PUBLIC Version ISSN No. 0114-2720 10103 Decision No. 589 Determination pursuant to the Commerce Act 1986 in the matter of an application for Proposal CRBF LIMITED and CARTER HOLT HARVEY LIMITED The Commission: Paula Rebstock Denese Bates QC Peter J M Taylor Summary of Application: CRBF Limited seeks clearance to acquire shares and assets owned by Carter Holt Harvey Limited, relating to forestry estates located in Northland, Auckland, central North Island and Nelson. Determination: Pursuant to section 66(3)(a) of the Commerce Act 1986, the Commission determines to give clearance to the proposed acquisition. Date of Determination: 05 October 2006 CONFIDENTIAL MATERIAL IN THIS REPORT IS CONTAINED IN SQUARE BRACKETS CONTENTS EXECUTIVE SUMMARY ............................................................................................i GLOSSARY .................................................................................................................iv Terms ........................................................................................................................iv Parties.........................................................................................................................v THE PROPOSAL ..........................................................................................................1 PROCEDURE................................................................................................................1 STATUTORY FRAMEWORK.....................................................................................1 ANALYTICAL FRAMEWORK...................................................................................2 THE PARTIES...............................................................................................................2 CRBF .........................................................................................................................2 CHH ...........................................................................................................................3 OTHER PARTIES.........................................................................................................3 Northland ...................................................................................................................3 Matariki..................................................................................................................3 Crown Forestry ......................................................................................................3 PF Olsen.................................................................................................................3 NFML ....................................................................................................................4 Nelson/Marlborough..................................................................................................4 Weyerhaeuser.........................................................................................................4 Matariki..................................................................................................................4 NPI .........................................................................................................................4 ASSOCIATION.............................................................................................................4 INDUSTRY BACKGROUND ......................................................................................5 Northland Forestry Region ........................................................................................6 Nelson/Marlborough Forestry Region .......................................................................6 Log Production...........................................................................................................6 Log Supply.................................................................................................................7 Log Processors...........................................................................................................8 Pulplog Processors.............................................................................................8 Unpruned Sawlog Processors ............................................................................8 Pruned Sawlog Processors .................................................................................8 PREVIOUS COMMISSION DECISIONS ...................................................................9 MARKET DEFINITION.............................................................................................10 Product Market.........................................................................................................10 Conclusion on Product Markets...............................................................................11 Functional Markets ..................................................................................................11 Geographic Markets.................................................................................................12 Conclusion on Geographic Markets.........................................................................17 Temporal Dimension ...............................................................................................17 Conclusion on Market Definition ............................................................................18 COUNTERFACTUAL AND FACTUAL ...................................................................18 Northland .................................................................................................................19 Factual..................................................................................................................19 Counterfactual......................................................................................................19 Nelson/Marlborough................................................................................................19 COMPETITION ANALYSIS......................................................................................22 Northland Region.....................................................................................................22 Pulplog Markets...................................................................................................22 Existing Competition .......................................................................................22 Expansion through Diversion from Export..................................................25 Conclusion on Expansion through Diversion from Export..........................26 Merger Simulation .......................................................................................26 Conclusion on Merger Simulation...............................................................27 Conclusion on Existing Competition...............................................................27 Countervailing Power ......................................................................................27 Conclusion on Countervailing Power ..............................................................28 Conclusion on Pulplog Markets...........................................................................28 Unpruned Sawlog Markets ..................................................................................29 Existing Competition .......................................................................................29 Expansion through Diversion from Export..................................................32 Conclusion on Expansion through Diversion from Export..........................33 Merger Simulation .......................................................................................33 Conclusion on Merger Simulation...............................................................34 Conclusion on Existing Competition...............................................................34 Countervailing Power ......................................................................................34 Conclusion on Countervailing Power ..............................................................35 Unilateral Market Power..................................................................................35 Conclusion on Unilateral Market Power..........................................................36 Coordinated Market Power..............................................................................37 Conclusion on Coordinated Market Power......................................................38 Conclusion on Unpruned Sawlog Markets ..........................................................38 Pruned Sawlog Markets .......................................................................................39 Existing Competition .......................................................................................39 Expansion through Diversion from Export..................................................43 Conclusion on Expansion through Diversion from Export..........................44 Merger Simulation .......................................................................................44 Conclusion on Merger Simulation...............................................................44 Conclusion on Existing Competition...............................................................45 Countervailing Power ......................................................................................45 Conclusion on Countervailing Power ..............................................................46