Cavalier given chance to build monopoly in wool scouring

Cavalier Holdings has been thrown a huge opportunity to build a monopoly position in the wool industry thanks to a Commerce Commission determination released today.

In a statement the commission said it has reached a preliminary view that it should allow Cavalier Wool Holdings to acquire up to 100% of New Zealand Wool Services International’s (WSI) wool scouring assets and stock.

WSI is this country’s largest wool exporter. The company has argued that the purchase of its assets by its rival will create a monopoly in the wool scouring industry, which will not be in the best interests of wool growers.

Cavalier applied for clearance to buy the assets after it was announced that a combined two-thirds stake in WSI was on the market following the receivership of two Allan Hubbard related companies – Plum Duff and Woolpak. 

The issue has added significance because Plum Duff and Woolpak owe South Canterbury Finance (in receivership) a combined $23 million, while Plum Duff has also loaned Mr Hubbard $16.1 million.

In its draft determination the Commerce Commission said the benefits to the public outweighed the competition issues, particularly given the “competitive threat” from China.

“Our preliminary view is that the proposed acquisition would substantially lessen competition in the North and South Island wool scouring markets,” said Commerce Commission chairman Mark Berry.

“Cavalier Wool Holdings would essentially have a monopoly on the supply of wool scouring services post acquisition.

“However, at this preliminary stage, the Commission expects that there would be benefits to the public that would outweigh the loss of competition."

Cavalier Wool Holdings is 50% owned by Cavalier Corp and 25% by each of Direct Capital and ACC. Cavalier Corp has other subsidiaries involved in wool procurement and in the manufacture of carpets.

The commission said it considered there was potential for Cavalier to raise prices after the acquisition because of the loss of the constraining influence of NZ Wool Services International. 

“However, we expect that the level of the detriment resulting from the acquisition is likely to be limited by the ongoing, long-term competitive threat of the Chinese wool scouring industry and the potential for new entry into the New Zealand wool scouring industry,” Dr Berry said.

“On the other hand,there would be considerable benefits to the public arising from the rationalisation of the wool scouring industry that Cavalier Wool proposes to carry out.

The rationalisation was likely to lead to lower production and administration costs, the freeing up of industrial sites, and lower ongoing capital expenditure requirements in the future, the commission said.

The commission is seeking submissions on its Draft Determination by April 27, 2011. Submissions will be posted on the Commission’s website. The Commission will hold a conference with interested parties on May 4 and 5 and the final determination will be issued by May 31, 2011.