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Draft determination on wool scouring assets application

Media release

Issued 26 March 2015
Release no. 78

Commerce Commission issues draft determination on wool scouring assets application

The Commerce Commission has reached a preliminary view that it should allow Cavalier Wool Holdings to acquire 100 per cent of New Zealand Wool Services International's wool scouring business and assets.

The Commission has today published its draft determination on Cavalier Wool Holding's application under the Commerce Act for authorisation of the proposed acquisition.

"Our preliminary view is that the proposed acquisition would substantially lessen competition in the North and South Island wool scouring markets, and in the small domestic customer wool grease market. Cavalier Wool Holdings would essentially have a monopoly on the supply of wool scouring services and the supply of wool grease post-acquisition. However, at this preliminary stage, the Commission is currently satisfied that the public benefits of the acquisition would outweigh the loss of competition," said Commerce Commission Chairman Dr Mark Berry.

"The Commission considers there is the potential for Cavalier Wool Holdings to raise prices after the acquisition because of the loss of the constraining influence of NZ Wool Services International. However, as with our previous decision in 2011, we expect that the rationalisation of the wool scouring industry is likely to lead to lower production and administration costs, the freeing up of industrial sites, and lower ongoing capital expenditure requirements in the future."

The Commission is seeking submissions on its Draft Determination by 21 April 2015. Though the Commission is seeking submissions on any matters relevant to the Cavalier Wool Holdings application, there are specific issues it would like interested parties to consider. These include:

• Whether there are likely to be any other (market or non-market) impacts from the transaction that the Commission has not explicitly considered

• The likely ability of the merged entity to undertake price discrimination based on the destination of scoured wool, potentially by applying retrospective rebates

• The likely proportion of any wool scouring price increase that wool merchants would pass-through to growers and/or downstream buyers and the extent to which pass-through could alter the incentive for merchants to enter the wool scouring markets

• The likely scale of increased costs of production because of a lower level of competitive pressure on the merged entity.

As submissions will be posted on the Commission's website, if your submission contains confidential information please also provide a public version of your submission. Submissions can be sent to registrar@comcom.govt.nz with the reference 'Cavalier/NZWSI' in your email subject line, or to PO Box 2351, Wellington 6140.

A public version of the Draft Determination is available on the Commission’s website:www.comcom.govt.nz/business-competition/mergers-and-acquisitions/authorisations/merger-authorisation-register/

Background

Assessing a merger authorisation application

When we receive an authorisation application, we must first assess whether the merger would be likely to substantially lessen competition in a market. If we are satisfied that the merger is not likely to have that effect, then we would clear the merger.

If we cannot give clearance, we apply the public benefit test to determine whether to authorise the merger. We must authorise a merger where we are satisfied that the merger will be likely to result in such a benefit to the public that it should be permitted.

Our Authorisation Guidelines explain when we will authorise mergers and the process we use to determine authorisation applications: www.comcom.govt.nz/business-competition/guidelines-2/authorisation-guidelines/

Previous authorisation

In June 2011 the Commission granted Cavalier authorisation to acquire all of WSI’s wool scouring assets and 50% of the shares in the Lanolin Trading Company Limited (Decision 725). The proposed merger did not eventuate and the 2011 authorisation has now expired.

Cavalier no longer has an interest in the Lanolin Trading Company which ceased trading on 31 December 2013.

You can find more information here: www.comcom.govt.nz/business-competition/mergers-and-acquisitions/authorisations/merger-authorisation-register/detail/716


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