CSR NZ, Brickworks seek merger in face of building downturn
BUSINESSDESK: The New Zealand unit of Australian building materials company CSR has sought anti-trust clearance to merge its bricks business with that of smaller rival Brickworks Building Products (NZ), saying demand has "plummeted" while costs are higher and both have surplus capacity.
The two companies are proposing a 50-50 joint venture. Brickworks had $13.3 million of annual sales in the year ended March 31, 2010, while CSR Building Products (NZ) had sales of $60.9 million in the year ended March 31, 2012, its accounts show.
The deal would exclude CSR's manufacturing plant at New Lynn in Auckland.
"While demand has plummeted the applicants have faced increased costs of supply and continued to incur the costs of their manufacturing facilities, front office and retail divisions," they say in their proposal to the Commerce Commission.
Synergies created by the proposal will enable a merged business "to more effectively and sustainably compete in the cladding market" by cutting costs such from rationalising freight, display centre premises, and merging sales and administrative teams".
CSR sells bricks in New Zealand under the Monier brand, while Brickworks, which is an Australian registered company, uses the Australbricks brand. Brickworks posted a loss of $1.65 million in the 2010 year and CSR had a $4.6 million profit in its latest year.
They propose a merger of their brick operations in New Zealand in a joint venture, according to the public version of their proposal on the regulator's website.
The deal would reduce the number of major clay brick suppliers in New Zealand from three to two, though the companies say brick "is only one of a number of choices for exterior cladding".
Rivals include Boral's New Zealand distributor Midland Brick. Companies offering alternative cladding include James Hardie's fibre cement, Fletcher Building's concrete brick, block and fibre cement, and Carter Holt Harvey's timber weatherboard.
CSR and Brickworks say brick's share of the New Zealand cladding market "is expected to face further challenges from alternative cladding, especially fibre cement".
"Given that both applicants have excess manufacturing capacity, it is logistically easier to have joint supply rather than entering into complicated arrangements as to which party is to supply" a joint venture," they say.