Regulator missing “big picture” on Cavalier’s wool scouring monopoly
by Paul McBeth
Aug. 22 (BusinessDesk) – The Commerce Commission erred in approving a bid by Cavalier Wool Holdings to create a wool scouring monopoly, and needed to look at the bigger picture, the High Court heard today.
Counsel for carpet-maker Godfrey Hirst NZ Ltd., Pheroze Jagose of Chapman Tripp, told the High Court in Wellington the antitrust regulator’s decision was too narrow in focusing on the net benefits and costs, and needed to “step back” to see if reducing competition was good for New Zealand consumers.
Jagose said the authorisation can’t come down to a quantitative assessment, and needed a “value judgement” to be made as to whether such a monopoly was for the good of the nation.
Under the Commerce Act, there are two steps for the antitrust regulator to take. The first is a qualitative assessment, which is then followed by a big picture approach. Jagose said the commission had completed the first of these tests, but hadn’t considered the wider ramifications.
“The concern about antitrust is all about trying to avoid concentration of market power,” he said. “What we’re asking is at the very cusp of what competition law is about.”
Jagose said that under the amendments to the Commerce Act in 2001, there was a very high bar set for establishing public good in authorisations where competition would decline.
“Is the benefit such a benefit that the acquisition should be permitted? It isn’t simply by finding a net benefit,” he said.
Justice Jillian Mallon and lay member Kerrin Vautier, who sits on the board of Fletcher Building and the Reserve Bank, are hearing the case, which is set down for five days.
In June, the Commerce Commission approved authorising CWH, which is 50% owned by carpet maker Cavalier Corp. and 25% apiece by Accident Compensation Corp. and private equity investor Direct Capital Investments, buy the scouring assets of NZ Wool Services International.
Its analysis found a net benefit of $13.5 million to the country over five years. Godfrey Hirst filed an appeal at the end of June, and Jagose said both price and non-price aspects were behind its decision.
“Everyone understands in statute, case law, practice and policy what the concentration of market power does to undermine market conduct,” he said. “When one looks at any acquisition which crosses the substantial lessening of competition threshold, we know we are talking about something that’s contrary to what the (Commerce) Act is seeking to promote.”
Jagose said WSI’s assets are “something Cavalier values significantly enough for the offers they have given,” even as its own profitability and market share have grown.
WSI’s assets are up for grabs because its two biggest shareholders, Plum Duff Ltd. and Woolpak Holdings, with a combined 64% holding, are in receivership. Both companies have ties to Timaru businessman Allan Hubbard, and went into receivership last December.
Last month, Wool Equities Ltd. outed itself as a rival bidder for WSI’s wool scouring assets. The Commerce Commission, CWH, WSI and Wool Equities are all respondents in the case.