In its application, Southern Cross stated that its broad reasons for the proposal were to acquire Aetna’s information technology system and then use it to upgrade its own system, and to acquire Aetna’s health management business so that it could expand its own business lines.
Both Southern Cross and Aetna are also involved in providing medical insurance, and are currently the two largest providers of this insurance in New Zealand.
The Commission had declined Southern Cross’ first application in August. That application did not include a divestment undertaking.
In its first decision the Commission had stated that a merged Southern Cross and Aetna would have had a very high combined market share. The Commission was not satisfied that the merged entity would face effective constraint from existing or potential competitors in the event that it attempted to significantly raise prices, or reduce benefits or services. Moreover, the proposed acquisition would have had the effect of removing Southern Cross’ principal competitor.
Southern Cross then made a second application including an undertaking that, if the proposed acquisition went ahead, it would divest a number of medical insurance policies of insured members of Aetna.
In its second decision, the Commission concluded that it was not satisfied that a divestment undertaking of the kind offered would answer the Commission’s concerns about dominance.
Southern Cross then made a third application including the undertaking to divest all of the medical insurance policies of insured members of Aetna. It undertook to keep the Aetna medical insurance business separate from Southern Cross during the sale process. The undertakings also provide that Southern Cross will not have access to confidential and commercially sensitive informaton about Aetna policy holders.
Commission chair John Belgrave said that, subject to the divestment and associated undertakings, the Commission is satisfied that the proposal would not result in Southern Cross acquiring or strengthening a dominant position in the medical insurance market.
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