The Australian Competition and Consumer Commission proposes to deny authorisation to the proposed acquisition by Wattyl (Australia) Ltd of architectural and decorative paint manufacturing and supply business of Courtaulds (Australia) Pty Ltd, the owner of Taubmans Industries Ltd.
"The ACCC, after detailed consideration of the arguments put forward by the parties, has concluded that the public benefit of the acquisition will not outweigh its anti-competitive detriment," ACCC Chairman, Professor Allan Fels, said today.
The Trade Practices Act provides that a merger is prohibited if it substantially lessens competition, unless it is authorised. The Act lists a number of factors to be taken into account in assessing competition. These include:
import competition; entry barriers; degrees of market concentration; countervailing power of market buyers; vertical integration; and removal from the market of a vigorous and effective competitor.
"The merger does not stand up well in the light of these criteria."
The reasons for the decision have been issued to the parties. Much of the material contained is confidential so the reasons, with confidential material excised, will be issued next week. A summary of the reasons is attached. .
"The Commission considers that the reduction in the number of big producers from three to two (Dulux and Wattyl) makes price increases more likely, to the detriment of consumers.
"The Commission considered also that a third, vigorous competitor would be removed from the market if the acquisition went ahead.
"The industry is marked by high entry barriers, vertical trade restrictions and a lack of import competition which make it unlikely that there will be a significant new entry in the near future."
The ACCC noted that the vertical agreements established between the major paint companies and resellers varied considerably but many restricted the opportunity of resellers to sell competing brands by imposing conditions such as minimum sales targets and/or shelf space requirements, prohibition on competition for certain customers and prohibitions on the sale of competing brands.
"The Commission believes the acquisition would strengthen the anti-competitive effects of these arrangements.
Professor Fels said the parties had argued that the transfer of Taubmans ownership from a British company to an Australian company was a public benefit.
"The ACCC does accept that there would be a public benefit from the transfer from foreign to domestic ownership. However, it does not outweigh the adverse effect on consumers of the likely higher prices they would pay for paint. Moreover, the purely economic benefits from the Australian ownership in this particular case are not so large as to outweigh the detriment from anti-competitive effects. Also the claim that there would be increased Australian control is somewhat equivocal since the British owners Courtaulds indicated it was likely to use the sale proceeds to increase its (foreign) participation elsewhere in the economy.
"The companies had argued that there would be efficiency gains after the acquisition, but the Commission did not accept that these would be passed to consumers but, rather, would be likely to flow to shareholders and employees. In any case, similar gains would be achieved by market rationalisation processes that could otherwise occur."
"The ACCC, after detailed consideration of the arguments put forward by the parties, has concluded that the public benefit of the acquisition will not outweigh its anti-competitive detriment," ACCC Chairman, Professor Allan Fels, said today.
The Trade Practices Act provides that a merger is prohibited if it substantially lessens competition, unless it is authorised. The Act lists a number of factors to be taken into account in assessing competition. These include:
import competition; entry barriers; degrees of market concentration; countervailing power of market buyers; vertical integration; and removal from the market of a vigorous and effective competitor.
"The merger does not stand up well in the light of these criteria."
The reasons for the decision have been issued to the parties. Much of the material contained is confidential so the reasons, with confidential material excised, will be issued next week. A summary of the reasons is attached. .
"The Commission considers that the reduction in the number of big producers from three to two (Dulux and Wattyl) makes price increases more likely, to the detriment of consumers.
"The Commission considered also that a third, vigorous competitor would be removed from the market if the acquisition went ahead.
"The industry is marked by high entry barriers, vertical trade restrictions and a lack of import competition which make it unlikely that there will be a significant new entry in the near future."
The ACCC noted that the vertical agreements established between the major paint companies and resellers varied considerably but many restricted the opportunity of resellers to sell competing brands by imposing conditions such as minimum sales targets and/or shelf space requirements, prohibition on competition for certain customers and prohibitions on the sale of competing brands.
"The Commission believes the acquisition would strengthen the anti-competitive effects of these arrangements.
Professor Fels said the parties had argued that the transfer of Taubmans ownership from a British company to an Australian company was a public benefit.
"The ACCC does accept that there would be a public benefit from the transfer from foreign to domestic ownership. However, it does not outweigh the adverse effect on consumers of the likely higher prices they would pay for paint. Moreover, the purely economic benefits from the Australian ownership in this particular case are not so large as to outweigh the detriment from anti-competitive effects. Also the claim that there would be increased Australian control is somewhat equivocal since the British owners Courtaulds indicated it was likely to use the sale proceeds to increase its (foreign) participation elsewhere in the economy.
"The companies had argued that there would be efficiency gains after the acquisition, but the Commission did not accept that these would be passed to consumers but, rather, would be likely to flow to shareholders and employees. In any case, similar gains would be achieved by market rationalisation processes that could otherwise occur."