Why the ACCC allowed Cleanaway Waste Management Ltd to buy Tox Free Solutions Ltd

The ACCC has announced that it will not stand in the way of the proposed Cleanaway Waste Management Ltd (ASX: CWY) acquisition of Tox Free Solutions Limited (ASX: TOX).

Whilst the ACCC conceded that the acquisition would result in the “lessening of competition”, it said the threat of customers switching to global competitors such as Veolia, Suez and Remondis would constrain Cleanaway from significantly increasing prices or decreasing service levels. Cleanaway shares were up 2% following the announcement.

Foolish takeaway

I think the announcement is great news for Cleanaway shareholders. Buying out a competitor gives them more market share and economies of scale.

I also think perhaps the ACCC might be underestimating the “stickiness” of the product. It’s not every day that companies will decide to change their waste management company.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has recommended Tox Free Solutions Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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