ComCom likely to approve Cavalier, NZ Wool Services to merge scouring operations

The Commerce Commission is likely to allow Cavalier Wool Holdings and New Zealand Wool Services International to merge their two wool scouring operations, which would ultimately make a monopoly of wool scouring services in New Zealand.

The antitrust regulator found in its draft determination that while the merger would see NZX-listed Cavalier Corp have an essential monopoly on wool scouring, the public benefits outweighs any loss of competition, as rationalisation of the industry would lead to lower costs, free up industrial sites and reduce ongoing capital expenditure requirements. Cavalier Wool Holdings is New Zealand's largest wool scouring business and the deal will see Cavalier Corp shrink its ownership from 50 percent to 27.5 percent in the scouring business.

"Our preliminary view is that the proposed acquisition would substantially lessen competition in the North and South Island wool scouring markets, and in the small domestic customer wool grease market," said Commerce Commission Chairman Mark Berry. "The Commission considers there is the potential for Cavalier Wool Holdings to raise prices after the acquisition because of the loss of the constraining influence of NZ Wool Services International. However, at this preliminary stage, the Commission is currently satisfied that the public benefits of the acquisition would outweigh the loss of competition."

In 2011, the antitrust regulator approved Cavalier's move to become a scouring monopoly, which was taken to the High Court by carpet maker Godfrey Hirst, which deeply opposed the move. The renewed application will follow the same argument as its 2011 one, Cavalier said in October when it announced the proposed merger.

The merged scouring business will be 55 percent owned by Cavalier, private equity firm Direct Capital and the government's Accident Compensation Corp, with WSI parent Lempriere taking a 45 percent stake. After the merger, pending final regulatory approval, WSI will separate out its scouring business to become a stand-alone wool exporter as a commission customer of Cavalier Wool Holdings.

The deal comes after Lempriere poured cold water in 2012 on Cavalier's takeover aspirations for WSI's scouring assets to build a wool scouring monopoly, and insulate itself from the threat of offshore scourers, particularly those in China.

The Commission is seeking submissions on its draft determination by April 21.