Commission Clears Caltex To Acquire Challenge

Commission Clears Caltex To Acquire Challenge, Subject To Divestment Of Some Petrol Stations

The Commerce Commission today cleared Caltex New Zealand Limited to acquire up to 100 percent of the shares in Challenge Petroleum Limited, subject to Caltex divesting some petrol stations.

The petrol stations to be divested are those in areas where only Caltex and Challenge operate retail sites, and where the nearest competitor is at least 10km away.

Commission Chair John Belgrave said that after the proposed acquisition Caltex would still be the smallest of the four major oil companies in New Zealand and would not be dominant in any market.

Mr Belgrave said that the High Court and the Court of Appeal defined dominance in the Port Nelson Limited case. Justice McGechan stated, and the Court of Appeal upheld, that:

"Dominance includes a qualitative assessment of market power. It involves more than 'high' market power; more than mere ability to behave 'largely' independently of competitors; and more than the power to effect 'appreciable' changes in terms of trading. It involves a high degree of market control."

Mr Belgrave said that the effect of this definition is that to be dominant a trader must be able to set prices or conditions without significant constraint by competitor or customer reaction.

"The Commission is satisfied that constraint from the other oil companies would prevent a combined Caltex/Challenge from acquiring or strengthening dominance in any market," Mr Belgrave said.

In the past two years Gull Petroleum (NZ) Limited has entered the retail market and established a network of 20 sites in the North Island. Gull has told the Commission that it intends to expand its operations.

All industry participants spoken to by the Commission stated that there is an intense level of competition, and they do not anticipate the proposed merger to have a significant impact on competition.

In this case the relevant markets are the:

* national market for the importation, refining and national bulk distribution and storage of petroleum products * national market for the distribution and wholesale supply of petroleum products, and * regional markets for the retailing and marketing of petroleum products.

Public copies of the Commission's full decision are available from the Commission's website, www.comcom.govt.nz, and from its Wellington office level 7 Landcorp House 101 Lambton Quay.

Background

Caltex made its application before amendments to the Commerce Act took effect on May 26.

Before the amendments, the Act prohibited business acquisitions that resulted in dominance being acquired or strengthened in a market. The amended Act prohibits acquisitions that substantially lessen competition (SLC) in a market.

The Commission took the view that applications on hand at May 26 should be investigated under the law as it was when the applications were made.

Yesterday, the Auckland High Court released a judgment upholding the Commission's view and ruling that the dominance test should be applied.

Mr Belgrave said that it is important to note that the Court's decision applies to only those applications on hand at May 26. Applications made on or after May 26 will be investigated under the SLC test.

Ends

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