Regulator to check aggregates market in Fletcher bid for Higgins

The Commerce Commission will conduct an investigation into the national and regional markets for construction aggregates before it decides whether to clear Fletcher Building's [NZX: FBU] bid for construction firm Higgins Group Holdings.

The competition regulator issued its statement of preliminary issues on the application, identifying the only area of potentially anti-competitive overlap between the two companies as being the market for crushed rock aggregates used in road-building and associated infrastructure projects.

Fletcher announced on February 2 it will pay $315 million for Higgins, New Zealand's third largest road construction and maintenance company, subject to regulatory approval.

Among the assets under consideration is Wellington-based Horokiwi Quarries, which Higgins owns 50/50 with roadmaker Fulton Hogan.

The commission will investigate the existence of regionalised markets for aggregates and Fletcher's claim that competitors could easily enter the market in regions where there are ample deposits of alluvial gravels for quarrying. It will also scrutinise Fletcher's claim that its concentration on vertical infrastructure, such as bridges and tunnels, means there is little overlap with Higgins' focus on horizontal infrastructure, meaning road building and maintenance.

The alluvial deposits examination would include assessing timeframes to gain resource consents for extraction, the commission said.

"We will assess whether competitors to the proposed merged entity in downstream markets, such as road maintenance, are able to easily switch to alternative suppliers of inputs such as aggregates or [are] able to self-supply," and whether customers of both businesses have countervailing market power to constrain any anti-competitive effects from the merger.

This would include assessing the potential for the merger to assist a more coordinated approach by players in the aggregates market than the current dynamic, which Fletcher argues does "not currently show signs of coordinated conduct."

Fletcher's shares increased 0.1% to $7.01, having dropped 4.8% so far this year.

(BusinessDesk)