The Commerce Commission has approved Cavalier's application to acquire New Zealand Wool Services International's wool scouring business and assets - despite it creating a monopoly.
Commerce Commission chairman Mark Berry said many in the industry said further rationalisation such as this acquisition was inevitable, although competitor Godfrey Hirst was looking at legally challenging the decision.
Cavalier would essentially have a monopoly on the supply of wool scouring services and the supply of wool grease, and would be able to raise its prices when the merger is completed, he said.
However, there were public benefits to New Zealand from the acquisition proceeding.
Commerce Commission analysis showed the rationalisation of the wool scouring industry was likely to lead to lower administration and production costs, the freeing up of industrial sites, and lower ongoing capital expenditure requirements in the future.
The commission also took into account that the declining wool clip was causing a loss of scale, and the threat of greasy exports was increasing, Dr Berry said.
On Thursday, competitor Godfrey Hirst asked the High Court to temporarily prevent Cavalier completing the merger, so it could file a formal appeal.