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Concerns grow over Amcor's proposed takeover of packaging rival

By Rory Harrington , 24-Feb-2012

Amcor’s proposed takeover of Australian packaging company Aperio is motivated primarily by the firm’s desire to eliminate its main rival, could lead to hundreds of job losses and would hit competition in the national market, a leading trade union has warned.

The Australian Competition and Consumer Commission (ACCC) has also voiced anxiety that the acquisition could curb competition as it called for comments on the planned transaction.

The chorus of concern has been swelled by a number of large FMCG customers of the two companies, which fear the merger could see packing prices rise as competition in the market shrinks.

Questionable motives and market concentration

In a letter to the competition authority, the Australian Manufacturing Workers Union (AMWU) raised the spectre of sweeping job cuts and a drastic reduction in competition in the flexible packaging sector in Australia should the deal be approved.

Aperio is currently the second largest flexible packaging player in Australia, serving a raft of sectors including bakery, snacks, confectionery, dairy, beverage and frozen foods.

AMWU national secretary, printing division, Lorraine Cassin earlier this month told the ACCC it had numerous fears over the proposed buyout.

“We see the move by Amcor as one of eliminating a competitor rather than the acquisition of an asset to benefit the market,” she said.

Amcor already has ample flexible packaging capacity, having increased its supply capability in Asia, said Cassin, as she expressed strong doubts that the takeover would lead to increased competition or lower prices for consumers.

The union forecast that the move would result in job losses from Aperio’s 550-strong workforce. Costs savings from redundancies and other synergies, combined with market concentration “would allow excess profits to be earned given the lack of discipline from market forces”.

Competition and price fears

An investigation by the union showed that allowing the takeover would almost double Amcor’s Australian flexible packaging market share in to 43% and would be more than twice that of the combined share of its other two rivals.

The packaging giant already has 22% to 25% stake in the sector, with Aperio being its closest competitor on 16% to 18%. Other major players are Sealed Air, on 16% and Innovia on 3%, it said.

“We see this level of market concentration as having the likely effect of limiting competitive pressures in the market,” she said. “We also see one player with a 40% market share as having the ability to exert upward pressure on prices, a pressure quite different from that currently in the market.”

Competition authority anxieties

The ACC listed a narrowing of competition under a list of issues “that may raise concerns”.

It said it currently believes “the proposed acquisition may substantially lessen competition for the supply of flexible packaging products in Australia”.

The body appeared sceptical of claims made by the parties that there was limited overlap in their operations, instead saying it considered “the proposed acquisition would remove Amcor’s main competitor” in the national market.

Its own review suggested “extensive overlap” with Amcor and Aperio thought to account for 95% of frozen food and personal care applications.

An ACCC statement reported that some large volume FMCG customers of the companies had raised concerns the deal would lead to a reduction in competition, paving the way for possible price increases or cuts in innovation.

The ACCC said the deadline for comments on the issue in 8 March and that it will announce its final decision on 29 March.