Green light for CSR and Boral bricks joint venture

ACCC will not oppose proposed clay brick joint venture on the east coast of Australia

THE Australian Competition and Consumer Commission (ACCC) has announced that it will not oppose the proposed clay brick joint venture between CSR Ltd and Boral Ltd on the east coast of Australia, having taken the view that ‘the proposed joint venture would be unlikely to substantially lessen competition’.

‘Critical to the ACCC’s decision was the assessment that Boral would be unlikely to remain in clay brick manufacturing in eastern Australia if the joint venture does not proceed. Without this conclusion, the proposal raised considerable competition concerns,’ said ACCC chairman Rod Sims.

The ACCC has conducted extensive enquiries with the joint-venture parties and market participants more broadly since releasing its Statement of Issues.

Documents and information provided to the ACCC since that time supported Boral’s claims that they would be likely to take steps to realize the land value underlying their brick manufacturing sites in the absence of the proposed joint venture.

According to Mr Sims, the ACCC initially viewed Boral’s claims of market exit in the absence of the proposed joint venture with a great deal of scepticism, as often these claims are unsupported and are therefore rejected.

However, in accordance with its usual practice, the ACCC tested the claims made, including by conducting an extensive review of business records and the financial performance of Boral Bricks East, and the examination under oath of two senior executives of the joint venture parties.

‘The ACCC concluded that there was sufficient evidence to support the claims that Boral would exit brick manufacturing on the east coast and that, on balance, the ACCC should not oppose the joint venture,’ said Mr Sims.

CSR and Boral both welcomed the announcement from the ACCC.

Rob Sindel (pictured), CSR’s CEO and managing director, said: ‘We are very pleased with the ACCC’s decision. This joint venture is about retaining manufacturing in Australia and maintaining clay bricks as a choice for consumers.’

Mike Kane, Boral’s CEO and managing director, added: ‘This is good news for customers, employees and shareholders. With Australian brick manufacturing being challenged as a result of a reduction in brick usage and high input costs, the joint venture will allow us to drive efficiencies across the combined network of operations, creating a more sustainable business.’

The proposed joint venture, which was announced on 4 April 2014, will be 60% owned by CSR and 40% owned by Boral, reflecting the relative valuation of the two businesses. There is no cash consideration as part of the proposed joint venture.

With combined revenue in the order of A$230 million, initial overhead savings of A$7–10 million per annum are expected following the formation of the joint venture and integration of the businesses.

Approval from the ACCC was the major condition to finalizing the transaction. With the review process now complete, the formation of the joint venture is expected to be completed in the first half of 2015.