ACCC completes initial assessment of AGL and Alinta acquisition proposals

The Australian Competition and Consumer Commission today issued a Statement of Issues in relation to Alinta's proposed acquisition of AGL and the Alinta-AGL joint merger proposal reflecting the Merger Implementation Agreement signed on 1 June 2006.

Concurrently, the ACCC announces that it has decided not to oppose AGL's proposed acquisition of Alinta, after accepting court enforceable undertakings from AGL in relation to that proposal pursuant to section 87B of the Trade Practices Act.

"Altogether, the ACCC has been considering three proposals relating to AGL and Alinta", ACCC Chairman, Mr Graeme Samuel, said today. "Despite the signing of the Merger Implementation Agreement, both Alinta and AGL requested that the ACCC continue its assessment of their own individual proposals to acquire each other. 

The first proposal is Alinta's proposed acquisition of AGL. Although Alinta offered undertakings to the ACCC in relation to this proposal, the ACCC has decided that concerns remain and has set out those concerns in the Statement of Issues.

"The second proposal is the Alinta-AGL joint merger proposal which reflects the Merger Implementation Agreement signed by AGL and Alinta on 1 June 2006 which formalises the Heads of Agreement that was signed on 26 April 2006.

"Although Alinta offered undertakings to the ACCC in relation to this proposal, the ACCC has decided that competition concerns remain and has also set out those concerns in the Statement of Issues.  Both the Alinta proposed acquisition of AGL and the joint merger proposal are dealt with in the same Statement of Issues which will be available on the ACCC website shortly. The ACCC is inviting further submissions from the market and anticipates making a final decision on the proposed acquisition by 28 July 2006".

"The third proposal is AGL's proposed acquisition of Alinta.  The ACCC has decided not to oppose this acquisition, after accepting court-enforceable undertakings from AGL that address the competition concerns that arise under section 50 of the Trade Practices Act.

"AGL has offered undertakings that address the competition concerns", Mr Samuel said. "AGL has committed to a demerger that will completely separate the key gas transmission assets and infrastructure management assets where competition concerns arise. If for any reason the demerger cannot occur, AGL has committed to divest its interests in the Australian Pipeline Trust and associated management contracts, to ensure that all competition concerns are addressed.

"On the other hand, Alinta's proposed undertakings, both in relation to its proposed acquisition of AGL and the AGL-Alinta Joint Merger Proposal, do not contemplate structural separation of the key gas transmission assets.  Instead the undertakings propose behavioural commitments, including ring fencing, restrictions on cross directorships and confidentiality regimes. The ACCC's preliminary view is that these commitments do not fully address the competition concerns that are raised by the acquisitions.  The Statement of Issues sets out in detail the reasons for this preliminary view.

"The ACCC has focussed its investigation on two key areas of concern", Mr Samuel said. "The first is horizontal aggregation of Alinta's interest in the Eastern Gas Pipeline and AGL's interest in the Moomba to Sydney Gas Pipeline.  Given that these two pipelines are the key sources of gas for Sydney region, the ACCC is particularly concerned about the effects in the market for the wholesale gas supply to the greater Sydney region due to changed incentives in operating the pipelines.

"Issues relating to vertical integration with gas retailing and electricity generation also arise in NSW", Mr Samuel said. "However, the key negative vertical effects only arise in relation to Alinta's proposed acquisition of AGL, not the Alinta-AGL joint merger proposal.

"The second key area of focus relates to pipelines supplying gas to key markets in Western Australia. The ACCC is investigating the extent to which the Parmelia pipeline (currently owned by Australian Pipeline Trust in which AGL has a significant interest) heightens the level of competition in gas and electricity markets in south-west Western Australia.  The key gas transmission pipeline in Western Australia is the Dampier to Bunbury pipeline, in which Alinta has an interest. There are also issues arising from vertical integration with retailing operations in south-west Western Australia and from ownership of the Goldfields Gas Pipeline.

"These two key concerns are exacerbated by the aggregation of interests in pipeline management assets.  The aggregation of AGL's subsidiary, Agility, and Alinta's subsidiary, Alinta Asset Management, will place the asset management and service provision of the competing pipelines within the one organisation.

"AGL's undertakings clearly address each of these areas of concern", Mr Samuel said. "The undertakings ensure that the interest in the Eastern Gas Pipeline and the Moomba to Sydney Gas Pipeline will be held separately, including the management contracts in relation to those pipelines.  The undertakings also ensure that in Western Australia, the Parmelia pipeline and Goldfields Gas Pipeline will be held separately from the key Dampier to Bunbury Pipeline. Furthermore, AGL's undertaking separates out many of Agility's contracts, so that concerns in relation to aggregation of pipeline management assets are minimised".

The ACCC will be issuing a Public Competition Assessment in relation to AGL's proposed acquisition of Alinta in due course.  The ACCC will also issue a Public Competition Assessment in relation to Alinta's proposed acquisition of AGL and the Alinta-AGL joint merger proposal, after a final decision in relation to those matters has been made.

Background

Section 50 of the Trade Practices Act 1974 prohibits mergers and acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Section 87B of the Trade Practices Act 1974 states that the ACCC may accept a written undertaking in connection with a matter in relation to which the ACCC has a power or function under the Act, including section 50. Undertakings given under section 87B are court-enforceable.