Fletcher Building makes Higgins case to Commerce Commission

Fletcher Building [NZX: FBU] has set out its case to the Commerce Commission as it seeks permission from the watchdog to buy roading contractor Higgins for $315 million.

The deal to buy Higgins was announced earlier this month but is subject to Overseas Investment Office and Commerce Commission approval. The two companies have worked together on projects for 25 years.

In a 64-page document submitted this afternoon, Fletcher argues the deal would let it compete with Fulton Hogan, Downer Group and HEB Construction in road surfacing, road maintenance and construction services. The two companies have negligible overlap in small scale infrastructure projects, with Fletcher arguing Higgins' involvement in such projects is limited to the maintenance and servicing of structures such as bridges.

The rationale for the deal is also set out, with Fletcher saying its recent experience in the New Zealand roading market is that major construction projects often require the contractor to take on maintenance for a number of years after completion, and that it cannot bid for this business on its own, because it doesn't have a road maintenance business.

The document accepts that there is what it calls "some overlap" in relation to the manufacture and wholesale supply of aggregates in the regions of North Waikato, Napier, Manawatu-Wanganui, Kapiti, Wellington and Christchurch. Aggregates are material like crushed rock or gravel which is extracted from quarries or beaches and used in construction. However Fletcher says a number of competitors will remain, with the ability to compete strongly, and barriers to entry are limited. It cites Worksafe New Zealand, who recently said there were some 1200 quarry sites in New Zealand.

Fletcher also said the acquisition does not give it the incentive to reduce competition by refusing to supply rivals with products like concrete or road safety materials because these inputs are widely available from alternative suppliers. The document concludes that the proposed acquisition "is therefore not likely to have the effect of substantially lessening competition in any New Zealand market".

Fletcher shares fell 1.2 percent to $6.60. They have fallen 9.1% since the start of the year.

(BusinessDesk)