ComCom eyes 'failing firms'

In a sign of the recessionary times, the Commerce Commission has released new draft guidelines today on takeover applications based on the so-called "failing firm" argument.

The Commerce Act prohibits the acquisition of a business or shares if the deal would, or would be likely to, substantially lessen competition.  However, the Act provides the opportunity for firms to apply to the Commerce Commission for a waiver from this rule if the acquiring firm can show the business or asset to be purchased would have disappeared anyway because it was failing.

"The commission has not yet seen an increase in applications using a failing firm argument, but anticipates that there may be more as a result of the current economic climate," commission chairman Mark Berry said.

Earlier this year construction firm Stevenson Group said its masonry unit would be wound up with staff laid off if the commission blocked a takeover by Fletcher Building. The deal was approved.

Today the commission said general guidelines had always existed in a clearance context, but it was timely to issue guidelines on what information would need to be provided in an application for a "failing firm" argument.

The commission is seeking feedback by August 6 on its draft guidelines and will publish finalised guidelines after feedback is considered.

Berry said normal competition analysis still applied to deals involving failing firms and the commission would not be relaxing its standards when considering such cases.

"However, the Commission recognises that it is useful for businesses to have clear guidance on the supporting evidence that the Commission will need to assess this type of application," said Berry.

It was important to note that the circumstances around claims that a firm was failing varied and that each case was assessed on its individual facts, Berry added.

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