BHP steel act to ‘stop threat’

Press, 6 September 1989, Page 41

BHP steel act to ‘stop threat’

By NICK BROWN NZPA Sydney BHP Co acquired a controlling interest in New Zealand Steel to remove its threat to BHP’s dominance of the Australian steel market, Australia’s Trade Practices Commission has argued in court. Although the Commerce Commission in New Zealand cleared the BHP-led Helenus Corp consortium last week to proceed with its SNZ323 million bid for New Zealand Steel, the Trade Practices Commission (TPC) is continuing action in the Australian Federal Court to overturn the deal. The Australian anti-trust watchdog withdrew its application to the Trade Practices Tribunal under section 50A of the Trade Practices Act dealing with acquisitions or mergers which substantially reduce competition. But it was disclosed in the Federal Court in Sydney on Monday that the TPC had last Thursday started proceedings against BHP and its associate companies under section 50 of the Act — hours after the New Zealand Commerce Commission had approved the NZ Steel deal. Whereas successful action under section 50A can lead to a declaration preventing NZ Steel doing business in Australia, section 50 can lead to an order for all the acquired NZ Steel shares to be divested. Rival NZ Steel bidder, Fletcher Challenge, is continuing its own action under section 50A and the tribunal will listen to further legal arguments between FCL and the owners of Helenus on October 27 in Melbourne. Mr Charles Sweeney, Q.C., for the TPC, said BHP enjoyed dominance or near dominance in the Australian and New Zealand steel markets already and had recently spent a large sum increasing its production capacity. “This increase of production capacity occurred against a background of the New Zealand steel market being in a saturated condition, so it is obviously for deployment outside New Zealand,”, he said. “It is our submission that BHP and its related companies expected that the capacity would be deployed in the Australian market, where there is a comfortable margin between the cost of production and the price of steel.

“In those circumstances it is our contention that BHP identified New Zealand Steel with its increased capacity as a desirable object of acquisition for the purposes of removing the competitive threat represented by New Zealand Steel to BHP’s dominance of the Australian market.”

Mr Sweeney said BHP, through subsidiary Australian Iron and Steel, owned 31 per cent of Helenus but had control of 56 per cent of Helenus and NZ Steel because 25 per cent of Helenus was held by Steel and Tube Holdings. Steel and Tube is 49 per cent owned by Tubemakers of Australia, which in turn is 49 per cent owned by BHP. But Mr Stephen Charles Q.C., for BHP, argued that BHP had 31 per cent of NZ Steel “full stop,” as all the other shareholdings were less than 50 per cent. He said that BHP produced 5.5 million tonnes of “marketable steel” a year and NZ Steel sold about 20,000 tonnes into Australia. When considering its potential to increase its capacity, various markets had to be looked at. He also said that there were good reasons to suggest section 50 of the act did not extend to a New Zealand corporation (Helenus) acquiring shares in another New Zealand corporation (NZ Steel). “With all the relevant conduct taking place in New Zealand, it would be surprising that section 50 rather than section 50A applies,” he said. Last Thursday the Federal Court granted the TPC injunctions restraining BHP and its associates from proceeding with the NZ Steel acquisition. But Mr Charles said the orders were made too late to stop the acquisition which had already occurred that day.

When Justice John Lockhart removed the injunctions on Monday, Mr Sweeney foreshadowed that the TPC would seek a new injunction restraining BHP and its associates from making any substantial change in the management or business of NZ Steel, unless it gave five days notice to the Commission.

His aim was to prevent BHP making changes at NZ Steel that could not be undone if the TPC succeeded in its litigation. But Mr Charles said that if the Helenus arrangement needed to be “unscrambled” it could be done by the court ordering divestment of the shares. A letter from Fisher and Paykel, which owns 25 per cent of Helenus, told TPC chairman, Professor Bob Baxt, that NZ Steel was in a “parlous financial position and likely to collapse unless the acquisition was completed quickly.” Mr Charles suggested that if Helenus could not provide management skills it would allow NZ Steel to be destroyed. Before adjourning the case until September 30, Justice Lockhart said he would be reluctant to interfere with the management of NZ Steel.