The Commerce Commission has warned dairy companies intent on a fast-track mega-merger that they cannot sidestep the Commerce Act.
And it has confirmed it is investigating this week's merger between Dairy Group and South Island Dairy Co-op (Sidco) because of the giant co-op's potential to dominate the Dairy Board.
Thecommission's acting chairman, Mark Berry, said on Friday he would expect the industry to seek authorisation for a mega co-op which would control almost all the country's milk production.
The act prohibited business acquisitions that resulted in dominance in a market.
It also, however, allowed for authorisation if sufficient public benefit was identified.
"This is not a process that can be done overnight," he said. Commission spokesman Vince Cholewa said the commission was aware of the mega co-op idea from past investigations but was prompted to speak out after an announcement by the Kiwi dairy company this week.
On Wednesday, Kiwi called for the formation of a mega co-op by June 1, the start of the new dairy season.
The move came immediately after Dairy Group shareholders voted for a merger with Sidco creating a company with 58 per cent of the industry.
Mr Berry said the mega co-op proposal "involves huge change in one of New Zealand's biggest industries.
"If the proposal continues the Commission will investigate it thoroughly and will make a carefully thought-out decision." The authorisation process would take a minimum of 60 days - past June 1.
Despite Sidco choosing to merge with Dairy Group, the commission is continuing to consider authorisation of a Kiwi-Sidco merger after an application by Kiwi.
It is also investigating the Dairy Group-Sidco merger because of its potential for dominance in the national market of dairy products for export - those sold by the Dairy Board.
The commission explained its interest in a draft determination on the Kiwi-Sidco merger where it said a large company could dominate the board by indirect means.
"While industry comments are inconclusive about the level of influence the larger cooperatives may have over the Dairy Board, this may well be an industry where how the business is actually done, by whom, and the informal links and ties between the industry participants, are the mechanisms whereby any influence may accrue to the cooperatives," the commission said.
"It is the special circumstances of the industry that may lead to a finding of substantial influence."
