ACCC seeking further information regarding proposed CSR and Boral clay brick joint venture
THE Australian Competition and Consumer Commission (ACCC) has released a Statement of Issues regarding the proposed joint venture by CSR Ltd and Boral Ltd to combine their clay brick operations located on the east coast of Australia, as announced on 4 April 2014.
The proposed joint venture would reduce the number of major clay brick suppliers in eastern Australia from three to two, with the other being Austral Bricks. In New South Wales and Queensland, the two remaining suppliers, the joint venture and Austral Bricks, would account for approximately 99% of the supply of clay bricks.
ACCC chairman Rod Sims (pictured) said: ‘The ACCC is seeking further information to determine whether the proposed joint venture is likely to substantially lessen competition in the supply of clay bricks. The proposed joint venture would result in a duopoly in eastern Australia, and the ACCC’s preliminary view is that this would be likely to lead to an increase in the price of clay bricks as well as a reduction in the product range available to residential builders, architects and end-consumers.’
He added: ‘A critical issue for the ACCC is determining what would be likely to occur in the markets if the proposed joint venture does not proceed. At this stage, the ACCC intends to assess the likely competition effects of the proposed joint venture on the basis that CSR and Boral will remain in the markets in some form if the joint venture does not proceed, but we are seeking further information on this issue.’
CSR and Boral say they are reviewing the Statement of Issues and will continue to engage with the ACCC to address the issues identified. Both companies consider that the merits of the transaction are significant and that the transaction would not result in a substantial lessening of competition.
They say Australian brick manufacturers have experienced a sustained structural downward trend in demand for brick products over the past 30 years, and that with bricks becoming an increasingly smaller component of the highly competitive cladding market, lower brick demand has resulted in declining capacity utilization, reduced profitability, plant curtailments and closures.
According to Boral and CSR, the proposed transaction will enable both companies to access additional operational and overhead efficiencies that would otherwise be unavailable to the parties acting independently. The joint venture will, they say, be a more sustainable business positioned to deliver returns that recover the cost of capital through building cycles.