First acquisition approved under new test

By Phil Boeyen, ShareChat Business News Editor

Monday 30th July 2001

The Commerce Commission has made its first acquisition decision under new test criteria, giving the go-ahead for Australian company PMI Mortgage Insurance to acquire CGU Lenders Mortgage Insurance.

The decision is the first under the amended Commerce Act, which requires that competition not be substantially lessened by an acquisition.

Previously the Commerce Act prohibited business acquisitions that resulted in dominance being acquired or strengthened in any market.

"The first few decisions we make under the SLC (substantially lessened competition) test will obviously be important to the parties involved," says Commission chairman John Belgrave.

"They will also be important as guides to all businesses considering acquisitions."

The Commission says the first decision gives important indications of how the Commission can view the power that buyers of goods or services can have in a market.

"In this case it was the strong countervailing power of buyers together with the potential for expansion by current market participants that led the Commission to clear the application."

The relevant market is the national New Zealand market for wholesale supply of lenders' mortgage insurance to lenders of residential mortgages. The main buyers of services in this market are banks and other financial institutions.

The Commission says the buyers, particularly the large banks, have strong countervailing power through their ability to switch to alternative suppliers or to insure themselves.

"While the alternative suppliers are currently small in New Zealand, they have the ability to expand significantly in New Zealand due to the strong position of their parent companies in Australia and the banks' ability to switch.

"For these reasons the Commission was satisfied that, despite a merged PMI/CGU having a high market share, the proposal would not result in a substantial lessening of competition in any market in New Zealand," says Mr Belgrave.

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