Business Acquisitions Guidelines explain when Commission would intervene
Published20 Oct 1996
The Commerce Commission has published a book, Business Acquisitions Guidelines, explaining when it would take court action against a business acquisition that might breach the Commerce Act.
"Any business considering an acquisition that appears to be within these guidelines should contact the Commission to discuss a clearance or authorisation," Commission Chairman Dr Alan Bollard said.
Dr Bollard said the Commerce Act prohibits business acquisitions that result in a dominant position being acquired or strengthened in any market. The guidelines explain how the Commission defines markets and how it assesses an acquisition's impact on competition in the relevant markets.
He said it is important to note that under the Act, high market share in itself is not enough to show that a company is dominant. However, market shares below certain levels are generally enough to show that a company is not dominant.
"In the Commission's view, it is generally unlikely that the merged company is dominant if it has less than 40 percent market share. In addition, if there is at least one competitor with 15 percent market share, then the merged company is unlikely to be dominant if it has less than 60 percent market share," Dr Bollard said.
"If an acquisition would lead to market shares greater than these 'safe harbours', then the company making the acquisition should very carefully consider applying for a clearance or authorisation."
The guidelines also explain the other factors the Commission will look at when investigating a business acquisition. Included are explanations of how it measures the ability of existing competitors to constrain the merged company, the impact of imports on the market, the likelihood of new companies entering the market and the constraints buyers and suppliers might have on the merged company.
The Commission would not make a decision to grant or decline a clearance or acquisition, or to take court action, based on market share alone. All the relevant factors would be carefully considered before the Commission decided if, in its view, a company had acquired or strengthened a dominant position.
Clearance
The Commission will grant a clearance if it is satisfied that a business acquisition would not result in dominance being acquired or strengthened in any market. If granted, a clearance protects the acquisition from court action under the Commerce Act.
Authorisation
An otherwise prohibited business acquisition can still be authorised if the Commission is satisfied that public benefits it brings outweigh detriments to competition. If granted, an authorisation protects the acquisition from court action under the Commerce Act.
Surveillance
The Commission monitors all business acquisitions in New Zealand and can investigate any if it is concerned that it might result in dominance being acquired or strengthened. If the acquisition has already gone ahead, then the company involved cannot apply for clearance or authorisation and the Commission can only investigate it as a possible breach of the Act.
Penalties
The Commission has two years within which to ask a court to order divestment of assets or shares. It has three years within which to ask a court to impose other penalties.
Courts can impose penalties of up to $5 million against a company and $500,000 against an individual. They can also impose a wide range of orders and injunctions.
Copies of Business Acquisition Guidelines are available from reception at the Commission's Wellington office, 7 floor, Landcorp House, 101 Lambton Quay, or by contacting its Communications Officer, Vincent Cholewa.
