Did you know that New Zealand prides itself on maintaining a competitive business market?
It does this through the use of specific legislation that limits the effect that some mergers or acquisitions of businesses may have on market competition. By maintaining a diverse market of businesses for services, products and goods, competition is improved and the flourishing economy is supported fiscally speaking. A lessening of competition is generally the same as an increase in market power, which is the ability to raise prices and reduce the quality of goods and services that would exist if there was a competitive market.
A merger is a legal consolidation of two business entities into one, whereas an acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets. They may be completed to expand a company’s reach or gain market share in an attempt to create shareholder value.
Generally speaking, the distinction between the two becomes a little less clear as both types of transactions may result in consolidation of business (and thus a shrinkage in market availability of diversity) but both are legally defined and structured to do different things. They may also have different requirements to be adhered to when it comes to legal compliance.
By law, a merger can only be cleared by the Commerce Commission of New Zealand if they are satisfied that it will not be likely to substantially lessen competition in any New Zealand market. Mergers will only be authorised if they are satisfied that it will be likely to result in such a benefit to the public, that it should be permitted despite potentially lessening competition.
Under the Commerce Act, certain agreements and mergers are prohibited as they may lead to and result in anti-competitive outcomes for the New Zealand market. However, the law allows the Commerce Commission to authorise anti-competitive agreements and mergers in cases where the public benefits potentially outweigh the competitive harm.
Anti-competitive agreements could include:
- mergers or acquisitions that would be likely to have the effect of substantially lessening competition in a market
- agreements that have the effect of fixing, controlling or maintaining prices of goods or services
- a supplier enforcing a minimum sale price for retailers
- agreements between competitors that have the purpose of restricting or limiting the supply of goods or services to competitors
If you are looking to acquire another company, organisation or business in the field, but are uncertain about your clearance for doing so, speak with us today. We can assist you in ascertaining whether or not you may be legally able to do so.