Thursday, 21 October 2010
Australian Competition and Consumer Commission
The Australian Competition and Consumer Commission was established to ‘promote competition and fair trade in the marketplace to benefit consumers, businesses and the community’. Today, I want to highlight how bureaucracy, driven by the ACCC, can actually stifle competition and not promote or protect it. I bring to the parliament’s attention a recent matter. In 1989, two Hunter Valley businessmen, Hilton Grugeon and Grahame Chevalley, started a business together in construction and development. Two of their many enterprises were a ready-mix concrete business and a joinery business. In 1998, Grugeon and Chevalley became frustrated with their difficulty in sourcing concrete pipes in Australia, so they decided to make their own. They acquired the latest technology from the United States, Korea, Italy and Germany and installed it in a factory in the Thornton industrial estate. The business was named Hunter Concrete Products, or HCP.
At first they only used the pipes for their own development business. However, they soon found that their equipment was so efficient they could produce enough for others; thus, they began selling to the open market. By 2009, HCP had taken nine per cent of the market share in New South Wales. Its two major competitors, Humes Pipes, owned by Holcim Australia, and Rocla, held 34 per cent and 39 per cent respectively. Much of this growth was made possible because of the advanced equipment being used by HCP. Even at this stage, they were only utilising the equipment at 12 to 15 per cent of its full capacity.
In late 2009, Holcim approached Grugeon and Chevalley to see if they would be interested in selling their equipment to Humes Pipes as they wanted to modernise their plant. Grugeon entertained the offer, as he was looking to his retirement and wanted to see the equipment used at full capacity. At this stage all dealings between HCP and Holcim were confidential because Holcim did not wish to telegraph its potential upgrade to the market. Nevertheless, while HCP considered the offer, the lawyers for Holcim put together a confidential courtesy notification for the ACCC. Approximately six months later, on 9 July 2010, the ACCC put that confidential courtesy note on its website. This blew any confidentiality between the parties wide open. Grugeon and Chevalley were not even advised that the notification had been made public. They only found out when customers reported that HCP’s major competitor, Rocla, had phoned to say there was no point buying from HCP any more as Humes was acquiring the business.
The lawyers for Holcim had mistakenly written a covering letter, which described the transaction as a total buy-out of HCP, when in fact the acquisition was only ever of plant and equipment. The ACCC launched an investigation and continued on in false information, even after it was made aware of the lawyers’ error. The ACCC put on its website a date on which it would deliver a decision; however, at six o’clock the night before it demanded more information from Holcim. It then put on the website that it could not make a decision because all of its queries had not been responded to. The ACCC also asked for documents from Grugeon and Chevalley but they declined because the information had to do with figures of the business and not of the equipment. Of course, Holcim itself had never wanted nor had access to the figures because it was not acquiring the business.
Grugeon was particularly hesitant to provide the information since the ACCC had completely ignored any measure of confidentiality. He told the ACCC that it should have cancelled the investigation when it discovered the lawyers’ error. The ACCC made various calls to Grugeon for information but was unsuccessful. During this time Grugeon said he felt intimidated by four lawyers at the ACCC who phoned him on a conference call to entice him to meet their requests. Both parties were advised the decision would be made before 19 August. Finally, on 12 October, almost two months later, the ACCC did announce the inevitable finding that there was absolutely no problem with the acquisition. However, its statements suggest that it had still not figured out that it was a purchase of equipment and not the business itself.
The difficulty for Grugeon and Chevalley was that the whole thing was played out in the public arena. This caused unnecessary uncertainty for their staff and customers. Further, had Holcim not completed the purchase, the whole affair would have been extremely detrimental to HCP.
What this says to businessmen and investors planning to take on a big company is: don’t do it as you might not be able to exit your business easily; and, the ACCC can cause all sorts of problems by not adhering to its own charter. The bottom line is this: the ACCC is stifling opportunities for competition and it flies directly in the face of what it was created to do. It therefore needs to maintain a better focus on competition. Small business should be encouraged to invest and take on a national competitor. That is how companies grow, creating more jobs and a stronger economy. It is also how many Australian companies are able to offer us such wonderful goods and services.