Legislation and jurisdictionRelevant legislation and regulators
What is the relevant legislation and who enforces it?
New Zealand’s merger control legislation is contained in Part 3 of the Commerce Act 1986 (the Act). New Zealand’s competition law regulator is the Commerce Commission (NZCC). The NZCC adjudicates on applications for clearance, or authorisation, of mergers and can take enforcement action in the courts. Interested third parties can also enforce the Act directly.Scope of legislation
What kinds of mergers are caught?
The Act prohibits any person (including bodies corporate) from acquiring ‘assets of a business’ or shares if that would, or would be likely to, substantially lessen competition in a market in New Zealand.
The phrase ‘assets of a business’ is not defined and, therefore, could include any asset owned by a business; however, this has historically been interpreted to refer to a collection of assets sufficient to run a business, or business division.
The term ‘acquire’ includes both legal and beneficial acquisition, including entry into an agreement to acquire assets or shares that is not conditional on clearance.
Partial acquisitions of shares can be caught, and there is no de minimis transaction, asset or turnover value threshold.
What types of joint ventures are caught?
Joint ventures involving an acquisition of assets or shares can be caught by the merger control provisions. Joint ventures that do not involve the acquisition of assets or shares can be caught by the Act’s restrictive trade practices prohibitions contained in Part 2 of the Act.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
There is no definition of ‘control’ in the Act’s general merger control regime. Acquisitions of assets of a business or shares, including minority or partial acquisitions, may breach the Act where:
- the acquirer will be able to ‘directly or indirectly exert a substantial degree of influence over the activities of the other’ (interpreted as being ‘able to bring real pressure to bear on the decision-making process’ of the target); and
- that influence is likely to substantially lessen competition in the market.
The NZCC considers that the ability to exert a substantial degree of influence can arise at any level of shareholding. The NZCC does not provide indicative thresholds in its Mergers and Acquisitions Guidelines (the M&A Guidelines) given that other factors, such as the spread of shareholding will be relevant to determining whether an individual shareholder has the necessary degree of influence. Other case-specific factors will also impact this assessment, including an individual shareholder's influence on management or policy.
The NZCC previously investigated the acquisition of 19.99 per cent of the shares in a listed company, and blocked the proposed acquisition of 22.5 per cent of the shares in a listed company (where there was also a cooperation agreement between the parties).
There is an additional process that may be triggered where an overseas person acquires a ‘controlling interest’ in a New Zealand company.Thresholds, triggers and approvals
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
There are no asset or turnover thresholds. The test is simply whether the acquisition of assets or shares will or would be likely to substantially lessen competition in a market in New Zealand.
The M&A Guidelines include post-merger market share ‘concentration indicators’ that it uses to ‘identify those mergers that are less likely to raise competition concerns’. These are:
- where the merged firm’s post-merger market share is less than 40 per cent in a non-concentrated market (where the three largest firms have a combined market share of less than 70 per cent); and
- where the merged firm’s post-merger market share is less than 20 per cent in a concentrated market (where the three largest firms in the market have a combined market share of 70 per cent or more).
The NZCC stresses these are ‘only initial guides’ and that a ‘merger not exceeding these indicators may still substantially lessen competition’. For this reason, the NZCC no longer refers to these indicators as ‘safe harbours’ as it considered that term indicated a ‘degree of safety that did not exist’. Accordingly, market share measures remain insufficient in themselves to establish whether a merger is likely to have the effect of substantially lessening competition.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
Merger filings in New Zealand are voluntary. Parties can (but are not obliged to) seek clearance or authorisation of a proposed merger but there is no statutory obligation to; however, if:
- a merger has been implemented or is no longer conditional on NZCC approval, it cannot then be cleared or authorised retrospectively; and
- parties reach that point without obtaining NZCC approval, the NZCC may choose to open an investigation, and it has a range of enforcement options at its disposal.
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
The merger control prohibitions in the Act extend to acquisitions outside New Zealand, ‘to the extent that the acquisition affects a market in New Zealand’.
Accordingly, an offshore merger involving two or more major suppliers of a product or service to New Zealand may be caught by the Act irrespective of whether either party has a physical presence or subsidiary in New Zealand.
However, the practical ability of New Zealand authorities to enforce orders made against offshore companies may limit the recoverability of penalties from foreign firms.
To address such limits regarding acquisitions by Australian businesses, New Zealand has legislation (the Trans-Tasman Proceedings Act 2010) and a mutual enforcement treaty with Australia that effectively removes the bar on the NZCC enforcing penalties against Australian companies and directors.
In respect of acquisitions by businesses from other countries, the NZCC may seek remedies where an ‘overseas person’ acquires a ‘controlling interest’ in a New Zealand company through an acquisition outside New Zealand (‘controlling interest’ is defined to be control of the board or the ability to control more than 20 per cent of the voting rights, issued shares or dividend entitlements). The NZCC can apply to the High Court, within 12 months of the acquisition for a declaration that the acquisition will substantially lessen competition in a market in New Zealand.
If the High Court makes such a declaration, it may make an order requiring that the New Zealand company cease carrying on business in New Zealand or dispose of shares or assets. Contravention of any such declaration is subject to the same penalties as a breach of the merger control provision (the difference being that the penalties are enforceable against the New Zealand company rather than the overseas acquirer).
Are there also rules on foreign investment, special sectors or other relevant approvals?
Foreign investment in New Zealand is governed by the Overseas Investment Act 2005 (OIA).
Under the OIA, consent is required if an overseas person proposes to directly or indirectly:
- acquire a qualifying interest (being a freehold interest or a leasehold (or equivalent) interest for a term of 10 years or more) in ‘sensitive land’ (ie, non-urban land greater than five hectares, residential land and other parcels of land that are classified as sensitive owing to their special characteristics), including through acquiring a more than 25 per cent indirect interest in the securities of an entity that directly or indirectly has a qualifying interest in sensitive land;
- acquire a more than 25 per cent interest in ‘significant business assets’, being a New Zealand business or business assets, where the consideration provided for the New Zealand business, or the gross value of the assets of the New Zealand business, exceeds NZ$100 million; or
- establish a business in New Zealand where the business is carried on for more than 90 days in any year, and the total expenditure expected to be incurred, before commencing the business, in establishing the business, exceeds NZ$100 million.
In respect of investments in significant business assets, the Overseas Investment Office (OIO) will grant consent if it is satisfied that the investor meets the investor test, which involves considering certain character and capability criteria to determine whether the relevant entities and persons are suitable to own or control those New Zealand assets.
For investments in sensitive land, in addition to meeting the investor test, the investor must usually also satisfy the benefit test, meaning the transaction must be likely to result in a net benefit to New Zealand when taking specific economic, environmental and other ‘benefit factors’ into account.
In addition, all applications for consent may also be subject to the national interest test, which empowers the OIO and the relevant minister to consider whether the investment is contrary to New Zealand’s national interest. The test mandatorily applies to investments in certain strategically important businesses and to investments by non-New Zealand government investors.
Even in cases where OIO consent is not required under the significant business assets or sensitive land pathways, investors still need to consider whether the transaction involves New Zealand land or assets that are used in a strategically important business. If so, the minister has the power to ‘call in’ any transaction for review if he or she considers the transaction as likely to pose significant risks to New Zealand’s national security or public order.
If a transaction is deemed to present risks to New Zealand’s national interest, national security or public order under either of the above tests, the investment may be blocked, unwound or have conditions imposed.