Pipes main overlap in Fletcher bid, regulator says

Thursday 20th January 2011

The Commerce Commission sees the manufacture and supply of pipes and pipe systems as the main area of overlap in this country between Fletcher Building and its takeover target Crane Group.

Fletcher Building's manufacture of a range of concrete pipes through its subsidiary Humes was relevant to Fletcher Building's application for clearance to buy up to 100% of Crane, the commission said.

Fletcher Building also manufactured plastic pipe systems through its interest in the Waters & Farr joint venture with Hynds. Both its concrete and plastic pipes and pipe systems were supplied through Humes' nationwide network. Also Fletcher Building owned the Placemakers chain of stores.

Australian-based Crane manufactured a range of plastic pipes and pipe systems through its wholly-owned business Iplex Pipelines, and Crane distributed pipes and pipe systems through nationwide networks MasterTrade and Mico Pipelines.

In a statement of preliminary issues, published today, the commission said it had to consider whether the proposed acquisition would substantially lessen competition.

Factors it would consider in assessing the relevant market in respect of pipes and pipe systems included the extent to which concrete pipes were substitutable for pipes made from plastic or other materials in large bore pipe systems. It understood large bore pipes to be those with an internal diameter of 350mm or more.

It would investigate the extent to which different types of plastic pipes could be substituted for each other, and the ability of suppliers and customers to switch between the different types of plastic pipes, the commission said.

It would look into whether the characteristics of various customer groups such as construction/civil engineering, and rural/irrigation customers were significantly different that they could form discrete customer markets.

The commission said it would also investigate whether there were separate functional markets for the manufacture of pipe systems and the supply of pipe systems.

In its application, Fletcher Building had submitted the proposed merged entity would continue to face competition in the manufacture and distribution of pipes and pipe systems from large existing competitors, the commission said.

It would test whether potential entry would be likely, and extensive and timely enough to constrain the combined Fletcher Building, Crane entity if it sought to increase prices after the proposed acquisition.

"The commission will assess whether any of the main purchasers of pipes and pipe systems (predominantly construction, civil engineering and rural/irrigation customers) would be able to counteract any exercise of market power by the combined entity through the threat of switching or any other mechanism."

Under an agreement with Fletcher Building, the commission should make its final decision on the application for clearance by February 24, but that time frame could change.

NZPA

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