Watchdog spells out rules on mergers

By BRIAN FALLOW

The Commerce Commission has issued guidelines on how it will interpret new and tougher legislation governing mergers and acquisitions.

Prior to amendments passed last week, mergers or acquisitions which established or strengthened dominance in a market were forbidden - unless the anti-competitive detriments were outweighed by a public benefit.

The amended Commerce Act now adopts the lower, Australian test: would this acquisition substantially lessen competition in a market?

Accordingly, and following months of consultation, the commission has changed its "safe harbour" thresholds.

These are levels of market share - after the proposed acquisition - below which the merged entity is unlikely to raise competition concerns.

Previously a merged entity was not likely to be considered dominant if it had less than 40 per cent of a market, or less than 60 per cent provided there would be another competitor with at least 15 per cent.

Under the new safe harbour rules the first question is whether it is a concentrated market, that is one where three firms have 70 per cent or more of the market. If it is, then the merged entity must have no more than 20 per cent. If it is not, a concentrated market the merged entity is allowed up to 40 per cent.

Commission chairman John Belgrave said: "If an acquisition is outside the safe harbours then we ask further questions about it in order to test whether there is likely to be a substantial lessening of competition in a market.

"It does not mean the acquisition necessarily breaches the act."

As is the case already, if a proposed acquisition falls outside the safe harbour guidelines, the commission will then look at whether market power is constrained by imports, or the threat of new entry into the market, or by "countervailing power" on the part of firms supplying or buying from the merged entity.

The safe harbour measure is less restrictive than the corresponding Australian one, the commission says, because New Zealand is smaller and generally has more concentrated markets.