Merger
approval will not be blocked on the sole ground major benefits might flow to
foreign investors. The Court of Appeal
upheld Commerce Commission authorisation for the 2014 merger of Cavalier Wool
with NZ Wool Services creating a domestic monopoly in wool scouring where 45
per cent of the benefit would flow to Australian investor Lempriere.
Gains for foreign investors can amount to
a positive benefit for New Zealand consumers: preserving a domestic particpant
in a competitive global market and encouraging foreign investment as part of an
open liberal economy.
Carpet manufacturer Godfrey Hirst
challenged the 2014 merger. Post-merger,
Lempriere intended to consolidate wool scouring plants in New Zealand reducing
operations from five sites to two. Cost
savings were expected from improved economies of scale. Godfrey Hirst complained creation of a local
monopoly for wool scouring reduced competition with the price of scoured wool
for carpets likely to increase.
The Court of Appeal said amendments to
the Commerce Act emphasised economic benefits could arise on the creation of a
monopoly. Resulting cost minimisation
might achieve two benefits: firstly cost savings which could ultimately enable
the new monopoly to better compete against off-shore rivals and second a
macro-economic benefit of preserving New Zealand’s reputation as an attractive
destination for foreign direct investment which will lead later to further
inflows of investment capital. Profits
earned by overseas investment in New Zealand are not to be regarded as a drain
on the local economy.
Godfrey
Hirst v. Commerce Commission – Court of Appeal (30.11.16)
17.004