Commission proposes to authorise Tennex’s acquisition of San-i-Pak

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The Commerce Commission has today released a draft determination proposing to grant authorisation to Tennex to acquire the assets of competing Canterbury-based waste firm San-i-Pak.

Tennex, through its subsidiary International Waste Limited (IWL), and San-i-pak are the sole providers of medical and quarantine waste treatment and disposal services in the South Island. The acquisition would result in IWL being the only provider of these services subject to another waste management firm entering the market in the future.

Chairman Dr Mark Berry said while the acquisition would substantially reduce competition, the Commission’s preliminary view was that it was likely to produce such a benefit to the New Zealand public that it should be authorised

“The removal of San-i-Pak as a competitor is likely to result in IWL raising its prices for its quarantine and medical waste disposal services in Canterbury. IWL would own the only plant capable of disposing this particular waste and we expect any other waste management firm is only likely to enter the market if it can win a large contract,” Dr Berry said.

“However, while we expect competition would lessen with the acquisition, our preliminary view is the cost savings associated with the consolidation of the two firms would outweigh the likely negative consequences. We estimate that the acquisition could produce a net benefit of up to $1.3 million in net present value terms over 10 years. As a nationwide firm, Tennex, will face some constraints when it negotiates national contracts and other firms are likely to submit bids when large customer contracts are up for tender in Christchurch.”

A copy of the draft determination is available on the Commission’s website.

Interested parties are invited to submit their views on the draft determination by 12 December 2018.

Background

The Commission has previously considered this acquisition in a clearance context. On 29 February 2016, we declined to give clearance to Tennex to acquire the medical and quarantine waste collection and treatment assets of San-i-pak as it considered the acquisition would likely result in a significant lessening of competition.

Tennex subsequently applied for authorisation for this acquisition on 17 September 2018. Authorisation applications follow a two-step process under the Commerce Act. We must first assess whether the merger would be likely to substantially lessen competition in a market. We assess whether a merger is likely to substantially lessen competition in a market by comparing the likely state of competition if the merger proceeds, with the likely state of competition if it does not. If we are satisfied that the merger is not likely to substantially lessen competition, then we would clear the merger at the first step.

If we cannot give clearance due to competition concerns, the second step is to determine whether the merger should be authorised applying the public benefit test. The public benefit test involves a balancing of the public benefits and detriments that would, or would be likely to, result from the merger. We must authorise a merger if we are satisfied that the merger will result in such a benefit to the public that it should be permitted.

The Commission’s view on the clearance step in the Tennex acquisition has not changed since the first application in 2016. It has now been asked to undertake the public benefit assessment under the authorisation process and on this test its preliminary view is to grant approval for the merger.