The Commerce Commission has today released draft supplementary guidelines on how merger and acquisitions applications involving the 'failing firm' argument will be treated.

While the Commission's current Mergers and Acquisitions Guidelines outline a general approach to assessing arguments of failing firms in the clearance context, it is timely to provide more specific guidance on what information should be provided to the Commission in an application involving a failing firm argument.

The Commission has not yet seen an increase in applications using a failing firm argument, but anticipates that there may be more as a result of the current economic climate.

"The Commission's normal competition analysis applies to failing firms situations and we will not be relaxing our standards when considering such cases," said Dr Mark Berry, Commerce Commission Chair. "However, the Commission recognises that it is useful for businesses to have clear guidance on the supporting evidence that the Commission will need to assess this type of application," said Dr Berry. "It is important to note that the circumstances of claims that a firm is failing vary and that each case is assessed on its facts."

The Commission is seeking feedback from interested parties on the draft guidelines. After considering feedback received, the Commission will publish finalised guidelines.

The draft guidelines can be viewed on the Commission's website www.comcom.govt.nz under Clearances.

Submissions can be made in writing to:

Failing firms guidelines feedback

Commerce Commission,

PO Box 2351, Wellington

, 6140

 

or by email to failingfirms@comcom.govt.nz by 5 pm, 6 August 2009.

Background

Merger and Acquisition applications. Section 47 of the Commerce Act 1986 (the Act) prohibits the acquisition of a business or shares if it would, or would be likely to, substantially lessen competition. Section 66 of the Act allows the Commission to clear a business acquisition if the Commission is satisfied that the acquisition will not have, or would not be likely to have, the effect of substantially lessening competition in a market. If the Commission cannot be so satisfied, it must decline the application.

'Failing Firm' argument. The Commission can receive applications for clearance that claim an otherwise anti-competitive merger or acquisition should be cleared by the Commission because one or more of the parties is failing, or has a failing division, and its assets will otherwise leave the market. This is commonly called the 'failing firm argument'.