The Commerce Commission has issued its final determination approving Cavalier Wool Holdings’ (Cavalier) application to acquire New Zealand Wool Services International's (NZWSI) wool scouring business and assets.

Today’s decision follows on from the Commission’s draft determinations, released in March and October, which indicated it was likely to approve the application because of the public benefits of the acquisition.

Chair Dr Mark Berry said the Commission had considered and tested all the submissions and evidence presented to it since the application was lodged in October 2014 and was satisfied the acquisition should be permitted.

“The number of wool scouring operators in New Zealand has been reducing for some time in the face of a declining wool clip and increasing greasy wool exports to China. Many in the industry commented to us that further rationalisation, as this application represents, is inevitable,” Dr Berry said.

“As noted in our earlier draft determinations, this acquisition is likely to substantially lessen competition. Cavalier will essentially have a monopoly on the supply of wool scouring services and the supply of wool grease, and will be able to raise its prices when the merger is completed.

“However, our analysis has shown that there are public benefits to New Zealand from this acquisition proceeding. We expect that the rationalisation of the wool scouring industry is likely to lead to lower administration and production costs, the freeing up of industrial sites, and lower ongoing capital expenditure requirements in the future.”

Dr Berry said the Commission had also taken into account that the declining wool clip is causing a loss of scale and the threat of greasy exports is increasing.

A public version of the final determination is being prepared for release and will be available shortly on the authorisation register.

On Thursday 12 November, competitor Godfrey Hirst asked the High Court to temporarily prevent Cavalier completing the merger, so that it could file a formal appeal against the determination. As an appeal is expected, the Commission will not be able to provide further comment at this time.

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.

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). Godfrey Hirst unsuccessfully appealed the Commission’s decision to the High Court.

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.