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ACCC gives the thumbs up to the IPH acquisition of Xenith IP

In morning trade the IPH Ltd (ASX: IPH) share price has edged lower after the Australian Competition and Consumer Commission (ACCC) announced that it would not oppose its proposed acquisition of intellectual property services rival Xenith IP Group Ltd (ASX: XIP).

At the time of writing the IPH share price is down 0.7% to $6.88, whereas the Xenith IP share price is up 2.5% to $1.86.

What did the ACCC announce?

According to the release, although the proposed acquisition would combine two of the largest suppliers of IP services in Australia, investigations by the ACCC found that “most customers we consulted did not express concerns.”

ACCC Commissioner, Roger Featherston, said: “Corporate customers who seek patent services rely on the expertise and infrastructure of large IP firms to handle their work in complex technology areas and to manage their volume of patent filings. The merged IPH-Xenith entity would have a market share of about 40 per cent of total patent filings.”

Nevertheless, Mr Featherston believes that QANTM Intellectual Property Ltd (ASX: QIP) and other firms would “likely provide sufficient competitive constraint on the new entity.”

He added: “Trademark services require less specialist technical expertise than patent services. We believe that other IP firms and commercial law firms provide a competitive constraint because they are a viable alternative. We also have no competition concerns regarding designs services or plant breeder’s rights services.”

This echoes the ACCC’s view on the potential merger of QANTM and Xenith IP. Exactly one week ago the competition watchdog said it would not oppose the proposed merger, advising that it consulted a large number of market participants and “most customers did not express concerns.”

IPH has welcomed the decision and believes the removal of the key regulatory condition confirms that its offer is superior to the QANTM merger.

What now?

With both the merger and acquisition now approved by the ACCC, Xenith IP shareholders have a lot to think about when they vote on the merger.

Although the Xenith IP board continues to believe the QANTM merger is in their best interests, IPH is pushing for shareholders to choose the acquisition.

In a letter to Xenith IP shareholders last week, IPH outlined the reasons it believes the acquisition is the better option.

It said: “After reviewing the reasons for the Xenith Board’s response, IPH maintains that its Offer provides compelling benefits for Xenith’s shareholders, its leading IP attorneys and other stakeholders, and is superior to the proposed merger between Xenith and QANTM Intellectual Property Limited (QANTM Merger). We are writing to you to ensure you are informed about the alternative IPH Offer and do not miss out on the opportunity to receive superior value for your investment. We are also encouraged by direct feedback from Xenith shareholders who say that they want the opportunity to consider the IPH Offer.”

Should you invest?

I think IPH would be a good option for investors if it can successfully acquire Xenith IP. But until a deal is done, I would suggest investors keep their powder dry and watch on from the safety of the sidelines.

Until then I think that these buy-rated growth shares could be great options for investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended IPH 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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