Application Exercise 4o: Acquisition of Apollo
- An acquisition in the current context refers one business (THL, incorporated in NZ) purchasing another business, such as Apollo (incorporated in Australia). It typically involves one business purchasing all of the shares in a rival business which effectively becomes a takeover. A takeover involves the business being taken over or purchased (e.g. Apollo) being absorbed into the parent business where the new entity is controlled by the business conducting the takeover (e.g. THL). This is distinct from a merger, which involves two companies joining forces and where the running of the new merged entity is shared.
- The ACCC is concerned because the new entity will control a substantial portion of the RV rental market. Outside of the two existing players (Apollo and THC) there are few businesses that could offer meaningful competition, which would result in a highly concentrated market structure, substantially lessening competition in the market for RV rentals, which works to impede economic efficiency. For example, the new entity would be able to raise prices to much higher levels, such that some consumers will be driven away from the market, which impacts negatively upon allocative efficiency. In addition, with limited competition, the new entity is less likely to be innovative, which impedes the achievement of technical efficiency.
- The peer to peer platforms referred to in the article do provide some semblance of competition to the newly ‘merged’ entity. However, they appear to be quite limited in the extent to which they can exert enough competitive pressure on the dominant supplier. To the extent that these platforms do become a nuisance, the dominant supplier has the ability to limit competition via acquisitions (as it has already done with Camplify.
- A cost from consumers’ point of view is the higher price and perhaps poorer customer service that might result from the acquisition. However, a possible benefit is the wider network of suppliers within the rental network, which provides greater scope for consumers to collect and/or drop off RVs at more Australia wide locations, as well New Zealand.
- The ACCC was convinced that the acquisition would result in a substantial lessening of composition in the marketplace. To help ameliorate these concerns, the ACCC had THL/Apollo sign a court enforceable undertaking that required Apollo to divest (sell off) a substantial portion of its fleet to a rival competitor, Star RV. Star RV would then be in a position to provide a degree of competition in the market such that there would no longer be a substantial lessening of competition in the marketplace.