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NZ Merger Clearance Applications On The Decline

NZ Merger Clearance Applications On The Decline

Predictions of dramatically reduced merger approvals by the Commerce Commission due to the stricter competition regime introduced in New Zealand in July 2001 do not appear to have been justified. However, the actual numbers of companies seeking merger clearances have decreased since 2001, according to leading trans-Tasman law firm Phillips Fox.

The latest edition of the Phillips Fox “Merger Monitor” detailing statistics of the 23 applications for clearance considered by the Commerce Commission in 2003, reveals a steady decline in applications since 2001.

Phillips Fox corporate lawyer, Mark Williamson said there were around 37 applications for merger clearances in 2001, compared with 28 in 2002 and 23 in 2003. Only 1-2 applications each year during that period were declined.

“There is the possibility that due to the stricter regime some companies are simply not proceeding with proposed mergers rather than wasting time applying for a clearance that will almost certainly be declined. However that is not the Phillips Fox experience,” Mr. Williamson said. “I believe it is more likely that the lesser number of clearances flow from a small reduction in merger and acquisition activity levels during 2002 and 2003. 2001 was obviously a big year with a number of companies seeking to obtain clearance prior to the law change."

Mr Williamson said 2004 could repeat the pattern, with only 11 companies seeking merger clearance from the Commerce Commission in the first six months of 2004.

He has advised companies considering mergers that, due to the reduced numbers of applications and the associated decline in work levels, he believed the Commerce Commission would be focusing on investigation of acquisitions giving rise to potential competition concerns which had been undertaken without a clearance.

“It is not mandatory to seek a clearance but a party acquiring shares or assets of a business without a clearance risks significant penalties (including being forced to divest the shares or assets) if the Commerce Commission believes the acquisition will, or be likely to, have the effect of substantially lessening competition in a market,” he said.

He noted that the New Zealand statistics were possibly relevant to Australia, which is considering adopting a formal merger clearance procedure similar to the New Zealand system. ACCC Chairman Graeme Samuel recently outlined a plan for making Australia's informal merger clearance process more formal.

“Commentators have suggested that a formal regime will result in more mergers being declined by the Australian Competition and Consumer Commission,” Mr. Williamson said. To date, this is not the New Zealand experience.”

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