Public Version COMMERCE ACT 1986: BUSINESS ACQUISITION SECTION 66: NOTICE SEEKING CLEARANCE Date: 30 August 2019 The Registrar Mergers and Acquisitions Commerce Commission PO Box 2351 Wellington Pursuant to section 66(1) of the Commerce Act 1986 notice is hereby given seeking clearance of a proposed business acquisition. Part 1: Overview This is an application for clearance pursuant to section 66(1) of the Commerce Act 1986 made by Queenstown Bungy Limited (Purchaser ) to acquire adventure tourism operations located at Taupo owned by Taupo Bungy Limited (the Vendor ) (the Proposed Acquisition ). Queenstown Bungy Limited and Taupo Bungy Limited together are termed the Parties . The assets the Purchaser will acquire in the Proposed Acquisition comprise the business and physical assets used for the Vendor’s bungy and swing business in Taupo, known as Taupo Bungy. The Purchaser operates bungy, swing, catapult jump sites, and related businesses in Queenstown and Auckland, but does not currently have any operations in the Taupo area or surrounding region. The Purchaser considers that Taupo Bungy’s operations occur within a broad retail tourism activities market, but appreciates that it may be appropriate to consider defining the relevant market for the purposes of this application as the market for the provision of retail tourism adventure activities in the Central North Island region. This is similar to the market defined in the Commission’s 2003 clearance of Bungy New Zealand’s acquisition of Pipeline Bungy in Queenstown. The Proposed Acquisition will not, and will not be likely to, cause a substantial lessening of competition as: 1.5.1 It will not result in any aggregation of market share, as the Purchaser does not currently operate in the Central North Island region. Rather, the Proposed Acquisition is simply a change in operator. 10507676_1 1.5.2 To the extent that the Purchaser’s Auckland and Queenstown operations may currently place some competitive constraint on the Vendor’s actions, the removal of that constraint will have a negligible effect on competition, as: The relevant counterfactual against which to test the competition implications of the Proposed Acquisition is a counterfactual in which Taupo Bungy continues under current ownership and operation for the foreseeable future. Under both the factual and the counterfactual, there will be significant constraints on the Taupo Bungy operation from other adventure tourism operators in the Central North Island region and from other tourism businesses competing for the spend by visitors. This competition includes competitive constraints imposed from bungy operations in Rotorua and the potential for a new bungy tower at Waitomo. The expected level of competition, and of competitive constraints, in the market will not be materially different under the counterfactual than it will be under the Proposed Acquisition. Indeed, with the Purchaser’s expertise and networks, the Taupo Bungy operation may be able to compete even more strongly than at present with other adventure tourism operations. The Purchaser therefore submits that clearance should be granted. Part 2: Parties’ Details 2 Queenstown Bungy Limited Purchaser: This notice is given by Queenstown Bungy Limited (Company Number: 863386). The Companies Register extract for the Purchaser is set out at Appendix 1. Contact: The contact details for Purchaser are as follows: The registered office of the Purchaser is: Crowe Horwath (NZ) Ltd 173 Spey Street, Invercargill, 9810 New Zealand Head office address: Bungy HQ Corner Shotover and Camp Street Queenstown 9300 Website: https://www.bungy.co.nz/ Contact Person: David Mitchell, Chief Executive Officer, Bungy New Zealand Limited Telephone: 04 441 0267 Mobile: 027 515 9485 Email: [email protected] Correspondence: Purchaser requests that all correspondence is directed in the first instance to: Nick Crang Partner, Duncan Cotterill 2 Level 2, Chartered Accountants House 50 Customhouse Quay Wellington 6011 Telephone: 04 471 9440 Fax: 04 499 3280 Email: [email protected] 3 Other party to the acquisition: Vendor: The other party to the acquisition is Taupo Bungy Limited (Company Number: 532175). Contact: The contact details for the Vendor are as follows: Registered office/physical address and address for service: 81 Horomatangi Street, Taupo, 3330 New Zealand Website: taupobungy.co.nz Contact person: David Brown, Director Telephone: 07 377 8509 Mobile: 027 699 4984 Email: [email protected] 4 Structure of the Parties The Purchaser is a registered limited company operating in New Zealand. The Purchaser is wholly owned by Bungy New Zealand Limited, which through its subsidiaries operates adventure tourism sites in Auckland and Queenstown. Neither Bungy New Zealand Limited nor its subsidiaries own any adventure tourism operations in New Zealand other than at the sites in Auckland and Queenstown. The group (Bungy NZ ) has been operating for more than 30 years, since 12 November 1998. The shareholders in Bungy New Zealand are Fun Innovations NZ Limited (50%), Trojan Holdings Limited (40%) and Gulley Holdings Limited (10%). These companies, and their shareholders are set out in Appendix 2 in diagram form. None of those companies are interconnected bodies corporate to Bungy New Zealand Limited or the Purchaser but the Purchaser acknowledges that Fun Innovations NZ Limited, Trojan Holdings Limited and their shareholders could be considered associated persons of the Purchaser. Those two companies and some of their shareholders have shareholding interests in other companies. Out of caution (in case they are associated persons of Bungy NZ), the Applicant has checked on the operations of these companies. The Applicant advises that while some of the companies operate in the tourism sector, none of the companies operate in the Taupo/Rotorua area. There is, therefore, no overlap in a competition sense with Taupo Bungy. A summary of the operations of these companies is also set out in Appendix 2. The Vendor is a registered limited company in New Zealand. It is wholly owned by Taupo Tourism Holdings Limited, which according to the Companies Register is owned by Audrey O’Callahan, Alastair Macdonald and Douglas Sunnex. The directors of Taupo Tourism Holdings and Taupo Bungy Limited are David Brown, Alastair Macdonald and Douglas Sunnex. There is no common ownership between the Purchaser and the Vendor. 5 Overview of the Parties The Purchaser operates adventure tourism services in Queenstown under the trading name AJ Hackett Bungy, and its group also operates two adventure tourism sites in Auckland. The 3 Purchaser’s head office is in Queenstown, and its management and operations staff are primarily in Queenstown. The Purchaser focuses on providing high quality gravity related challenges. It seeks to locate these in highly scenic places, and its unofficial motto is “cool things in cool places”. The Purchaser’s attractions are all marketed and run as experiences for consumers, rather than individual features on their own. The Purchaser operates: 5.3.1 A bungy jump, swing and a new catapult ride at its Nevis location near Queenstown. 5.3.2 A bungy jump and zip ride at the original Kawarau location. 5.3.3 A bungy jump and swing at its Ledge location in Queenstown. 5.3.4 A bungy jump and bridge walk at the Auckland Harbour Bridge and a Sky Jump and Tower Walk experience at the Auckland Sky Tower. 5.3.5 A cafeteria and gift shops, which sell apparel, accessories and other ornamentation, associated with its primary businesses. The Vendor operates bungy, swing and associated businesses known as “Taupo Bungy” in Taupo, New Zealand. The Vendor established Taupo Bungy in 1992. The existence of Taupo Bungy means that tourists and locals in Taupo are able to experience a bungy jump and adventure swing experience while in the area. The Vendor wishes to sell the Taupo Bungy business and assets to realise its capital for the benefit of its aging shareholders, and has decided to sell Taupo Bungy to the Purchaser. The Vendor has also previously operated a bungy and swing operation at Mokai Gravity Canyon on the Rangitikei River south of the volcanic plateau. That site has not operated for several years. [ ]. The Purchaser is purchasing only the Taupo Bungy operation, and will not obtain any rights in the Mokai Gravity Canyon assets. Part 3: Transaction Details 6 Proposed transaction The Proposed Acquisition would involve the acquisition by the Purchaser of the Taupo Bungy business located at 202 Spa Road, Taupo, New Zealand and related assets including all tangible and intangible assets owned by the Vendor, but not including the cash in the Vendor’s bank account, nor its debtors. The lease over land currently owned by Taupo District Council will also be acquired subject to the Council’s consent to the assignment. The purchase price is [ ]. 7 Commercial rationale for the proposed merger The commercial rationale for the Proposed Acquisition is as follows: 7.1.1 Taupo Bungy has operated successfully for the last two to three decades however the Vendor is seeking to sell the business to realise its capital value for the benefit of its aging shareholders who have a reduced drive to invest further, innovate or expand the business. 7.1.2 The Purchaser wishes to purchase Taupo Bungy as it believes it can maintain and increase the businesses’ activities and profitability, due to the Purchaser’s historic success and extensive experience in operating adventure tourism services in New 4 Zealand. The Purchaser intends to invest further in development and a refresh of the site. Consumers who attend the operation may also experience more satisfaction given the positive reviews received by the Purchaser at its currently operating sites. 7.1.3 Staff of the business will have greater opportunity to develop, and there is greater likelihood of further employment for the site and the economic multiplier effect on the local community. 8 Control of target company/assets The Vendor currently controls the assets comprising the Taupo Bungy business and is the lessee under a lease from the Taupo District Council at its site at 202 Spa Road.