Mergers & Acquisitions

Commerce Commission releases “preliminary issues” with Z Energy and Chevron New Zealand merger

Commerce Commission clears Chevron New Zealand acquisition
Photo courtesy of Z Energy.

The Commerce Commission released a “statement of preliminary issues” for Z Energy Ltd.’s application to acquire 100% of the shares in Chevron New Zealand, owner of the Caltex brand in New Zealand, on August 6.

The statement of preliminary issues outlines the key competition issues that the Commission said are critical in deciding whether or not to grant clearance for the merger. “Our approach to analysing the competition effects of the proposed acquisition is based on the principles set out in our Mergers and Acquisitions Guidelines. As required by the Commerce Act 1986, we assess mergers using the substantial lessening of competition test,” the commission said.

Z Energy is a supplier of petroleum products in New Zealand and has interests throughout the supply chain. Z Energy is a shareholder in New Zealand Refining Company Ltd. (NZRC) that operates New Zealand’s only oil refinery at Marsden Point and it also has interests in fuel storage terminals, pipelines and logistic services used for the distribution of fuel around New Zealand. Z Energy also supplies wholesalers and commercial customers with a range of fuels including petrol, diesel fuels, aviation fuels, marine fuels and bitumen. It also retails petrol and diesel fuel through its Z-branded service stations.

Chevron New Zealand is also a supplier of petroleum products in New Zealand and has interests throughout the supply chain, although it recently sold its shareholding in NZRC. Like Z Energy, Chevron has interests in fuel storage terminals, distribution pipelines and logistic services throughout New Zealand. Chevron supplies wholesalers and commercial customers with a broad range of fuels including petrol, diesel, aviation fuels, marine fuels and bitumen as well as supplying petrol and diesel fuel through its Caltex service stations.

The commission said it is “generally concerned with the ability of the merged entity to raise prices” right across the New Zealand fuel distribution and retail system, starting at the Marsden Point oil refinery and including aviation, shipping, trucking and retail petrol and diesel fuel sales.

The commission outlined four broad areas it will consider. “First, how closely Z and Chevron compete against one another. We will assess whether customers view the product or service that Z and Chevron offer as being close substitutes. Z and Chevron might not be as close competitors as other rivals if, for example, they offer a differentiated service or do not supply customers in a certain area.”  Second is the degree of constraint that rival suppliers provide, whether current competitors, primarily BP and Mobil but also Gull in some areas, are willing and able to replace the competition lost as a result of the merger, and the extent to which distributors, who source their product from one of the major fuel firms, impose a constraint. Third, whether the threat of entry and expansion would provide a constraint on the merged entity. Fourth, whether customers have any countervailing power, i.e., whether customers have special characteristics that would allow them to resist a price increase by the merged entity.

Public comment will be open until August 21, 2015. The decision whether or not to approve the merger will be announced by December 18, 2015, the commission said.

 

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