ACCC approves Armaguard-Prosegur merger

George Lekakis

In a decision bound to draw a mixed reaction from banks, retailers and other cash-issuing businesses, the Australian Competition and Consumer Commission on Tuesday approved the proposed merger of cash logistics giants, Armaguard and Prosegur.
 
The companies are now free to combine their businesses, even though it will substantially lessen competition in the supply of cash-in-transit services to banks, retailers and the merger partners’ rivals in the automated teller market.
 
In a controversial decision, the ACCC has approved the merger despite acknowledging that it will lessen competition in the cash logistics industry.
 
“After conducting an extensive review of the transaction, we were not satisfied that the proposed merger would not substantially lessen competition,” said ACCC Commissioner, Liza Carver.
 
“However, we are satisfied that, provided the parties comply with the undertaking, the proposed merger is likely to result in a public benefit that would outweigh the likely public detriment.
 
“We accepted that, without the proposed merger, it was highly probable either Armaguard or Prosegur would withdraw from the declining cash-in-transit market in the near future and this exit could occur very quickly.
 
“We were concerned that the rapid exit by either of these two major suppliers could cause significant disruption, including by reducing the availability of cash to their customers, and therefore the public.”
 
The undertaking given by Armaguard and Prosegur requires the merged entity to continue providing cash-in-transit services over the next three years to all clients and locations that are currently serviced by either or both companies.
 
There are also restrictions on the extent to which the combined Armaguard-Prosegur business can reprice cash-in-transit services.
 
The merger partners are recognised as the only national providers of cash collection, storage and delivery and their union creates a monopoly in that market.
 
The ACCC’s decision appears to have been heavily influenced by a submission in November last year from the Reserve Bank of Australia, which asserted that the proposed merger could be in the national interest.
 
In the submission the RBA told the ACCC that “some form of change” was required to reduce excess capacity in the banknote distribution market and to ensure it can withstand expected structural decline in cash usage.
 
“The Reserve Bank notes that the proposed transaction is one option that may achieve a more viable industry structure and the appropriate path forward will depend on a range of factors, including how various concerns arising from increased concentration can be addressed,” the RBA told the ACCC.
 
“It is also important to avoid any significant, abrupt and/or prolonged reduction in the timely availability of good quality banknotes across the country.”
 
While digital payment methods have been reducing demand for cash in recent decades, the RBA has consistently highlighted the need to maintain public access to cash, particularly in rural and remote parts of the country where broadband services are unreliable.
 
The merger application drew robust opposition from the operators of independent automated teller networks that rely on the cash-in-transit capabilities of Armaguard and Prosegur and who also compete against them in the ATM market.
 
ATM providers such as NCR and Next Payments warned the ACCC that the merger would create a vertically integrated monopoly that would force them to become price-takers for cash-in-transit services.
 
NCR told the ACCC in May that limiting an enforceable undertaking on the merger partners to only three years was a “perverse” and “inadequate remedy” for eliminating competition in the cash-in-transit market.
 
In its submissions to the ACCC, NCR raised concerns that the merged entity could leverage its vertically integrated business to under-service rival ATM deployers.
 
Melbourne-based ATM provider Next Payments advanced similar concerns.
 
Next founder Tim Wildash last night acknowledged the ACCC’s decision, but also warned that his company would have to pass on to ATM users any cost increases flowing from the merger.
 
“We would have little choice other than to pass on any cost increases,” he said.
 
“We look forward to having a conversation with merged company.”
 
Under the merger agreement Linfox Armaguard will take 65 per cent ownership of the combined business.
 
“We are delighted that the ACCC recognises the important role Armaguard and Prosegur Australia play in the ongoing circulation of cash in our economy,” said Mick Cronin, CEO of Linfox Armaguard.
 
“The merger represents a significant and positive development in the management of cash in transit and wholesale cash distribution in Australia, and will secure the immediate future of reliable access to cash for the Australian economy.”
 
Prosegur said in a statement that the merger would strengthen the sustainability of cash supply in the Australian economy, ensuring the availability of this key payment method for consumers and businesses.
 
A transition project to integrate the businesses is underway, with the two companies expecting to join their operations from the start of September.