3-to-2 merger cleared in New Zealand

The New Zealand Commerce Commission (NZCC) has cleared the proposed acquisition of Dongwha by Daiken, two of only three manufacturers of raw MDF panels in New Zealand.

Daiken, Dongwha and the only remaining competitor, Nelson Pine each have manufacturing facilities in the South Island.

Although all three manufacturers are export-focussed, the NZCC raised concerns that the proposed acquisition may increase the potential for coordination between the merged entity and Nelson Pine for supply to New Zealand customers. CRA assisted the merging parties in demonstrating that the proposed transaction was unlikely to change conditions in the raw MDF market such that coordination would be more likely, more complete or more sustainable. In particular:

• Limited transparency with respect to prices and volumes would continue to frustrate the ability of the parties to reach an agreement;
• Deviation from any agreement would remain difficult to detect given the degree of volatility in monthly sales volumes to a number of large customers;
• A long-term supply agreement that Daiken had negotiated with one of the largest customers, Laminex, would constrain the parties from raising prices given Laminex’s role as a reseller;
• The terms of that long-term supply agreement would also indirectly constrain prices rises to Laminex’s competitors due to competition downstream; and
• The ability of the parties to punish ‘cheating’ would be limited by the fact that any excess capacity could be used to supply export markets.

The CRA team assisting the merging parties was led by Jennifer Fish and included Simon Chisholm and Valter Sorana.

For more details, please see the NZCC’s clearance decision here.