about to get pummelled big time... article
Bought 19% stake at $1.77 ACCC will is not likely to approve Onesteel takeover SSX hare price likely to drop to around $1.40 BSL will be down $70 million Oh OOOOOOO
read this article by Hank Spier a senior executive of the ACCC from 1983 to 2000. v v v Why watchdog needs nerves of steel Hank Spier September 4, 2006
Advertisement AdvertisementTHE Australian Competition and Consumer Commission looks as though it will soon block its third major merger in the first three months of this financial year.
The ACCC blocked Barloworld's acquisition of Wattyl in July and Tabcorp's bid for Unitab last month. On September 20, the regulator is due to decide on OneSteel's proposed acquisition of Smorgon Steel, and is most likely to block it.
The ACCC published a Statement of Issues on August 14 in which it listed a number of concerns. It is unlikely that OneSteel has been able to satisfy all of those concerns, and so its current proposal appears doomed.
Even if the ACCC doesn't subscribe to the superstition that things happen in threes, it can rest assured that its third blocking of a proposed merger in as many months is justified.
It will also have the incidental benefit of dispelling any remaining elements of recent perceptions that the ACCC had gone soft on mergers.
The OneSteel-Smorgon merger was always problematical under the Trade Practices Act. If the ACCC had problems in the paint industry with a merger of No. 2 and No. 3 in the market, why did OneSteel think it would approve a merger of No. 1 and No. 2 in steel long products? Tabcorp and Unitab are likewise No. 1 and No. 2.
The impacts on competition of an acquisition by OneSteel of Smorgon are potentially serious. They are the only domestic manufacturers of steel for long products, and they are both vertically integrated, from raw materials through manufacturing to distribution.
OneSteel has argued that imports would keep it honest following the merger, but imports are not an adequate substitute for the competition that an evenly matched, vertically integrated competitor (as Smorgon is) can provide.
Smorgon entered steel-making in the 1980s and has been very proud of its monopoly-busting role in keeping BHP and OneSteel, since it was spun out of BHP, honest and responsive to customers' needs. Smorgon has a long history of entering markets dominated by a monopoly and creating competition.
OneSteel has more than 30,000 customers — this is not a merger that just affects the big end of town. It will affect large and small businesses and raise the costs of many products and services across the economy.
Reinforcing bar, rod and mesh is one example. This was one of the ACCC's "red light" issues in its Statement of Issues. It is a product that is used in virtually every construction project in Australia.
OneSteel and Smorgon are the two major competitors in Australia, and account for 75 to 80 per cent of the reinforcing steel used in the country. The ACCC is right to conclude that competition in reinforcing steel will be substantially lessened by the proposed merger.
Draft undertakings offered by OneSteel have been weak. It offered to spin off Smorgon's distribution business to its own shareholders, but only after it had picked the eyes out of that business by excluding Smorgon's reinforcing steel business, its much-heralded "LiteSteel" beam business, its pipe and tube manufacturing plant, and its coil coating business.
The proposed demerged distribution business would continue to be dependent on OneSteel for supply of products, and would be no match for OneSteel's own distribution business. The OneSteel business would remain a vertically integrated, broad-based and dominant leader in long products manufacturing and distribution.
OneSteel has also offered an ineffective undertaking not to take frivolous or vexatious dumping actions against importers of steel products.
The ACCC is totally justified of being wary of undertakings that are difficult to enforce and to ensure that the power of the merged party is not compromised. It took that view in Tabcorp-Unitab and so far has taken a similar view in the OneSteel-Smorgon matter.
Hank Spier was a senior executive of the ACCC from 1983 to 2000.
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