PMI Cleared To Acquire CGU Under SLC Test

Media Release

Issued 30 July 3001/88

Commission's first business acquisition decision under substantial lessening test: PMI cleared to acquire CGU

The Commerce Commission today made its first business acquisition decision using the substantial lessening of competition (SLC) test under the amended Commerce Act.

Commission Chair John Belgrave said that the Commission was satisfied that there would not be substantial lessening of competition in any market should PMI Mortgage Insurance Australia (Holdings) Pty Limited acquire CGU Lenders Mortgage Insurance Limited.

"The first few decisions we make under the SLC test will obviously be important to the parties involved," Mr Belgrave said, "and they will also be important as guides to all businesses considering acquisitions."

The PMI/CGU decision gives important indications of how the Commission can view the power that buyers of goods or services can have in a market.

In this case it was the strong countervailing power of buyers together with the potential for expansion by current market participants that led the Commission to clear the application.

The relevant market is the national New Zealand market for wholesale supply of lenders' mortgage insurance to lenders of residential mortgages. The main buyers of services in this market are banks and other financial institutions.

The buyers, particularly the large banks, have strong countervailing power through their ability to switch to alternative suppliers or to insure themselves. While the alternative suppliers are currently small in New Zealand, they have the ability to expand significantly in New Zealand due to the strong position of their parent companies in Australia and the banks' ability to switch. "For these reasons the Commission was satisfied that, despite a merged PMI/CGU having a high market share, the proposal would not result in a substantial lessening of competition in any market in New Zealand," Mr Belgrave said.

Background

In May the Commission published guidelines to the new business acquisitions regime-Practice Note 4, The Commission's Approach to Adjudicating Business Acquisitions Under the Changed Threshold in Section 47-a Test of Substantially Lessening Competition. These are available from the Commission's website, www.comcom.govt.nz, and reception at its Wellington office.

Copies of the Commission's decision to clear PMI's application will be available soon.

ENDS

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