Pact Group Pty Ltd - proposed acquisition of Viscount Plastics Pty Ltd

Summary

Pact Group Pty Ltd proposed to acquire Viscount Plastics Pty Ltd.

Market definition

The ACCC considered the proposed acquisition in the context of the following markets:
- the market for the manufacture and supply of PET containers (including PET jars, bottles and containers) in Western Australia;
- the national market for the manufacture and supply of plastic pails;
- the national market for the manufacture and supply of plastic building cartridges; and
- the national market(s) for the manufacture and supply of materials handling products.

However, the ACCC did not consider it necessary to reach a definitive view on the precise boundaries of the markets identified. In particular, the ACCC did not reach a definitive view on whether:
- there was a single market for the manufacture and supply of PET containers or separate markets for those PET containers manufactured on two-stage equipment (such as PET beverage bottles) and PET containers manufactured on single stage equipment; and
- there was a single market for all materials handling products, or whether the market should be defined more narrowly (in terms of separate markets for the supply of particular products such as pallets).

Competition analysis

The ACCC formed the view that the proposed acquisition was unlikely to substantially lessen competition in any of the relevant markets.

PET containers

The ACCC considered that the proposed acquisition was unlikely to result in a substantial lessening of competition in this market.

There was no geographic overlap between the PET container operations of Pact Group Pty Ltd (Pact) and Viscount Plastics Pty Ltd (Viscount). Viscount manufactures PET containers only in Western Australia. Pact does not presently manufacture PET containers in Western Australia.

The ACCC considered that following the proposed acquisition Pact and Visy Industries Australia Pty Ltd (Visy) would be the only substantial suppliers of PET containers to third-party Western Australian customers. The ACCC considered whether, in light of the relationships and links between Pact and Visy, the level of competition between Visy and Viscount would be reduced by virtue of Viscount becoming part of Pact.

However, for the purposes of this assessment, the ACCC did not need to reach a concluded view on the likelihood of Visy providing an effective independent constraint on Pact post acquisition because:
- the ACCC concluded that Visy and Viscount are not close competitors. The present level of competition between Visy and Viscount in respect of PET containers is limited, given their different manufacturing profiles and customer bases; and
- many customers would be able to bypass the merged firm by commencing in-house PET container production. The ACCC had regard to examples of customers of various sizes who presently manufacture some or all of their PET container requirements in-house.

Plastic pails

The ACCC considered that the merged firm is likely to be constrained by alternative domestic suppliers of plastic pails supplying products of comparable price, quality and product characteristics. Many of these alternative domestic suppliers could readily expand by increasing their production capacity to defeat an attempted price increase by the merged firm.

Post acquisition, National Can Industries Limited (NCI) will be the largest supplier of plastic pails after the merged firm. The ACCC noted that Bennamon Pty Ltd (a related entity of Pact) held a 19.99% shareholding in NCI. As part of its review the ACCC considered the extent to which this shareholding may affect the merged firm's incentive to compete effectively against NCI (given that it would enjoy 19.99% of NCI's profits). However, the ACCC also noted that NCI recently announced to the ASX that Bennamon has entered into a share purchase agreement for the sale of Bennamon's shares in NCI.

Plastic building cartridges

While the proposed acquisition would result in the merger of the two largest domestic suppliers of plastic building cartridges, the ACCC considered that the merged firm is likely to be constrained by the ability of customers to:
- sponsor new market entry; and
- credibly threaten to import cartridges to satisfy their requirements. The ACCC had regard to examples of customers previously importing building cartridges, and the widespread practice of customers successfully benchmarking domestic prices to imported alternatives during tender processes.

Materials handling products

The ACCC considered that the proposed acquisition would have only a limited impact on Pact's share of sales of materials handling products (irrespective of market definition), and that the merged firm would continue to be constrained by other competitors.