Mergers and Acquisitions Guidelines

The purpose of these guidelines is to explain how the Commerce Commission assesses whether or not an acquisition of a firm’s assets or shares would be likely to substantially lessen competition in a market, and the process we follow when considering clearance applications.

This page should be read in view of amendments to the Commerce Act and the Commerce Act (Fees) Regulations made in August 2017. The Commission will update the page in the near future to reflect changes made under the Act.

The Executive Summary of these guidelines are laid out below with the headings linked to the associated chapter within the downloadable PDF version of the guidelines. The previous version of the Mergers and Acquisitions Guidelines published in 2003 can be found in the online archive.

Executive Summary

Mergers can bring many benefits to the New Zealand economy by making it possible for firms to be more efficient and innovative. However, some mergers also have the potential to lessen competition to the detriment of consumers.

Mergers that substantially lessen competition in a market are illegal under the Commerce Act 1986 (the Commerce Act), unless they are authorised.

Merging firms can apply to us for clearance or authorisation of a proposed merger.

  • We will clear a merger if we are satisfied that the merger would not be likely to substantially lessen competition in any New Zealand market.
  • We will authorise a merger if we are satisfied that the merger would be likely to result in such a benefit to the public that it should be permitted even though it may substantially lessen competition.

If we clear or authorise a merger, the merger cannot be challenged under section 47 of the Commerce Act, provided it is completed within 12 months from when we grant clearance or authorisation.

Substantial lessening of competition

We assess mergers using the substantial lessening of competition test. This test asks whether a merger is likely to substantially lessen competition by comparing the likely state of competition if the merger proceeds with the likely state of competition if the merger does not proceed.

A lessening of competition is generally the same as an increase in market power – the ability to raise price above the price that would exist in a competitive market (the ‘competitive price’),5 or reduce non-price factors such as quality or service below competitive levels.

Only a lessening of competition that is substantial is prohibited under the Commerce Act.

We consider a substantial lessening of competition is a lessening of competition that will adversely affect consumers in the market in a material way.

Mergers between competing suppliers

A merger between competing suppliers could substantially lessen competition in a market if:

  • the merger removes a competitor that provided a competitive constraint, resulting in the ability for the merged firm to profitably increase prices; or
  • the merger increases the potential for the merged firm and all or some of its remaining competitors to coordinate their behaviour so that output reduces and/or prices increase across the market.

We use market definition as a framework to identify and assess the close competitive constraints the merged firm would likely face.

In defining a market we assess whether goods or services are substitutable for each other as a matter of fact and commercial common sense.

Market shares and concentration measures following a merger can indicate levels of competition in a market. As such, we use market share and concentration indicators to identify those mergers that are less likely to raise competition concerns.

The two indicators that a merger is less likely to raise competition concerns are:

  • where post-merger the three largest firms in the market have a combined market share of less than 70%, and the merged firm’s market share is less than 40%; and/or
  • where post-merger the three largest firms in the market have a combined market share of 70% or more, and the merged firm’s market share is less than 20%.

The indicators are only initial guides. A merger not exceeding these indicators may still substantially lessen competition. Equally, a merger exceeding the indicators will not necessarily substantially lessen competition.

Whether any merger between competing suppliers is in fact likely to lessen competition will depend on a range of factors including:

  • how likely it is that existing competitors could expand their sales or new competitors could enter the market in a way that would constrain the merged firm; and
  • whether buyers have the ability to exercise a substantial influence on the price, quality or terms of supply they receive from the merged firm.

Mergers between competing buyers

Just like a merger between competing suppliers, a merger between competing buyers may substantially lessen competition if that merger gives the merged firm market power or greater

market power when buying products.

Buyer market power is the ability to reduce prices paid to suppliers to a level below the competitive price, leading to a decrease in output.

How we analyse the impact of a merger of competing buyers largely mirrors our analysis of a merger between competing suppliers.

Mergers between firms that are not competitors

A merger between firms who are not competitors (for example, at different levels of the supply chain, or between firms which sell complementary products) is less likely to result in a substantial lessening of competition than a merger between competitors. This is because such mergers do not lead to a direct loss of competition between the merging firms.

However, a substantial lessening of competition is still possible if:

  • the merger gives the merged firm a greater ability and/or incentive to engage in conduct that prevents or hinders rivals from competing effectively; or
  • the merger increases the likelihood of coordinated behaviour among firms.

Merger clearance process

These guidelines also set out how we assess applications for clearance, with the aim of completing clearance investigations as quickly and transparently as possible. This includes what to do pre-clearance, how to apply for clearance, how we investigate an application for clearance, publication of written reasons, and confidentiality.

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