Second draft determination on wool scouring assets

Commission issues second draft determination on wool scouring assets application

The Commerce Commission has released a second draft determination maintaining its preliminary view that it should allow Cavalier Wool Holdings (CWH) to acquire New Zealand Wool Services International's (NZWSI) wool scouring business and assets.

The Commission released its preliminary view on CWH’s application in March 2015 and has since received further information and submissions from interested parties on various matters. The second draft determination has been released to allow interested parties the opportunity to submit on this new information.

Commission Chair Dr Mark Berry said having considered the new information, the Commission is still of the view that the public benefits of the acquisition would outweigh the loss of competition.

"Our preliminary view is that the proposed acquisition would substantially lessen competition in the wool scouring markets, and in the small domestic customer wool grease market. CWH would essentially have a monopoly on the supply of wool scouring services and the supply of wool grease post-acquisition. We therefore consider there is the potential for CWH to raise prices after the acquisition because of the loss of the constraining influence of NZWSI,” Dr Berry said.

“However, at this preliminary stage, the Commission is currently satisfied that the public benefits of the acquisition would outweigh the loss of competition.”

The Commission is seeking submissions from the applicant and interested parties on its second draft determination by 15 October 2015 on the following specific issues:

• The revised relevant markets to include separate markets for wool scouring for domestic use
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• The ability of the merged entity to increase scouring prices for wool destined for export and for domestic users
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• The Commission’s preliminary views on CWH’s redundancy claims, NZWSI’s capex claims and the value to be attributed to the sale of Kaputone, Clive, and Whakatu
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• The Commission’s view on whether Clive will be sold absent the merger (also see addendum to the second draft determination)
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• The Commission’s amended view on the treatment of wealth transfers to and from non-New Zealanders from price increases.
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All submissions will be posted on the Commission's website. If a submission contains confidential information, parties must also provide an acceptable public version. This will allow all interested parties with equal opportunity to cross submit. Submissions containing confidential information that are provided without an acceptable public version will not be accepted.

Cross submissions will be due by 22 October 2015.

Submission can be sent to registrar@comcom.govt.nz with the reference Cavalier/NZWSI in the subject line of your email or to PO Box 2351, Wellington 6140.

A public version of the second draft determination is available on the Commission’s website.

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.

More information can be found here: www.comcom.govt.nz/business-competition/mergers-and-acquisitions/authorisations/merger-authorisation-register/detail/716

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