Goodman Group bid rejected

Press, 1 June 1985, Page 21

Goodman Group bid rejected

Bv

MICHAEL HANNAH

in Wellington The Commerce Commission yesterday rejected the Goodman Group’s application to take 47 per cent of the shares of the Mount Cook Group. The decision removes one area of uncertainty for Mount Cook, but the group’s future is by no means settled yet. A decision has still to be delivered on Air New Zealand’s Bsal to increase its shareig from 30 per cent to 77.03 per cent. Air New Zealand should know the fate of its proposal by next Thursday. The decision barring the Goodman Group from adding the 27 per cent shareholding held by Dominion Breweries to its present stake of 19.96 per cent also now leaves the door open for Goodman’s subsidiary, the Newmans Group, to try for these shares.

If Newmans goes for the whole 37 per cent stake held by DB, it will also have to seek Commerce Commission approval, otherwise it will. be limited to buying 19.9 per cent. Rejecting Goodman’s application, the Commerce Commission delivered a clear mes-

sage to other potential bidders for control of Mount Cook.

The chairman, Mr John Collinge, said the commission considered the public interest was best served by having two vigorous operators in the principal tourist air routes.

The commission considered that competition between Mount Cook and Newmans would be likely to bring real benefits to New Zealand in the attraction of further tourists and that this would assist the country’s balance of payments. It rejected arguments that the present short-term overcapacity ol tourist air services would result in ruinous competition between the two companies. The commission was not impressed by arguments that there was little point in. overseas tourists obtaining the benefit ol price-cutting between New Zealand businesses.

Mr Collinge said that, together, Mount Cook and Newmans controlled virtually 100

per cent of the market for tourist air services. If the commission had allowed the merger and rationalisation of the two tourist airlines to proceed, there was no reasonable prospect of new entrants, and no prospect of effective competition. It now remained for the two companies to translate the surplus capacity in the tourist air services industry into benefits for themselves and, indirectly, for the country. The Goodman Group’s involvement in Mount Cook goes back to an agreement it made with DB to acquire the 47 per cent shareholding DB had taken in Mount Cook in 1983. Goodman has so far acquired the maximum 19.96 per cent it can buy without having to obtain consent. Under the terms of the agreement with DB, Goodman has the right to nominate a buyer or buyers for the remaining 27.04 per cent shareholding, should it fail to

receive consent. Newmans, in which Goodman has a 24.9 per cent stake has expressed interest t< Goodman in purchasing up tc 19.9 per cent of this shareholding in Mount Cook. The commission called for public submissions, and received 25 in all. These had a common theme that the uncertainty created by the battle for control of Mount Cook was having an adverse effect on the purpose and effectiveness of Mount Cook. Mr Collinge said the combined market shares of Mount Cook and Newmans in various areas were significant. A combination of the two companies would be likely to have more than 40 per cent of the package tour market; possibly 70 per cent of the tourist coach market; virtually 100 per cent of the tourist air services market; and more than 50 per cent of the campervan market.'

There was reasonable access of entry for other operators in some of these areas, such as

campervans. But the commission found that access to other areas was barred by capital, access to accommodation and plant, and in the leverage and cross-subsidisation a dominant group could achieve. Mr Collinge conceded there

could be cost-savings to the public from rationalisation, but only if there was sufficient competition to ensure they would be passed on. “With one group holding virtually 100 per cent of the tourist air services market, we do not see how this would be likely to happen,” he observed. He believed the present over-capacity provided a real incentive to New Zealand businesses to develop further using such capacity in what was clearly a growth market. The spectre of failure by Newmans or Mount Cook had been raised, particularly by Goodman, but Mr Collinge said the general consensus was that both Newmans and Mount Cook were viable in the longterm.