PROJECTS

Competition Analysis for Merger of the Port of Tauranga and Ports of Auckland, New Zealand

The problem

Competition between the Ports of Auckland and the nearby Port of Tauranga had become intense, with both investing in channel deepening and other new facilities in an attempt to secure business from the new, larger vessels expected following the widening of the Panama Canal. This competition was leading to over-capacity, which could cause losses for both ports. To prevent such losses the ports opened merger negotiations, with a view to forming a single entity that could optimize investment between the two ports. However, a merger between two competing ports could only proceed if the Commerce Commission (New Zealand’s competition authority) approved.

How we helped

Castalia was retained by the two ports jointly to advise on getting approval for the merger. We advised that there would be a lessening of competition if the two ports merged. However, under the Commerce Act, the Commission would still approve the merger if the public benefits from the merger more than offset the detriment from reduced competition. Our analysis showed that public benefits from avoiding over-investment in port capacity would exceed the detriment from lower competition, enabling us to develop a strategy to gain Commerce Commission approval for the merger.

Impact

The ports negotiated a commercial framework the merger. However, local governments (which own shares in their local ports), decided against proceeding with the merger.