The Australian Competition and Consumer Commission will oppose an acquisition of Austrim Nylex's Pryda Reid Group by MiTek Australia Limited, ACCC Chairman, Mr Graeme Samuel, said today.
Both companies supply software-supported connector plate to fabricators of timber trusses and frames for housing and commercial buildings.
"The ACCC's market inquiries revealed that the merger parties are both vigorous and effective competitors and that a merger between the two of them would substantially reduce the level of competitive tension in the market.
"The software product used by timber truss fabricators is a key factor affecting competitiveness and efficiency in the building industry, offering significant cost advantages and efficiencies for builders. The software is specialised, sophisticated and integral to the operations of the fabricators who are heavily reliant on the suppliers for ongoing support.
"The ACCC considers the merger of the two main suppliers of these products will dampen competitive pressure, opening the way to an increase in prices, a reduction in service levels and reduced pressure for innovation in the software.
"With the current level of competition amongst these software and connector plate suppliers there is pressure on the suppliers to adapt and improve their product to meet changing building industry requirements and to satisfy consumer demand for more innovative and sophisticated housing designs", Mr Samuel said.
MiTek and Pryda Reid are the two main suppliers of software-supported metal connector plate fasteners and associated design and engineering support services used in the manufacture of pre-fabricated timber roof trusses and wall frames. These pre-fabricated roof trusses and wall frames are used extensively in the construction of domestic and low rise commercial buildings and assist in the provision of cost-effective housing.
The ACCC consulted with a range of interested parties, including timber suppliers, metal manufacturers, fabricators of timber and steel roof trusses and wall frames, building industry associations a number of suppliers of building industry software and overseas parties. These inquiries identified substantial concern about the impact of the proposed merger.
The ACCC is particularly concerned about the proposed merger because there would be a reduction of suppliers to timber fabricators from three to two, with the merged entity holding a substantial market share of approximately 85-90 per cent.
The absence of imports and lack of new entry, combined with the fact that a number of previous attempts to source supply from elsewhere have failed, and the sheer size of the merged entity means there is little likelihood of a new entrant emerging. Steel framing systems and other timber products were found not to have the market share or level of software development to enable them to constrain the activities of a combined MiTek/Pryda.
Similarly the fabricators do not enjoy sufficient market power to be able to resist a significant price increase or reduction in quality and service levels that could be imposed by the merged entity and, with only one alternative small supplier remaining in the market, they would have limited alternate viable substitutes or sources of supply.
The ACCC also considered enforceable undertakings proposed by the applicant to address the competition concerns but was of the view that they would not offset the potential detriment to competition arising from the merger.
Taking all of these factors into account, the ACCC considers that the proposed merger would be likely to result in a substantial lessening of competition, in contravention of section 50 of the Trade Practices Act 1974. Section 50 prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market.
"Following my recent announcement that we will publish our reasons for rejecting a merger, the reasons for this decision will be posted on the ACCC website shortly", Mr Samuel said.