The Commerce Commission awaits statement of preliminary issues and submissions on clearance application
Contact Energy Limited has issued a clearance application to the Commerce Commission in order to acquire 100% of the shares in Manawa Energy Limited.
Advising Contact on the proposed acquisition is Bell Gully though a scheme of arrangement approved by the court. The Manawa shareholders will be receiving consideration that is valued at $5.95 per Manawa share under the scheme, which would imply an enterprise value of $2.3 billion.
Notably, both firms are generators and wholesalers of electricity in New Zealand, with Contact generating electricity from two hydro dams in the South Island and geothermal and thermal power stations in the North Island. Meanwhile, Manawa generates electricity from 25 hydro schemes and a thermal power station across New Zealand.
The two firms wholesale the electricity which they generate to retailers as well as those from the large commercial and industrial sectors. While Contact is one of the many generators and retailers of electricity in New Zealand, Manawa does not directly sell the electricity it generates to residential customers.
The Commerce Commission has yet to issue a statement of preliminary issues and call for submissions regarding the application but a public version of the clearance application is already available on its case register.
The Commission will only give clearance to Contact to push through with the merger should it find that it is unlikely to result into a substantial lessening of competition in one of the markets in New Zealand. This is determined through a substantial lessening of competition test that compares the likely state of competition if a merger proceeds with the likely state of competition if it does not.
“A lessening of competition is generally the same as an increase in market power, which is the ability to raise prices and reduce the quality of goods and services that would exist if there was a competitive market,” the Commission’s guidelines read.
“We will authorise a merger if we are satisfied that the merger would be likely to result in such a benefit to the public that it should be permitted even though it may substantially lessen competition.”
The implementation of the scheme is targeted to take place in the first half of 2025.
