The Commerce Commission has blocked Southern Cross Medical Care Society's proposed takeover of Aetna Health in New Zealand.
Commission chairman John Belgrave said the regulatory watchdog was not satisfied the takeover would not result in Southern Cross acquiring or strengthening a dominant position in medical insurance.
It was doubtedthat the bigger company would face effective constraint from existing or potential competitors if it tried to raise prices significantly, or reduce services or benefits.
Moreover, the proposed acquisition would remove Southern Cross' main competitor.
"Thank God," was the reaction from Consumers Institute executive director David Russell.
He said the decision was good news for consumers.
"Southern Cross was mounting its argument on a much broader market than just the health insurance market, lumping in the public sector as well. They were placing great emphasis on their not-for-profit status.
"But in the end I believe it came down to the simple fact they were going to have something approaching 80 per cent of the health insurance market."
Mr Russell said he would not be surprised if Southern Cross reapplied to the commission, but setting its sights lower than the complete Aetna business.
"They're very keen on getting hold of the computer system behind the Aetna business. And no matter what happens, Aetna is backing out of New Zealand and there will be pickings around the edges."
Southern Cross made its move after Aetna's United States parent sold its financial services arm to Dutch-based Ing Groep for $US7.7 billion ($17.7 billion) and announced its intention to divest its international activities.
Southern Cross is by far the country's biggest health insurer with an estimated 63 per cent of the $500 million market (by revenue). Aetna is number two, with about 18 per cent, although Southern Cross disputes the relevance of these figures.
The market leader argued in its submission that low barriers to entry and low switching costs for consumers would restrain the impact of any increase in dominance.
In its application for clearance a month ago, Southern Cross said it did not believe any dominance issues arose, but had made its application "as a matter of prudence due to the impression that might be created by the merged entity's market share."
Southern Cross marketing manager Paul Regtien said last night that the company was awaiting full details of the decision and would respond next week if necessary.
