The Commerce Commission today cleared Montana Group (NZ) Limited to acquire up to 100 percent of the shares in Corban Wines Limited.
Commission Chair John Belgrave said that the Commission was satisfied that, should the proposal go ahead, Montana would not acquire or strengthen dominance in any market in New Zealand. In this case, the Commission considered the impact of the proposal in the national markets for the:
importation or production of red wine for distribution
importation or production of white wine for distribution
importation or production of sparkling wine for distribution
importation or production of fortified wine for distribution
distribution of wine, and
supply of wine producing grapes.
Mr Belgrave said that the Commission concluded that a combined Montana/Corbans would have large market shares in all six markets but would be constrained by other factors and would not be dominant in any market.
In the four wine markets, barriers for existing competitors to expand are low, imports account for a substantial amount of domestic consumption and are continuing to grow, and the merged entity would face effective competition from Australian distributors and the larger remaining New Zealand companies. Barriers to new entry are also low.
In addition, the three main supermarket chains have considerable buying power and can switch between suppliers.
Together, these factors mean that if the merged entity attempted to exercise market power by raising prices or offering less in terms of service, then buyers could switch to different suppliers and these suppliers could expand their production to meet demand.
In the market for supply of wine producing grapes, a large proportion of the merged entity's market share would be grown for it on contract and, on termination of existing contracts, grape growers could sell to other wineries.
In Marlborough, Hawkes Bay and Gisborne there are still large areas of as yet undeveloped land suitable for vineyards. The cost of buying and developing this land is not a barrier to entry.
Background
The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in any markets.
Parties can apply for a clearance, which the Commission will grant if it is satisfied that dominance is not acquired or strengthened. A clearance, if granted, protects an acquisition from court action under the Act.
