ComCom action sees companies penalised after acquisitions lessened competition
Alderson Logistics Limited and associated company Supa Shavings (2022) Limited have been ordered by the High Court to pay a $420,000 penalty for acquisitions that substantially lessened competition in a market.
Commerce Commission Chair Dr John Small says the outcome serves as an important reminder that acquisitions of this nature are illegal in New Zealand.
“The Commerce Act is clear – in New Zealand, a person or business must not acquire assets of another business or shares if the effect, or likely effect, is a substantial lessening of competition in a market,” Dr Small says.
In May 2022, Alderson Logistics and Supa Shavings (2022) acquired the assets of ABS Carriers Limited and Supa Shavings Limited. Those companies supplied wood shavings, used for bedding, to chicken and goat farmers in the Waikato region.
Pre-acquisition, ABS Carriers and Supa Shavings were the largest suppliers of bulk wood shavings in the region. They had a combined market share of at least 70-80 per cent.
“The companies were each other's closest competitors and, when those assets were acquired, that competition was eliminated,” Dr Small says.
“The Commission was not notified about the acquisition, so this case is an important reminder that while our clearance regime is voluntary, we can take action against mergers or acquisitions where clearance was not sought.”
In her judgement, Justice Gardiner noted Alderson and Supa Shavings (2022) accepted that they gained commercially from the acquisitions for around 13 months, until a shavings supply shock in June 2023 affected their profitability from that date.
The companies also accepted that, up until around November 2024, other suppliers in the same markets supplied on an ad hoc basis only, had small market share and did not constrain Alderson and Supa Shavings (2022) in those markets - “including from increasing prices above competitive levels.”
The companies could not point to their lack of profitability to establish that they had not gained from the acquisitions without undertaking an analysis of what their profit would have been if had they had not occurred and competition continued, Justice Gardiner noted.
Dr Small says it is vital businesses understand their obligations under the Commerce Act.
“Businesses should also give due consideration to whether a transaction ought to be flagged with the Commission,” he says.
The Commission plays a crucial role in ensuring New Zealand’s markets remain competitive.
“Ultimately, we perform this critical function to the benefit of all Kiwi consumers and businesses,” Dr Small says.
The case marked the first time the Commission had asked a business to divest the acquired assets.
“While divestment was unsuccessful in this case, this shows the array of enforcement actions available to us,” Dr Small says.
Background
Section 47 of the Commerce Act prohibits acquisitions that are likely to substantially lessen competition.
The Commission administers a voluntary notification regime that allows firms to apply for clearance or authorisation if they consider their planned acquisition could raise competition issues. While the regime is voluntary, if firms do not apply for (or obtain) clearance or authorisation, the Commission can initiate an investigation into a proposed or completed acquisition under section 47.
If the Commission considers that an acquisition is likely to have breached section 47, firms should expect the Commission to consider seeking divestments as well as pecuniary penalties.
In 2022, the maximum penalties for breaches of section 47 increased. If a person breaches section 47 they may be directed to dispose of assets or shares and/or be subject to a penalty of up to $500,000 for an individual or, in the case of a firm, the greater of $10 million; or three times the commercial gain resulting from the contravention or, if the commercial gain cannot be readily ascertained, 10% of turnover.