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ComCom conditionally approves Knauf-USG merger

By Paul McBeth

April 23 (BusinessDesk) - The Commerce Commission has followed its Australian counterpart's lead in approving a merger of building products giants Knauf and USG, provided it sells its share of a trans-Tasman joint venture.

New Zealand's antitrust regulator cleared the deal on the proviso that Knauf will sell USG's 50 percent interest in USG Boral, either in total or just in Australasia, adopting the same undertaking as the Australian Competition and Consumer Commission. Knauf also agreed to divest certain other assets if a sale of the joint venture isn't achieved in a certain timeframe.

New Zealand's regulator said it focused on the proposed merger's impact in the national market for the manufacture, importation and wholesale supply of modular suspended ceiling systems.

"The commission considers that the divestment will ensure continued competition for the products that the parties supply, and therefore that the merger is unlikely to result in a substantial lessening of competition," it said in a statement.

Germany's Knauf agreed to buy Chicago-based USG for US$7 billion in June last year. The ACCC started its review of the transaction in September, and included a separate Knauf acquisition of Armstrong World Industries, which supplies modular suspended ceilings.

New Zealand's regulator received its merger application in December. On March 13, the commission wrote to Knauf and USG saying it was concerned the deal would affect the close competition between AWI and USG in the modular suspended ceilings market, and that there weren't viable alternatives.



Later that month, Knauf agreed to an undertaking with the ACCC to sell its stake in the USG Boral joint venture to an approved buyer. Again, the sale could be either in sum or just in Australasia. Failing that, the undertaking provides for unnamed assets to be sold to an approved buyer.

ASX-listed Boral has a call option to buy out its partner, and in February it said it was considering buying the Australasian plasterboard business and exploring ways to form a new joint venture with Knauf in Asia.

Knauf scaled back its New Zealand plasterboard operations in 2014 after struggling to gain traction in the local market, taking longer to secure approval for its products and facing resistance getting into stores that had established relationships with existing firms, such as Fletcher Building.

That was almost two years after being named a supplier in a government contract for the plasterboard in the Canterbury earthquake rebuild.

USG Boral Building Products NZ reported a loss of $219,000 on revenue of $19.1 million in the June 2018 financial year, compared to a loss of $955,000 on sales of $19.9 million a year earlier.


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