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.
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.
Attribution: Commission release & website.