Australia's competition watchdog could stop the proposed acquisitions of two foam manufacturers, which the regulator thinks might reduce competition in the nation's polyurethane foam market.
The Canberra-based Australian Competition & Consumer Commission has said it will seek more information about proposed deals between Brisbane-based Wonderest Ltd., trading as Sleepyhead Manufacturing Ltd., and Melbourne-based Pacific Brands Holdings Pty. Ltd.
ACCC will continue to investigate until Feb. 4 and is expected to make a final decision Feb. 24.
In November, Pacific Brands announced it had entered into an agreement to sell two of its business units, Dunlop Foams and Sleepmaker, to Sleepyhead for about US$55 million.
At the same time, it also announced it proposed to buy Sleepyhead's Australian carpet underlay business, Wonderlay Ltd., for a nominal amount.
Sleepmaker is a bedding manufacturer and Dunlop Foams manufactures PU foam. Pacific Brands also owns a PU underlay manufacturing business unit, Dunlop Flooring, which is not part of the deal.
Sleepyhead is an Australian bedding and carpet underlay manufacturer that produces the PU foam used in its products. The ACCC said Sleepyhead had installed a continuous slabstock foaming machine at a new manufacturing plant in Melbourne last year, capable of producing significant volumes of foam.
In Australia, PU foam is produced using either a continuous slabstock machine foaming method or a box foaming method. Smaller foam manufacturers use the box method, allowing the foam to expand into 3-cubic-meter blocks. However, the continuous method used by Sleepyhead produces 60-cubic-meter foam blocks.
ACCC said the plant would supply Sleepyhead's internal foam requirements for each of its bedding manufacturing operations and PU foam to third parties.
It said the new plant's capabilities made Sleepyhead a potential competitor to the two major PU manufacturing and supplying firms, Dunlop Foams and Sydney-based Joyce Foam Pty. Ltd.
In assessing a merger under Australia's Competition and Consumer Act 2010, ACCC must determine whether the acquisition is likely to substantially lessen competition in any relevant market.
In a preliminary statement, ACCC said the proposed acquisition of Dunlop Foams would be likely to result in a substantial lessening of competition.
In the absence of the proposed merger, there may be three large manufacturers of PU foam in this market. The merger would reduce the number of possible competitors in the PU foam market in the future from three to two.
In 2005, Joyce Foam (previously Joyce Corp. Ltd.) was forced to sell its PU and polystyrene businesses offshore to India's flexible PU foam manufacturer Sheela Foam Private Ltd., after ACCC refused to allow a proposed merger with Pacific Brands.
The company, previously based in Perth, became a wholly owned Australian subsidiary of Sheela and was renamed Joyce Foam.
ACCC had opposed the merger on the grounds it would give Pacific Brands too much market power.