Takeover flurry on the cards

By DANIEL RIORDAN

Corporate New Zealand is set for more takeover activity after the High Court handed the country's monopoly watchdog a rare setback.

In an appeal decision, the court has ruled that the Commerce Commission got it wrong when it blocked Southern Cross Healthcare's takeover of Aetna Health.

The commission had allowed the country's dominant health insurer access to its target's business only if it divested Aetna's medical insurance policies.

But although the watchdog had based its decision on concerns of market dominance, the court said an 80 per cent market share wasn't a threat to competition because barriers to market entry were low and the market defined by the commission was too narrow.

Competition law experts said the cracks revealed in the commission's work were likely to encourage other companies to pursue takeovers they might otherwise have let go, and to more readily appeal against commission decisions that initially went against them.

Mary Peters, a partner in law firm Russell McVeagh, said the appeal decision would give most encouragement to companies in industries with low barriers to entry, regardless of market dominance concerns.

The setback is the commission's first in its key domain of business acquisitions in almost a decade.

In 1991, the NZ Co-operative Dairy Company successfully appealed against the commission's blocking of its takeover of Waikato Valley Co-op Dairies. The High Court found that contrary to the commission's finding, "there would be no strengthened dominance in the relevant town milk market."

In 1992, Foodstuffs (Wellington) Co-operative Society had the High Court overturn the commission's ruling that its takeover of supermarkets in Hawkes Bay would give it market dominance.

That was a somewhat pyrrhic victory as a competitor nipped in during the legal wrangle and acquired the supermarkets Foodstuffs had sought.

Another rare setback for the commission also came in 1992 when Telecom went all the way to the Court of Appeal to overturn a commission decision barring it from acquiring certain radio frequencies.

Alan Lear, a partner in law firm Buddle Findlay, said the commission rarely lost in court, where it was regarded as an expert body.

Appeals are expensive - in the Southern Cross case both parties hired QCs for the three-day hearing, which was organised at short notice soon after the New Year holidays.

Unsuccessful appellants would probably have to pay the commission's costs as well as their own.

Chapman Tripp partner Lindsey Jones said the decision might encourage parties not to bother applying for clearance but to go ahead and make their takeover moves anyway, risking the wrath of the commission in court in the belief that their chances of defeating the watchdog had improved.

Lindsey Jones said more appeals would improve the law as decisions by the commission untested in court tended to become de facto law.

"It would be helpful to have more Commerce Act litigation so we can get some real law."

Whatever cracks have been revealed in the commission's work, they come too late for Shell, which this month dropped its appeal against a commission ruling that it could buy Fletcher Energy only if it divested its Taranaki oil and gas assets.

Shell spokesman Antonius Papaspiropoulos said Shell had moved on.

Commission executives were unavailable for comment as they digested the court's decision and considered their options.

The court decision was greeted with disbelief by Southern Cross' biggest competitor, Tower Health.

Consumers' Institute chief executive David Russell was also disappointed.

"We still believe the buyout will give Southern Cross market dominance in that sector, and probably put pressure on premiums."