The Commerce Commission is not satisfied that the benefits of a merger between NZME Ltd and Fairfax New Zealand Ltd would outweigh the detriments it considers would occur if it was to proceed, says Commission chair Mark Berry.

The Commission has released its final decision, which declines authorisation for NZME and Fairfax to merge their media operations in New Zealand.

It says it is not satisfied that a substantial lessening of competition is unlikely, nor that there is likely to be such a benefit to the public that authorisation should be granted.

The applicants now have 20 working days to decide whether to file an appeal with the High Court.

The process followed

Authorisation applications follow a two-step process under the Commerce Act 1986. These are further outlined in the Commission's Authorisation Guidelines.

The Commission must first assess whether the merger would be likely to substantially lessen competition in a market.

This is done by comparing the likely state of competition if the merger proceeds, with the likely state of competition if it does not. If the Commission is satisfied that the merger is not likely to substantially lessen competition, it will clear the merger at the first step.

However, if clearance cannot be given due to competition concerns, the second step is to determine whether the merger should be authorised applying the public benefit test. This involves a balancing of the public benefits and detriments that would, or would be likely to, result from the merger. The Commission must authorise a merger if it is satisfied that the merger will result in such a benefit to the public that it should be permitted.

The Commission says it can only accept structural undertakings, such as the divestment of assets, from parties to resolve competition concerns. It cannot accept behavioural undertakings - where the parties agree they would or would not make specific business decisions post-merger in order to gain approval.

Disagreement with scenarios

Commission Chair Mark Berry says the Commimssion recognises that NZME and Fairfax face a challenging commercial environment as they seek to transition from their traditional print products to a sustainable online model. However, he says, the Commission disagreed with some of the scenarios they put forward about their respective futures without the merger.

“Following our draft determination the applicants significantly altered their submission on what the state of the market would look like without the merger," he says.

"The details of those submissions are confidential; however, we do not consider the scenarios presented to be likely outcomes. In our view, without the merger NZME and Fairfax will be increasingly focused on their online businesses as their print products diminish in number and comprehensiveness over time.

“We accept there is a real chance the merger could extend the lifespan of some newspapers and lead to significant cost savings anywhere between $40 million to around $200 million over five years. However these benefits do not, in our view, outweigh the detriments we consider would occur if it was to proceed.”

Dr Berry says the merged entity would have direct control of the largest network of journalists in the country, employing more editorial staff than the next three largest mainstream media organisations combined. Its news media business would include nearly 90% of the daily newspaper circulation in New Zealand and a majority of traffic to online sources of New Zealand news. Including its radio network, the merged entity would have a monthly reach of 3.7 million New Zealanders.