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In a landmark decision, New Zealand Bus Limited has been found guilty of breaching section 47 of the Commerce Act, which prohibits acquisitions that are likely to substantially lessen competition.

In the Wellington High Court, Justice Miller ruled that NZBL can not acquire the 74% share of Mana Coach Services that it does not already own, because the acquisition would be likely to result in a substantial lessening of competition in the Wellington bus services market.

Justice Miller found that NZBL had breached the Commerce Act on 15 March when its offer to buy the shares became unconditional. Ian Waddell and Kerry Waddell, the vendors of the Mana shares, had also breached the Act at that time by being a party to the prohibited acquisition.

Costs have been awarded to the Commission and a further hearing will consider what penalty should be imposed.

"This decision ensures that the potential for competition in the Wellington bus market is preserved," says Commerce Commission Chair Paula Rebstock.

"Had this acquisition gone ahead, NZBL would have owned every major bus company in Wellington," Ms Rebstock says. "This would have been bad news for competition, and for consumers."

"It would also have been bad news for Wellington ratepayers, who subsidise bus services through the Greater Wellington Regional Council." Ms Rebstock says.

Judge Miller agreed with the Commission that, while NZBL and Mana are not competing vigorously at present when bidding for Council contracts, competition could increase if an alternative owner purchased Mana. That competition would have the potential to bring down prices and reduce the subsidy paid by ratepayers.

The case is also important for the credibility of the voluntary clearance regime, Ms Rebstock says.

Companies can apply to the Commission to get clearance for an acquisition to proceed.

NZBL applied for clearance in Jaunary but withdrew that application in March when the Commission raised concerns.

"If companies come to the Commission for clearance and we express concerns, they must realise that simply withdrawing their clearance application and going ahead with the acquisition is not a responsible strategy," Ms Rebstock says.

"The Commission will seek to stop acquisitions that are likely to substantially lessen competition," says Ms Rebstock.

"The decision also gives important guidance to all parties associated with a proposed acquisition or merger," says Ms Rebstock.

"There are strong incentives for vendors to make clearance from the Commission a condition of their agreement to sell."

"There are also strong incentives for parent companies to ensure that their subsidiaries are not risking a breach of the Commerce Act when planning acquisitions."

Background

New Zealand Bus

Limited is a wholly owned subsidiary of Infratil Limited. It is the 100% holding company for Wellington City Transport Limited, Cityline (NZ) Limited and Transportation Auckland Corporation Limited, which operate the New Zealand bus businesses known as Stagecoach Wellington, Cityline Hutt Valley and Stagecoach Auckland.

Mana Coach Services

is a family owned and managed business that operates Mana Coach Services and Newlands Buses. Mana Coach Services operates commuter and passenger bus services within north Wellington, Porirua and the Kapiti coast, as well as a service to the Paraparaumu rail line for Wellington city connections, and coach charter business.

Commerce Act.

Under section 47 of the Commerce Act, a person must not acquire assets of a business or shares if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market.

NZBL's application.

When planning acquisitions that could affect competition in a market, companies can apply to the Commerce Commission for clearance. NZBL made such an application in January, but withdrew it in March, when it became apparent that the Commission had concerns about the proposal. The Commission then applied to the Court to stop the acquisition from occurring while the case was considered by the High Court.

Infratil.

The decision establishes that a parent company that directs an acquisition by a subsidiary will breach the Commerce Act if it has sufficient knowledge of the competitive environment in which the proposed acquisition is taking place, and of the implications of the transaction. In this case, the Court considered that because Infratil had only recently acquired NZBL and become involved in the Wellington bus market, it did not have the necessary level of knowledge. The Court therefore held that Infratil was not liable as an accessory.