive effect on Netcare specifically, as a competitor, and on competition in general in the local markets. We turn to consider each of these concerns.

Closure of Specialised units at Medivaal

110. Netcare submitted that Medivaal Hospital and Medi-Clinic were the only two hospitals in the Vaal Triangle that offered a range of specialised care facilities.

111. Ms Bester on behalf of Netcare explained the concern as follows. There was currently a referral practice amongst specialists in the region by which patients would be referred from a hospital which does not have adequate specialised facilities to another which has these facilities. Many patients from Vaalpark (Netcare) were referred to the Medivaal hospital because of its specialised care facilities and because it was, she testified, 16km closer than Medi-Clinic Vereeniging. Once the merger was implemented, and if the specialised care facilities at Medivaal were closed or rationalised in any way, she was concerned that doctors who currently admitted patients at the Vaalpark Hospital (Netcare) with the knowledge that they could be referred to Medivaal may cease doing so because of the cost and risk of transporting ventilated high care and ICU patients over a greater distance, to Vereeniging. The essential concern seems to be that that Vaalpark would suffer a decline in admissions and will be left out of the loop. Patients would be referred directly to Medi-Clinic Vereeniging.

112. Mr Swiegers on behalf of Medi-Clinic testified that there was no intention to close any facilities at Medivaal. In fact Phodiclinics had already committed itself to upgrading some of the facilities at Medivaal at a cost of R14.5 million.⁹⁵ No further evidence was put to us that there was any such intention on the part of Medi-Clinic. Even if Medi-Clinic did rationalise or close down any of specialised units at Medivaal we cannot see how any of the competition concerns raised by Ms Bester would arise. An evaluation of the distances between the hospitals shows that Medi-Clinic is not 16km further from Vaalpark than Medivaal but only 8km.⁹⁶ Patients would only be travelling an additional 8km and not 16km from Vaalpark to Medi-Clinic Vereeniging, thus reducing the risk foreseen by Ms Bester by half. In addition, some specialists already refer patients from both Medivaal and Vaalpark to the Medi-Clinic Hospital in Vereeniging.⁹⁷ Hence if a specialist decided to leave Vaalpark or Medivaal out of the referral loop he or she could do so now, prior to the merger.

Patient referrals

113. A second concern raised by Ms Bester was that Medi-Clinic would refuse to admit Vaalpark patients who are referred to Medivaal. In our view, there is no basis for such a concern. Medi-Clinic already accepts referrals of patients from Vaalpark to its Vereeniging hospital. There seems to be no commercial rationale for it to refuse referrals to Medivaal in the future. Mr Swiegers confirmed that Medi-Clinic would welcome any referrals since this was a source of revenue for the hospital and it was Medi-Clinic’s intention to ensure that Medivaal became a profitable operation on its own.⁹⁸

Refusal to Co-operate