UPDATED: Rheem responds to the ACCC’s competition concerns over proposed Dux acquisition

The ACCC has announced Rheem’s plans to acquire the Dux hot water heater business, currently owned by GWA Group Limited, is likely to substantially lessen competition in the supply of storage water heaters.

“The proposed acquisition would lead to Rheem being the only Australian manufacturer of the more common vitreous enamel storage heaters. Market inquiries have indicated that there are few imports for the larger-size storage water heaters commonly used in Australian homes,” ACCC Chairman Rod Sims said.

“Dux is currently a major competitor to Rheem in the supply of storage water heaters. The acquisition of the Dux business will give Rheem the vast majority of sales, particularly for large storage units. Market participants raised concerns that the proposed acquisition may enable Rheem to raise prices or decrease service or quality in the supply of electric and gas storage water heaters in Australia,” Sims said.

The ACCC said it will explore whether imports of storage water heaters are likely to provide a sufficient competitive constraint on Rheem post-acquisition. While imports of storage water heaters do occur, market participants have questioned the viability of importing larger-size storage water heaters, particularly if the Australian dollar continues to decline in value.

UPDATE: Rheem has responded to the ACCC statement, expressing its disappointment and maintaining that consolidating the local water heater industry is inevitable to retain a competitive Australian manufacturing sector.

“Today around 45 per cent of the total Australian water heater market is supplied by imports. This highlights the need for a strong local water heater industry,” said Matt Sexton, Rheem’s CEO. “Smaller, standalone local businesses are unlikely to survive in an open and competitive market such as the Australian water heater market.

“Over the past seven years Australia’s water heater industry — the country’s largest remaining appliance manufacturing industry — has undergone massive changes, with constantly changing government policies, household incentive schemes and changes to the Renewable Energy Target (RET). This has impacted business confidence in the sector.

“But despite the challenges presented by constantly changing market forces, Rheem is increasing its commitment to Australian manufacturing. Rheem will spend $60 million over the next 18 months upgrading its facilities in Sydney’s western suburbs.”

The market is invited to make submissions on the issue until 31 October 2014 and the ACCC will make its final decision on 20 November 2014.

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