Auckland, New Zealand -- If New Zealand Comfort Group (NZCG) is allowed to buy its competitor Dunlop Living Ltd, it says it would have an 88 percent share in the underlay market in New Zealand.
New Zealand's Commerce Commission is currently considering whether NZCG's proposed acquisition of Dunlop Living would result in a substantial lessening of competition in the three main products of the two groups: flexible polyurethane foam, beds and carpet underlay.
The commission is assessing the extent to which horizontal continuous slabstock PU foam can be substituted by box PU foam for use in beds and furniture applications.
It is also looking at the extent to which PU foam underlay can be used to substitute rubber underlay; and if there is a single market for all box beds, or whether box bedding can be differentiated based on price and/or quality factors.
The competition authority has issued an interim statement on the approach it is taking to investigating the potential outcome if the deal is allowed to go through.
Despite the overwhelming market share in underlay, NZCG claims that imports would provide significant competition. NZCG also says that the recent entry of Australian PU foam producer, Joyce Foams, into the NZ PU foam market would continue to constrain the merged entity.
The company says that most of its PU foam is for use in its own bed manufacturing, and that its plant is configured to produce a relatively narrow range of mainly bedding grade PU foams. The commission says that this suggests that there may be minimal change in the market situation relating to PU foam following the acquisition.
For the bed business, the commission will look at whether existing competitors such as Sealy and AH Beard would provide strong competition post acquisition, and also if imports would constrain the merged entity from exercising market power.
The commission will also consider whether it is credible for large purchasers of PU foam, carpet underlay and bedding to switch suppliers, or import directly, in order to counteract any exercise of market power by the combined entity.
Both NZCG and Dunlop Living are vertically integrated: they make PU foam for use in making beds, and their scrap foam is used to produce underlay. The commission will assess whether the increase in vertical integration would result in NZCG (formerly known as Sleepyhead) being able to exert market power at any level post acquisition.
Since the acquisition would reduce the number of competitors in the PU foam market and result in a high level of concentration, the commission will investigate whether the deal would make it easier for market participants to coordinate behaviour.