Z cleared to buy Caltex assets, must sell 20 petrol stations

See also:  Z Energy rejects suggestions it got off lightly with its Chevron divestments

Z Energy [NZX: ZEL] is allowed to buy the Caltex and Challenge! petrol station chains but must sell 19 of its retail sites and one truck-stop, the Commerce Commission has ruled in a split decision that acknowledges possible retail price coordination between fuel retailers occurs in some regions.

The competition watchdog's delayed decision on the $785 million deal giving Z about 49% of the retail transport fuels market allows NZX-listed Z to buy the 'downstream' assets of American oil giant Chevron, which is exiting all but its exploration activities in New Zealand.

While the four commissioners considering the issue agreed there would be no substantial lessening of competition in six of the seven markets where Z and Chevron overlap, they split three-to-one on the decision to allow Z to buy the Chevron and Challenge! chains, with Jill Walker dissenting even after determining 20 sites where Z will have to sell its existing operations because of competition concerns in 22 areas.

Z, which was formed from the retail and other downstream assets of Royal Dutch Shell's New Zealand operation, must close retail sites in the following locations: Northland (3), Auckland (1), Waikato (3), Bay of Plenty (1), Wellington (1), top of the South Island (2), Christchurch (3), Canterbury outside Christchurch (4), and one in Otago, with a truck stop in Kawerau also to be sold.

"In all other local areas, we concluded that the merged entity would face sufficient competition from remaining BP, Mobil, Gull and/or independent service station owners."

The commission concluded that Chevron, through the Caltex and Challenge! brands, had been "a passive competitor in New Zealand and followed the lead of its rivals rather than taking an aggressive approach in its pricing."

Once the divestments were undertaken, "Chevron's absence would not make a material difference to the competitive dynamics we currently see, where retail price movements are dominated by Z, BP, Mobil, and Gull."

Z owns some 200 service stations while Caltex has 150 sites.

In its decision, the commission said it considered it was "possible, but not definitive, that coordination (on retail pricing) is occurring in some local markets" while noting such behaviours as "price following, regional pricing differences and rising margins can occur in both coordinated and competitive markets" and was "not illegal under the Commerce Act."

Its passive stance to date also meant "the likelihood of Chevron being an effective constraint on coordination in the future is low, even if sold to another party."

Z chief executive Mike Bennetts welcomed the decision, which took 10 months, saying "as a local company we believe buying the business of a global company is good for New Zealand and it’s now up to us to prove it."

Mr Bennetts said last year that Z would continue to operate the Caltex brand separately, although Z has only two years' rights to use it.

Z shares closed at $7.15 yesterday and have risen 56.2% in the last year.

(BusinessDesk)