Printing Industries has thrown its support behind the proposed merger of PMP and IPMG that has been delayed as the Australian Competition and Consumer Commission (ACCC) takes a closer look at the potential impacts of the deal.
In a submission to the corporate regulator, Printing Industries CEO Andrew Macaulay argues the ACCC will be obstructing innovation and market adaptation if it blocks the merger.
“The ACCC must not stand in the way of the proposed IPMG and PMP merger,” says Macaulay. “The ACCC should leave the industry to make the market more competitive, particularly internationally; to encourage investment and innovation and to create jobs.’’
‘’ACCC blockage would lock the market in its present state – lacking in efficiency, with excess capacity and obsolete equipment. In so doing, the ACCC would be consigning the market and the industry to the past.”
In its Statement of Issues, the ACCC has voiced concern that the merger might reduce competition in the heatset web offset market.
Printing Industries says that the merger will be good for competition; will promote significant capital investment; promote innovation; and assist in bringing print jobs back from overseas.
Macaulay argues that customer power is one of the reasons why the merger will not lessen competition in the heatset web offset catalogue and magazine market.
‘’Particularly in the catalogue market, customers are dominated by chain stores, such as supermarkets and merchandise stores. These customers hold the whip-hand. They are strong negotiators who decide how, when and where the print product will be supplied. These customers will not hesitate to use overseas print companies or indeed finance expansion or new entrants into the marketplace to get the best price possible for the products they want.’’
Macaulay says that the merger must happen now, while the barriers of entry to and/or expansion in the market could ‘hardly be lower.’
‘’Interest rates are low; finance is accessible; new & second-hand heatset web offset equipment available; and exchange rates are in favour of those who want to upgrade technology or equipment,’’ he says.
Printing Industries president Kieran May says members of the national association are generally in favour of the merger.
“The association consulted widely with our members and they generally support the merger,” says May. “The feedback goes along the lines that the industry needs consolidation and, notwithstanding some trepidation, many members believe that new opportunities will emerge.”
Submissions to the ACCC on the proposed merger closed yesterday.
Here’s a summary of the PIAA’s submission:
Arguments in favour of the proposed merger
The merger of IPMG and PMP (‘the Merger’) must not be blocked.
The Merger:
• Is good for competition.
• Will promote significant capital investment.
• Will promote innovation.
• Will assist in bringing print jobs back from overseas.
In seeking the Merger, IPMG and PMP are being proactive in tackling the excess capacity and obsolete or duplicated equipment in the market.
This excess is a direct result of ongoing decisions made by print customers to reduce the quantities of print they order. In other words, it is a result of decisions made by others and therefore outside the ‘control’ of individual print businesses.
The Merger will allow the merged entity to consolidate operations and invest in modern and efficient equipment and consequently to compete on an equal footing with other major market participants, including the IVE Group.
The consequent investment in state-of-the-art equipment across the industry will force a reduction in the costs of production, thereby making the Australian industry competitive with overseas producers.
Due to customer power, the Merger will not lessen competition
The merged entity, together with the IVE Group, existing and new market entrants, as well as overseas printers, will compete in the market.
Magazine publisher customers are governed by their advertising revenue and magazine sales, which then influence the quantity of magazines ordered and the number of pages they are to contain.
The significant catalogue customers of high-volume heatset web offset printing are limited and large. They include and are dominated by large chain stores, including supermarkets and merchandise stores.
These customers hold the whip-hand. They are extremely strong negotiators who decide how, when and where the print product will be supplied.
These customers will not hesitate to use overseas print companies or indeed finance expansion or new entrants into the marketplace to get the best price possible for the products they want.
The Merger will not materially affect price or service levels, because of the market-power wielded by these customers.
To maximise flow-on benefits, the time for the Merger is now
The Merger must happen now, to accelerate the flow-on benefits of improving viability and shareholder-return; reducing excess capacity; increasing investment by replacing obsolete or duplicated equipment; and the entry of new operators into the market.
The barriers of entry to and/or expansion in the market could hardly be lower than they are right now because:
• Interest rates are low
• In general, finance is easily obtainable
• Second-hand heatset web offset equipment is easily available and affordable
• Exchange rates set an environment favourable for market participants who want to move to new technology and purchase new machinery and/or second-hand machinery (all of which is produced overseas).
The ACCC is due to announce its decision on 23 February 2017.