Wednesday, 1 August 2018

They're like buses...

...none for ages, then five show up together.

In this case it's Section 47 investigations by the Commerce Commission, s47 being the bit of the Commerce Act that says, "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". In other words, the Commission taking a look at mergers that maybe should have gone through the Commission's clearance or authorisation processes, because they risked lessening competition, but didn't.

You don't have to go to the Commission for permission to acquire another business, nor do you have to tell them afterwards. If you believe your acquisition doesn't affect competition, you can just go ahead and do it. But we also run a voluntary notification system: the payoff for people who use it is that they get a 'clearance', which is protection against any legal challenge alleging that the acquisition damaged competition.

If you chance it, and don't bother, and the Commission trundles out one of its s47 investigations and finds you have actually bought out a meaningful competitor, you're in shtook. You're up for a biggish fine and a divestment of your precious new purchase.

Some countries run compulsory notification regimes for acquisitions: we don't, and it's a good thing too. It can turn into a make-work imposition: large numbers of mergers or acquisitions are perfectly fine from a competitive point of view, and having them jump through pointless hoops is a waste of everyone's time and money. If you can get a voluntary scheme going that only brings the problematic ones in for an okay, then you're on the right track.

Companies and their legal advisers generally know the ropes, and play the game. As a result the Commission rarely needs to spring into action with a s47 investigation. In my longish time at the Commission, I can only remember one - funnily enough, a bus case, when one of the Wellington bus companies tried to buy another - which finished up in the Court of Appeal in 2008 (judgement here). On that occasion the Commission won and the transaction had to be unwound.

Yet in the past year or so there have been five of the things, listed on this useful page on the Commission's website.

Two of them have been wrapped up: Vero Insurance sold its shareholding in Tower to Bain Capital in March this year, and in the office products market Platinum Equity, which had bought OfficeMax to add to its existing Winc business, sold off Winc in July.

Two are ongoing. An Australian company, First Gas Limited, bought the Bay of Plenty gas distribution assets of GasNet in March last year. GasNet is owned by the Whanganui District Council, and the chair of the Council's holding company was quoted in this article in the Herald as saying that "the money was in the bank, though the sale was still subject to the Commerce Commission for final approval". That sounds like a merger clearance application had been made, but it doesn't look as if it had been, because the Commission opened a s47 investigation on the spot. The other ongoing s47 investigation is very recent and was opened last month to take a gander at Fulton Hogan's purchase of the construction materials business of the Stevenson Group.

And the final one is headed for the High Court, with the Commission alleging that "Wilson Parking substantially lessened competition for the supply of car parking in the Boulcott Street area in central Wellington when it acquired the rights to operate the Capital car park" (full press release here).

Out of nostalgia I dug out the 2008 bus case. I'd forgotten, but it was a surprisingly lively judgement, with Justice Hammond in fine form. The judgement is mainly remembered for its analysis of s83 of the Commerce Act, which deals with being an accessory to a breach of s47. But it had other bright moments. Reacting to the appellants' 15-page Notice of Appeal, Justice Hammond said at [67] that
To my mind, this initial approach – essentially that the High Court Judge had got just about everything wrong in relation to liability – has become a somewhat unfortunate feature of appeals in commercial causes to this Court in recent years ... It may also be a sign of considerable weakness in an appeal if counsel are unable to identify with some real precision precisely where it is that the court appealed from is said to have gone wrong.
and I also liked his crack at [91] that "the essential points are quite apparent, even in the usual smog of a competition law case".

We don't know how the First Gas, Fulton Hogan and Wilson Parking investigations will fare. There might be nothing anti-competitive to any of them. We've only seen the Commission's side of the Wilson Parking story, for example, nor do we yet know whether there are actually any problems with First Gas or Fulton Hogan. If everyone is home free, that would be fine. But if it isn't fine, I'd be a bit concerned that what has been an effective regime of enlightened self-regulation might be fraying at the edges.

The Commission hasn't the time or the resources to monitor every business acquisition in the country. I'm sure it keeps a bit of a weather eye out for the bigger transactions in the news, and it gets some market intelligence from interested bystanders. I've even done my little bit myself: I'm temperamentally not a dobber-in but I did tell the Commission about one acquisition that I'd read about in the press and that had looked to me a bit suss. It wasn't.

Essentially, in sum, an important plank of our competition regime comes down to self-policing. It's one of those bits of social capital that lubricate the free flow of business and avoid the heavy-handed alternatives. Fingers crossed that this mini-outbreak of s47 investigations is just happenstance, and not a sign of a change in the times.

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