Archive | Commerce Commission

Commission sets out preliminary issues on Daiken takeover of Dongwha MDF business

The Commerce Commission published a statement of preliminary issues yesterday relating to Daiken NZ Ltd’s proposed acquisition of Dongwha NZ Ltd.

It’s a standard but comprehensive list of competition checks & balances (see the link below).

Daiken lodged its application on 3 October. The commission has invited submissions by Thursday 2 November and is scheduled to make a decision on the application by 30 November. However, the decision date could be extended.

Daiken is the New Zealand subsidiary of Daiken Corp, a Japanese company specialising in the manufacture & supply of wood-based construction materials. In New Zealand, Daiken manufactures & supplies medium density fibreboard (MDF) from a plant it operates in North Canterbury.

Laminex gets supply agreement

Under a product supply agreement with Daiken, Laminex would continue to be supplied with raw MDF from the Southland plant.

Daiken said the agreement would enable Laminex to continue to compete with it and with New Zealand’s third raw MDF manufacturer, Nelson Pine Industries Ltd, in the supply of raw MDF to customers in New Zealand.

Daiken submitted that Dongwha NZ was a “fringe competitor” in the supply of raw MDF within New Zealand because it had long been primarily export focused and, setting aside its sales to Laminex, accounted for a very small proportion of sales in New Zealand.

Daiken also submitted that the proposed merger would not give rise to a material lessening of competition in the manufacture & supply of raw MDF in New Zealand because:

  • Nelson Pine is the largest competitor in the New Zealand market at present, and would continue to exert significant competitive constraint on the merged entity, including by being able to divert significant volumes destined for export to New Zealand customers if market opportunities were to arise;
  • raw MDF is sold in a global commodity market, meaning that prices to New Zealand customers are pinned to conditions in that global market, rather than by standalone competitive dynamics in the New Zealand market;
  • overseas manufacturers of raw MDF in Australia, Asia & South America could import & supply raw MDF in New Zealand if New Zealand manufacturers were to price raw MDF above global market levels;
  • substitutability of MDF for particle board placed additional competitive constraint on the supply raw MDF in New Zealand;
  • new entrants could be incentivised to enter;
  • customers are highly price conscious, push back in negotiations on price increases, and are willing to switch suppliers if they can obtain a cheaper price; and
  • the merger would not materially change the existing degree of competition in New Zealand because the product supply agreement Daiken & Laminex would enter into ancillary to the merger would ensure that Laminex has sufficient volumes to continue to compete, as market opportunities arise, with the merged entity & Nelson Pine in the sale of raw MDF in New Zealand.

The parties

Dongwha is 80% owned by Dongwha International Co Ltd (incorporated in Hong Kong, controlled by Dongwha Group of South Korea) and 20% owned by Fletcher Building Ltd subsidiary Laminex Group (NZ) Ltd. In New Zealand, Dongwha manufactures & supplies MDF from a plant it operates in Southland.

Its minority shareholder, Laminex, buys MDF from Dongwha for its own wood products business in New Zealand. Laminex also on-sells some of the MDF it purchases from Dongwha to other parties.

Dongwha bought the New Zealand business from US timber company Rayonier Wood Products LLC in 2005, and Laminex bought 20% from Dongwha in November 2007.

Link:
Commerce Commission, clearances register, Daiken-Dongwha

Attribution: Commission release & website.

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Vector to repay consumers after acknowledging breach

Vector has reached a settlement with the Commerce Commission for an unintended breach of its regulated price path.

The breach arose in April 2013 when Vector restructured its prices to enable residential consumers to benefit from either a low user fixed charge or standard user tariffs.

Vector chief financial officer Dan Molloy said on Friday: “While Vector was legally prevented from unilaterally switching consumers onto the optimal tariff for their usage pattern, it relied on electricity retailers to identify & proactively request Vector to switch those consumers who would benefit from a low use fixed charge tariff.

“Vector assumed that competition in the electricity retail market would ensure retailers selected the most beneficial tariffs for their customers. This did not occur. The Commerce Commission noted that this has highlighted the need for consumers to check that, if eligible, the low use tariff is being used as it could save households up to $200/year.”

Mr Molloy said Vector would return $13.9 million to Auckland electricity consumers by reducing the amount of revenue it recovers over 2 regulatory years starting in April 2018. In the 2018 financial year, Vector’s electricity revenues (& ebitda) will be $900,000 lower than they would otherwise have been, and the rest will be spread across the 2019 & 2020 financial years. The $13.9 million to be returned to consumers also includes accumulated interest of $3.8 million.

Attribution: Company release.

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Commission rules on Juken J-frame labelling

The Commerce Commission has made 3 determinations regarding labelling of J‐frame laminated veneer lumber manufactured by Juken NZ Ltd.

The commission said this week Juken’s J-frame lumber:

  • didn’t meet the requirements of NZS 3640
  • was incorrectly labelled as H1.2, and
  • may not have complied with AS/NZS 1604.4 because it doesn’t carry an “E” label signifying that it’s an envelope treatment.

The commission said its decision was about labelling and it made no judgment about the durability & performance characteristics of Juken’s J‐frame product or whether it was fit for purpose.

The commission added: “J‐Frame has a BRANZ appraisal and a CodeMark certificate. These are unaffected by the Commerce Commission decision. This means that J‐Frame can be used as an alternative solution where the H1.2 hazard class applies. If J‐Frame is specified in plans for a use in situations where the H1.2 hazard class applies, then a building consent authority is obliged to accept this, on the basis of the CodeMark certificate.

“If consented plans specify ‘H1.2’ and a code compliance certificate has not yet been issued, then a consent variation will be needed if the builder uses (or proposes to use) J‐frame.”

Attribution: Commission release.

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Updated: Commission files 29 charges against Steel & Tube over mesh

Published 7 June 2017, updated 8 June 2017:
The Commerce Commission said on Wednesday it had filed 29 charges against Steel & Tube NZ Ltd for making false & misleading representations about its steel mesh product known as SE62.

Steel & Tube responded, which appears at the foot of this article.

The commission said it had filed the charges in the Auckland District Court under the Fair Trading Act. They relate to conduct between 1 March 2012 & 6 April 2016 and were part of the commission’s wider investigation into steel mesh.

The commission said in today’s release: “The charges allege that Steel & Tube made misleading representations on their batch tags, batch test certificates, advertising collateral & website that SE62 was 500E grade steel, when it was not. The charges also allege that false & misleading representations were made by Steel & Tube that SE62 steel mesh had been independently tested & certified, when it had not. This included using the logo of an independent testing laboratory on SE62 test certificates when the product had not been tested by the laboratory.”

The commission also filed charges this year against Timber King Ltd & NZ Steel Distributor Ltd in relation to false & misleading representations about 500E steel mesh. The commission said these companies had entered guilty pleas and would be sentenced in August. The commission expects to lay charges against one other company, and is continuing its investigations into one more company.

Background

The commission began investigating after receiving a complaint on 5 August 2015 raising concerns about the validity of claims being made by 3 companies selling steel mesh in New Zealand. This complaint related to problems with a particular size of 500E mesh, which is ductile steel mesh often used in concrete slabs like house foundation slabs & driveways.

The Australia/NZ standard (AS/NZ 4671:2001) mandates various physical characteristics required of steel mesh, and the testing methods that must be applied during their production. In April & May 2016 the commission entered into enforceable undertakings with 3 companies that ensured 500E grade steel mesh could only be sold once it passed specific stringent testing.

In November 2016 the Government made changes to testing requirements, increasing the number of samples which need to be tested, clarifying how that testing is done and requiring testing be done by internationally accredited testing laboratories. The changes were fully implemented on 30 May 2017.

Steel & Tube responds

Steel & Tube said it had been co-operating with the commission throughout its investigation and was aware of the decision to file charges: “The commission’s charges against Steel & Tube in regards to compliance with the testing standard relate to the application of testing methodologies only, not the performance characteristics of the seismic mesh.

“Steel & Tube is working with the Commerce Commission to reach an appropriate resolution of the charges, however cannot comment further as the matter is before the court. Steel & Tube continues to stand behind its products and, since April 2016, all of the company’s seismic mesh has been tested externally by accredited laboratories.”

Earlier stories:
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Commission release.

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Manawatu decision lifts price-fixing penalties to $17.95 million

The Commerce Commission’s court action against Manawatu real estate agents involved in a national price-fixing agreement has been completed.

Property Brokers Ltd and its director, Tim Mordaunt, were ordered to pay penalties totalling $1.5 million in a judgment issued on Monday following a High Court hearing in March.

The commission filed proceedings in the Auckland High Court in December 2015 for alleged price-fixing & anti-competitive behaviour by 13 national & regional real estate agencies, a company owned by a number of national real estate agencies and 3 individuals. The commission also issued warnings to an additional 8 agencies for their role in the conduct.

The proceedings related to alleged conduct in 2013 & 2014 by the national head offices of 5 major real estate companies, and separately by agencies in Hamilton & Manawatu. The alleged conduct occurred in response to Trade Me’s change from a monthly subscription fee to a per-listing fee for properties advertised for sale on its website.

The commission has now concluded its Manawatu & national proceedings and has agreed settlements with Hamilton-based Success Realty Ltd & Lugton’s Ltd. Court-imposed penalties to date total $17.925 million.

Settlements have not been agreed with Monarch Real Estate Ltd (trading in Hamilton under the Harcourts banner), Online Realty Ltd (trading under the Ray White banner), Lodge Real Estate Ltd and 2 individuals in the Hamilton proceedings. These proceedings remain before the court.

The commission filed proceedings in Palmerston North in December 2015 alleging Property Brokers Ltd, Manawatu (1994) Ltd & Unique Realty Ltd breached the Commerce Act by agreeing with each other, and other Manawatu agencies, that they would each pass on to vendors the full cost of advertising a property on the Trade Me website. The commission filed proceedings against Mr Mordaunt for his role in facilitating the agreement.

Property Brokers & Mr Mordaunt reached settlements with the commission admitting that their conduct breached the Commerce Act prohibition on price fixing. The company was ordered to pay a penalty of $1.45 million and Mr Mordaunt $50,000.

Unique Realty Ltd (Jocelyn & Max Vertongen) & Manawatu (1994) Ltd (Stephen Allen) were earlier fined $1.25 million each for their roles in the Manawatu agreement.

Justice Murray Gilbert said in his ruling released on Monday: “Price-fixing agreements fundamentally undermine the proper functioning of competitive markets and have the potential to substantially erode the benefits the public is entitled to expect from them.

“Such agreements are antithetical to the purpose of the Commerce Act, which is to promote competition in markets for the long-term benefit of consumers within New Zealand. For these reasons, participation in price-fixing agreements is regarded as serious misconduct and must be met with a penalty that is sufficient to deter other market participants from engaging in this type of conduct.”

Link:
Commerce Commission enforcement response register, including judgments

Attribution: Judgment, Commerce Commission release.

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Aon seeks clearance to buy Fire Protection Inspection Services

Aon NZ has applied to the Commerce Commission for clearance to acquire the business & assets of Fire Protection Inspection Services Ltd.

Both companies provide a range of fire protection services nationally, including inspection of fire sprinkler & fire alarm systems. The commission said Aon, in its role as a sprinkler system certifier, also certifies new sprinkler systems for compliance with the specified New Zealand standard and approves & lists contractors certified to install or inspect sprinkler systems.

Attribution: Commission release.

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Commission turns down media merger

The proposed merger of NZME Ltd & Fairfax NZ Ltd’s media operations would have widespread impacts, and the Commerce Commission said today it intended to decline to authorise it.

That’s not the end of the matter, though. This was a draft determination and the commission is seeking submissions on it, closing Tuesday 22 November.

The commission outlined numerous impacts in its decision release – nearly 90% of the print media market controlled by one organisation, the 2 biggest news websites, one of the 2 biggest commercial radio companies.

I viewed the merger as a defensive tactic in light of the declining appeal of print media, hastened by the declining quality of the products (with rare aberrations).

The commission highlighted single control of 2 local newspaper networks. Since Fairfax took control of my local newspaper, the product has only loosely resembled a newspaper and has been seriously outdone by 2 startups owned by one woman.

The commission also made special mention of the merged entity introducing a paywall for at least one of its websites, without saying (in its release, I haven’t got through the decision yet) why this would be a special problem. It might be simply the likelihood of price increases (from zero to whatever), or something to do with the control of news.

I like the idea of major media hiding behind paywalls because that opens the market to other players, and online there are plenty.

Below, the commission’s release in full:

Commission proposes to decline NZME/Fairfax merger 

The Commerce Commission has today published its draft determination on NZME and Fairfax’s application under the Commerce Act seeking authorisation to merge their media operations in New Zealand. The Commission’s preliminary view is that it should decline to authorise the merger.

The proposed merger would bring together New Zealand’s two largest newspaper networks and two largest news websites. The Commission has assessed the impact of the merger on competition in both advertising and reader markets for a number of media platforms as well as the overall impact on quality and plurality (diversity of voices).

The Commission’s preliminary view is that the merger would be likely to substantially lessen competition in a number of markets, including the markets for premium digital advertising, advertising in Sunday newspapers and advertising in community newspapers in 10 regions throughout New Zealand. It also considers the merged entity would be likely to increase subscription and retail prices for Sunday newspapers and introduce a paywall for at least one of its websites.

Chairman Dr Mark Berry said the merger would result in one media outlet controlling nearly 90% of New Zealand’s print media market.  This would be the second highest level of print media ownership in the world, behind only China.  The merged entity would also control New Zealand’s two largest news websites – nzherald.co.nz and stuff.co.nz – which together have a population reach more than four times larger than the next biggest domestic news website. Further, the merged entity would own one of New Zealand’s two largest commercial radio companies.  All this would result in an unprecedented level of media concentration for a well-established liberal democracy.

“Our preliminary view is that competition would not be sufficiently robust to constrain a multi-media organisation, potentially with a single editorial voice, that would be the largest producer of national, regional and local news by some margin in New Zealand,” Dr Berry said.

“NZME and Fairfax each play a substantial role in influencing New Zealand’s news agenda. Competition between the parties drives content creation, increases the volume and variety of news available in New Zealand and assists with objectivity and accuracy in reporting. Our view is that the removal of this competitive tension would likely lead to a reduction in the quality and quantity of New Zealand news content both online and in print, with potential flow-on effects in television and radio.

“We recognise that the merger would achieve net financial benefits through organisational efficiencies. However, while we cannot quantify the detriments we see with respect to quality and plurality of the media, we consider that detriments resulting from increased concentration of media ownership in New Zealand would outweigh the quantified benefit we have calculated. In particular, the potential loss of plurality has weighed heavily in our draft decision. On this basis, we propose to decline the application.”

Link:
NZME Ltd and Fairfax New Zealand Ltd – Authorisation draft determination – 8 November 2016

Attribution: Commission release.

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Hawkins’ finance companies guilty on loan contract enforcement

2 finance companies headed by former Equiticorp boss Allan Hawkins have been found guilty in the Auckland District Court on 106 charges relating to enforcement of loan contracts. Sentences haven’t been imposed yet.

Mr Hawkins’ son Wayne was also a director of the 2 finance companies at the time of the events before the court, but resigned in February after setting up his own finance company, ABC Loans Ltd, last December.

Judge David Sharp dismissed another 19 charges due to a lack of certainty about the circumstances in which a lender could continue to charge interest & costs after repossessing & selling consumer goods under a continuing security agreement. The Commerce Commission said on Friday it would seek to have those charges reinstated.

Mr Hawkins’ companies, Budget Loans Ltd & Evolution Finance Ltd, failed in a bid to have 122 of the charges dismissed at a hearing in May on the grounds that the Fair Trading Act didn’t regulate them.

The companies bought National Finance 2000 Ltd’s loan book in 2006 and Western Bay Finance Ltd’s remaining loan receivables in 2008, and sought to distinguish those acquisitions from being “in trade” or “in connection with the supply or possible supply of services”.

Judge Sharp found that “in trade” representations about the 2 companies’ rights to the way they could recover money from debtors was an integral part of their businesses, and he found the companies guilty of representations made to 21 borrowers while enforcing loan contracts.

The commission filed proceedings against the companies under the Fair Trading Act in December 2014 alleging they misled consumers about their rights by:

  • repossessing or threatening to repossess borrowers’ property when they didn’t have a right to repossess
  • adding interest & costs to loan balances after borrowers’ property had been repossessed & sold, when that’s unlawful
  • telling debtors they had to make loan payments at a higher rate than had been set by the court, and
  • telling debtors they had a shorter time to remedy a loan default before their goods were repossessed than they were allowed under law.

The commission previously prosecuted Budget Loans in 2010, when the company admitted 34 charges of breaching the Fair Trading Act by charging interest & fees after it had repossessed & sold items of security on National Finance loans. It agreed to make substantial repayments and was fined $30,750.

The commission started the current investigation into Budget Loans & Evolution Finance in 2012, issued a “Stop now” letter to the 2 companies in November 2013 with regard to one aspect of their conduct while its investigation continued, and filed charges in December 2014.

Allan Hawkins headed the listed Equiticorp Group, which was placed in statutory management in 1989 after collapsing in the wake of the 1987 sharemarket crash. The Serious Fraud Office prosecuted Mr Hawkins & other Equiticorp directors and he was sentenced to a 6-year jail term in 1991. He was released in 1995.

Links:
Commerce Commission, enforcement response register & judgments

Earlier stories:
17 December 2014: Commission files criminal charges against 2 Allan Hawkins finance companies
9 November 2013: Commission tells Allan Hawkins’ finance companies to stop repossessions
28 July 2010: “Welcome letter” from Hawkins’ Budget Loans to National Finance borrowers came with an illegal $15 fee
21 April 2008: Cynotech doubles receivables book to $60 million-plus in 4 months

Attribution: Commission release, judgments, Companies Register.

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Commission clears Fletcher to buy Higgins

The Commerce Commission cleared Fletcher Building Ltd yesterday to acquire Higgins Group Holdings Ltd.

The clearance covers Higgins’ road surfacing & road maintenance, civil structure & construction products, including most of its aggregates & bitumen businesses. Higgins has not sold its readymix concrete business & property businesses, which will be transferred to existing Higgins shareholders before the acquisition.

Fletcher Building also originally applied for clearance to acquire Horokiwi Quarries Ltd in Wellington, but amended its application to remove this quarry during the commission’s consideration.

The commission said today it focused its consideration of the merger on the competitive effects in the supply of aggregates in regions where Fletcher Building (operating as Winstones) & Higgins overlap – namely North Waikato, Napier, Manawatu-Whanganui, Kapiti & Christchurch. In particular, the commission considered whether the loss of Higgins’ quarry operations in these regions would make it easier for Fletcher Building to raise prices to external aggregate customers such as roading contractors.

Commission chair Mark Berry said the commission was satisfied the merger wouldn’t have, or wouldn’t be likely to have, the effect of substantially lessening competition in the affected markets.

“Higgins & Fletcher Building are key competitors of aggregate products in particular regions. However, we consider that strong competition would continue in these regions from existing competitors and the ability of customers to self-supply.”

Link: Commerce Commission clearance register, decision

Attribution: Commission release.

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Bayleys lands $2.2 million penalty for anti-Trade Me agreement

Real estate company Bayley Corp Ltd was ordered on Friday to pay an agreed $2.2 million and its Hamilton office owner, Success Realty Ltd, $900,000 after penalty hearings in the Auckland High Court over price-fixing & anti-competitive agreements.

They were among 13 national & regional real estate agencies the Commerce Commission filed court proceedings against last December. The commission also issued warnings to 8 more agencies. The proceedings related to 3 separate alleged price-fixing & anti-competitive agreements among national, Hamilton & Manawatu real estate agencies in response to Trade Me changing its fees for listing properties for sale on its website. Trade Me changed from a monthly subscription fee to a fee per listing of about $159, with no cap on the number.

The Commerce Commission alleged that, between 29 August 2013 & 1 August 2014, Bayleys entered into and gave effect to an anti-competitive price-fixing agreement with 4 other real estate companies. Only Bayleys had accepted that the conduct was unlawful. The Commerce Commission & Bayleys agreed to recommend to the court that a $2.2 million penalty would be appropriate.

Bayleys and the other 4 companies in the national agreement – Barfoot & Thompson Ltd, Harcourts International Ltd, LJ Hooker NZ Ltd & Ray White (Real Estate) Ltd – own 50% of Property Page (NZ) Ltd, the company that operates the realestate.co.nz website. Other real estate agents own the remaining 50% of Property Page.

Palmerston North agency Unique Realty Ltd, the third largest agent involved in the Manawatu agreement with a 19% market share (higher than Bayley’s market share), had also admitted responsibility early and had a $1.25 million penalty imposed on it. Justice Courtney said in yesterday’s decision on Bayleys: “Its conduct was comparable in that it was not an instigator or ringleader, the agreement was in force for about 6 months and had the same effect on the Manawatu region as the Property Page agreement had more widely in New Zealand, of eliminating an aspect of competition between the agents, thereby conferring potential for commercial gain.”

Bayleys & Success were the first to appear in court in relation to the national & Hamilton allegations. Both agencies co-operated with the commission’s investigation at an early stage. Bayleys reached a settlement with the commission before court proceedings were filed, and Success reached a settlement shortly after. Each company admitted its conduct breached the Commerce Act prohibition on price fixing.

Justice Patricia Courtney acknowledged, in her ruling on Bayleys released on Friday, the seriousness of the conduct & its potential to affect a large number of transactions for residential properties – both at the time of the arrangement and since.

Justice Courtney said: “The possibility of competition was removed altogether for the period of the agreement, and that situation meant that a new status quo existed when the revised model was introduced. This meant that the scope for competition after the agreement came to an end was open to influence.”

The judge didn’t accept that Success’s conduct fell at the lower end of the spectrum: “The listing of properties on Trade Me was a widespread & popular means of advertising for vendors and the agreement had the effect of depriving vendors of access to that service or, at the least, of the ability to negotiate for that service.”

The Commerce Commission has now achieved penalties from an agency in each of the 3 separate national, Hamilton & Manawatu proceedings. Its cases against the remaining 10 agencies, Property Page Ltd & 3 individuals remain before the court.

Bayleys managed to get its penalty deferred until 31 December, with interest payable, after telling the judge it was committed to “certain transactions between May & October which require substantial capital”.

Links: Commerce Commission enforcement response register
Commerce Commission v Bayley Corp Ltd, High Court judgment 1 July 2016
Commerce Commission v Success Realty Ltd, High Court judgment 1 July 2016

Earlier story:
17 December 2015: Commission files action against agencies over reaction to Trade Me move

Attribution: Commission release, judgment.

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