Lawyers back watchdog's stance

Stevenson Group's masonry businesses were bought by Fletcher Building in February. Photo / Paul Estcourt

Competition lawyers have backed a Commerce Commission decision to retain a tough stance over clearing acquisitions of failing companies.

The commission yesterday released draft guidelines for merger and acquisition applications involving failing companies and said it would not relax the rules despite the recession.

"The commission's normal competition analysis applies to failing firms situations and we will not be relaxing our standards when considering such cases," chairman Mark Berry said.

Companies can receive clearance for the acquisition of another business that might otherwise be seen as anti-competitive if they can show the company is failing or has a failing division and would not survive if the acquisition or merger did not take place.

The most recent example was Fletcher Building's acquisition of Stevenson Group's Whangarei and Auckland masonry businesses in February.

While the commission had not yet seen an increase in applications using a failing firm argument, it expected to do so as a result of the current economic climate.

"The commission recognises that it is useful for businesses to have clear guidance on the supporting evidence that the commission will need to assess this type of application," Berry said.

Minter Ellison Rudd Watts competition lawyer Andrew Matthews said it was right for the commission to maintain standards.

"I think it is being clear - I don't think it is a big deal. The commission's approach is right. It formalises things."

Matthews said the statement reminded companies they needed to provide evidence of the acquisition target being in failure.

The problem was very real as many companies did not like to commit to paper that they were failing.

There had not been many buyouts in New Zealand involving failing companies so far but he expected them to increase.

"We are clearly seeing more distressed sales - although not many have raised competition issues."

Buddle Findlay lawyer Tony Dellow said failing companies did not warrant any special rules.

"People talk about the failing company doctrine - to me it doesn't change anything [if a company is failing]. But I think this clears things up for business people if it is something they are thinking of doing."

Submissions on the draft guidelines close on August 6.