Boral Energy Resources Limited has decided not to proceed with its bid to take over Allgas Energy Limited, saying that Energex's bid at $23 a share had gone beyond an amount which Boral is prepared to bid.
The Australian Competition and Consumer Commission had sought an undertaking from Boral not to proceed with its proposal to acquire Allgas. After undertaking extensive market inquiries, the ACCC found that the acquisition was likely to substantially lessen competition. The Brisbane domestic and commercial gas markets, together with most industrial loads in the Brisbane metropolitan area, are supplied by Boral on the northern side of the Brisbane River, and by Allgas on the southern side.
Boral and Allgas have been assigned franchise areas by the Queensland government. The franchises will be phased out according to the Queensland government's plan for contestability as follows: All loads at or above 100 TJ a year will be contestable after 1 January 2000; All customers will be contestable after 1 September 2001. Market inquiries undertaken by the ACCC indicate that there is already competition between Allgas and Boral in the supply of gas, and this competition is likely to increase when the market is deregulated.
Contracts have already been written with customers in anticipation of deregulation at rates lower than those offered under previous contracts. This competition would be lost if the acquisition were to proceed. There was evidence of competition between Boral and Allgas to supply industrial end-users, and a number of industrial end-users had expressed concerns that they would be affected by a merger between the only two incumbent gas retailers in Queensland.
In the absence of new entry, the effect of the merger on competition would appear to be substantial. After extensive consideration, the ACCC found that entry is not likely to occur or to occur on such a scale and in a sufficiently short time frame as to compensate for the loss of competition between Allgas and Boral when the Queensland market is deregulated.
The ACCC also found that the threat of new entry is not sufficiently credible to constrain the merged entity. NB: Section 50 of the Trade Practices Act prohibits mergers or acquisitions which have the effect or likely effect of substantially lessening competition in a substantial market. Section 4G of the Act states that the term 'substantially lessen competition' includes 'preventing or hindering competition'.