Expert economic testimony paves the way to tile merger

Genesis was appointed by Italtile to provide expert economic opinion and testimony in Italtile’s acquisition of Ceramic Industries Limited (CIL) and Ezee Tile.

Italtile consists of major retail stores such as Italtile, CTM and Top T; upstream supplier CIL is a producer of tiles, baths and sanitaryware products; and Ezee Tile produces grouts and adhesives.

The merger was initially prohibited by the Competition Commission, and Genesis was appointed to provide testimony before the Competition Tribunal on behalf of the merging parties.

The key issue raised by the commission was that the acquisition would result in CIL’s tiles being channelled solely through Italtile’s retail stores, to the detriment of its rivals. This transaction was unique in that the merging parties were already owned by a common majority shareholder.

We provided an expert economic report focusing on the commission’s concerns. In particular, we considered the competitive dynamics in the production and retailing of tiles.

Genesis indicated to the tribunal that the merging parties were unlikely to either have the ability or incentive to stop supplying other retailers, given that alternative sources of supply existed for these retailers. Furthermore, the nature of the markets meant that a foreclosure strategy would be immensely costly to the merged entity, to the extent that there would be limited prospects to recoup at the retail level the upstream cost that would have to be incurred.

Genesis’ analysis ultimately assisted the tribunal in reaching its decision to overturn the commission’s prohibition. The tribunal approved the merger with the sole condition that Italtile not be granted access to information about CIL’s other customers.