Yesterday the Commerce Commission issued a statement of preliminary issues regarding Fletcher Building’s purchase of Higgins Group.
Commerce Commission approval is one of the final hurdles before the sale can go ahead. However, before the Commerce Commission can give clearance they must be satisfied that the sale will not substantially lessen competition in a market in New Zealand.
So what exactly does this mean?
A merger will substantially lessen competition if it gives a party the ability to raise prices above what they would be in a competitive market, or reduce non-price factors such as quality of service below competitive levels. If a merger will result in these adverse conditions to the extent that it will impact on consumers in a material way the Commerce Commission will consider the lessening in competition substantial.
Mergers that substantially lessen market competition are illegal under the Commerce Act 1986. However the Commerce Commission also has the power to authorise such transactions if they are satisfied that it will result in a benefit to the public despite the reduction in competition.
At this stage the Commerce Commission is still determining the effect the merger will have on market competition and have invited submissions on the topic. You can read the Commerce Commissions statements on the merger here.