Investigations Show Commission’s Commitment To Acting On Non-notified Mergers

The Commission has recently concluded cases involving three non-notified mergers that threatened to substantially lessen competition in their respective markets to the detriment of consumers.

The recently concluded cases include:

• Objective Corporation Limited’s completed acquisition of Master Business Systems Limited;
• Wilson Parking’s completed acquisition of the lease to operate the Capital Car Park in Wellington’s CBD; and
• Glenninburg Holdings Limited’s completed acquisition of Wallace’s rendering plant in Waitoa, Waikato.

The outcomes of these investigations ranged from obtaining penalties to reminding merger parties about their obligations under the law. The details of each case are below.

Commission Chair, Anna Rawlings, says that while mergers can bring many benefits to the economy by making businesses more efficient and innovative, some also have the potential to substantially lessen competition in the market to the detriment of consumers.

"Some mergers can substantially reduce competition in affected markets and reduced competition can result in consumers paying higher prices for goods and services and receiving lower quality goods and services than they would in a more competitive market. If merging parties do not notify us of their transactions in cases such as the three cases we have recently concluded, we can investigate whether they have substantially reduced competition in breach of section 47 of the Commerce Act,” says Ms Rawlings.

“In appropriate cases we take action to prevent anti-competitive transactions from going ahead, and seek divestments and penalties if mergers have already completed. We strongly encourage businesses that are considering mergers and acquisitions that raise potential competition issues to seek clearance or authorisation before proceeding.”

Section 47 of the Commerce Act prohibits acquisitions that are likely to substantially lessen competition. The Commission administers a voluntary notification regime that allows firms to apply for clearance or authorisation if they consider their planned acquisition could raise competition issues.

If firms do not apply for clearance or authorisation, the Commission can initiate an investigation into a proposed or completed acquisition under section 47. If the Commission considers that an acquisition is likely to have breached section 47, firms should expect the Commission to consider seeking divestments as well as pecuniary penalties.

Objective Corporation Limited/Master Business Systems Limited

In 2019 the Commission investigated Objective Corporation Limited’s (Objective) acquisition of Master Business Systems Limited (MBS). The two companies supplied software that assisted building consent authorities to run the building consenting system. Objective’s and MBS’s relevant brands include Objective Alpha (previously called AlphaOne), GoGet, and more recently Objective Build. MBS (and now Objective) was also a partner in the joint venture that supplies the Simpli portal for lodging building consent applications. Objective did not apply for clearance or authorisation of its acquisition of MBS.

The Commission reached the view that the merger had substantially lessened competition and brought proceedings against Objective alleging a breach of section 47. The proceedings were resolved with Objective admitting its acquisition of MBS breached section 47 as soon as the Commission filed its proceedings and the Commission and Objective jointly recommending an appropriate penalty to the High Court. The High Court imposed the recommended penalty of $1.54 million on Objective, with the maximum available penalty being $5 million. Since Objective’s acquisition of MBS, the maximum available penalties for breaching section 47 have increased significantly.

In reaching his decision, Justice Palmer described Objective’s conduct as serious, seeing the deliberateness of the conduct as an exacerbating factor. Objective’s acquisition of MBS was “part of a considered and concerted commercial strategy pursued over the course of at least a year”. At the time of the acquisition the Managing Director of MBS told Objective’s Chair and CEO that the acquisition “would effectively hand over the New Zealand market to Objective”.

Justice Palmer considered that “this knowledge should, at the least, have raised a red flag at Objective”.

The Commission and the High Court both considered whether a divestment would be viable to restore or maintain competition in the market. However given the bespoke nature of the GoGet and AlphaOne integrations and reliance on key personnel who will soon be retiring, Justice Palmer accepted that a divestment was not appropriate in this case. This is because a divestment would not necessarily restore or maintain competition, and risk interruptions to the supply of building consent software to customers.

The penalty of $1.54 million is significant in light of Objective’s estimated 2020 revenues from building consent software of $3.8 million.

Wilson Parking/Capital Car Park

In 2018 the Commission filed proceedings against Wilson Parking New Zealand Limited in respect of its acquisition of a long-term lease to operate the Capital Car Park in Wellington CBD. The Commission alleged that the acquisition had substantially lessened competition for the supply of car parking in the Boulcott Street area.

In 2020 the Commission reached an agreement with Wilson Parking to divest the lease to the Capital Car Park in addition to the leases of the Athol Crescent Car Park and 37 Boulcott Street Car Park, as well as pay a contribution to the Commission’s costs. Wilson Parking divested the leases of two carparks but was unable to divest the lease to the Capital Car Park. This was despite several extensions of time, and the efforts of an independent sales agent that was appointed under the terms of the divestment undertaking.

In the period since the acquisition, the demand for car parking in Wellington has significantly reduced as a result of the COVID-19 pandemic. Given this, and the unsuccessful efforts made by Wilson Parking and the independent sales agent to divest the Capital Car Park, the Commission agreed that Wilson Parking would be released from an obligation to complete this final divestment. Wilson Parking also provided a further contribution to the Commission’s costs.

Glenninburg Holdings Limited/Waitoa rendering plant

In 2020 Glenninburg Holdings Limited (GHL) acquired the Waitoa rendering plant, used to process animal by-product materials into finished products such as meat and bone meal and tallow. This acquisition raised concerns because the Waitoa plant was the only independent rendering operation (ie, a rendering plant that was not connected to a meat processor) in the North Island that was not owned by interests associated with GHL and/or its directors. GHL’s rendering plant in Tuakau had competed with the Waitoa plant in the past.

The evidence obtained by the Commission during the course of the investigation, however, did not suggest the acquisition was likely to have substantially lessened competition. Although the Tuakau plant had competed with the Waitoa plant in the past, it had not been competing at the time of the acquisition and while possible that the Tuakau plant would have competed with the Waitoa plant again in the future, the evidence did not suggest that this was likely. Also, during the course of the Commission’s enquiries the Tuakau plant burnt down and will not be re-built.

The Commission also considered that Glenninburg’s joint owner of the Tuakau plant was likely to take action to constrain GHL’s ability to coordinate the operation of the Tuakau and Waitoa plants. For these reasons, the Commission discontinued its investigation, but engaged with GHL, its directors and Wallace to illustrate the potential competition issues arising in circumstances such as these and of their obligations to avoid business acquisitions that have the effect, or likely effect, of substantially lessening competition.

Background

On 5 May 2022 the maximum penalty for a company found to have breached section 47 was increased from $5 million to the greater of $10 million; three times the commercial gain resulting from the contravention; or if the commercial gain cannot be readily ascertained, 10% of the defendant’s turnover in each accounting period in which the contravention occurred. The Commission considers the amendment emphasises the seriousness of contraventions of section 47, and the need for penalties to act as an effective deterrent. The potential fine for an individual that breaches section 47 is up to $500,000.

Because they can result in permanent and harmful structural changes to markets, the detection, prevention and punishment of anti-competitive non-notified mergers is an enduring priority for the Commission. In addition to the Objective/MBS and Wilson Parking cases mentioned above, other examples of enforcement action taken in the courts by the Commission in recent years includes:

• Platinum Equity / OfficeMax, where the Commission joined Complete Office Supplies’ High Court injunction proceedings to prevent Platinum Equity LLC acquiring OfficeMax Holdings Limited. Platinum subsequently agreed to divest Winc NZ Limited; and
• First Gas Limited, where the High Court ordered First Gas to pay $3.4 million after it admitted engaging in anti-competitive conduct when acquiring the Bay of Plenty gas distribution assets of GasNet Limited.

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