The ACCC has announced a proposal for major reforms to Australia’s merger clearance regime. If implemented by the Government, these reforms will result in substantial changes to the way in which mergers are assessed by the ACCC. We’ve outlined the key features of the proposal and the reasons why the ACCC is seeking these reforms.
Under former Chair, Rod Sims, the ACCC had expressed the view that Australia’s merger clearance regime was no longer fit for purpose and should be reformed.
The new Chair, Gina Cass-Gottlieb, has now announced the details of the ACCC’s proposal for this reform. This includes the introduction of a new formal mandatory merger clearance model as well as changes to the substantive test for when mergers will be cleared.
The ACCC is currently consulting with the Government regarding this proposal, so there is some way to go before we know what reforms are likely to be pursued. However, the Federal Government has indicated that it is supportive of the ACCC’s proposal and we expect it to legislate reforms broadly in line with it.
The key features of the ACCC’s proposal are summarised below. This includes the requirement for the mergers and acquisitions that meet certain thresholds (to be determined) to obtain ACCC clearance prior to completion and an ability for the ACCC to also “call in” transactions even where they do not meet the thresholds. The ACCC will also have to be affirmatively satisfied that a merger is not likely to substantially lessen competition before it will grant clearance.
We expect reforms of this kind will result in a significant increase in ACCC notifications and increased cost and regulatory burdens for merger parties.
PROPOSED PROCEDURAL CHANGES
There is presently no mandatory requirement to seek ACCC approval for M&A transactions, but the ACCC can decide to investigate transactions that come to its attention. Parties seeking ACCC certainty usually apply for clearance from the ACCC through its voluntary informal clearance process. The overwhelming majority of mergers notified to the ACCC through this process are cleared on a ‘pre-assessment’ basis, meaning that the ACCC undertakes a short review usually without any public consultation.
While there is also a statutory merger authorisation process that can be used to formally obtain ACCC clearance, this is rarely used. The informal clearance process is well-understood and is recognised for providing a flexible and efficient path for obtaining ACCC clearance.
However, the ACCC has expressed concerns that businesses are “pushing the boundaries” of the informal process, citing late, incomplete or incorrect applications for clearance as well as threats to complete transactions before the ACCC has finished its review.
To address these concerns, the ACCC is proposing to replace the current voluntary merger clearance system in Australia with a formal mandatory clearance regime, similar to what is in place (at least conceptually) in many key overseas jurisdictions, such as the EU and the US.
Key features of the ACCC’s proposal include:
- a requirement for transactions that meet certain materiality thresholds to be notified to the ACCC. The materiality thresholds could be based on the size of the proposed transaction, the size of the business being acquired globally and/or within Australia, or a combination of these factors;
- the ability for the ACCC to ‘call in’ transactions that do not meet those thresholds but may still raise competition concerns;
- a requirement that transactions subject to ACCC review are suspended until cleared by the ACCC – that is, the parties will not be able to complete the transaction until the ACCC has ‘cleared’ it;
- clear requirements concerning the information that must be provided to the ACCC up-front;
- the ability for non-contentious transactions to be provided with a waiver and dealt with expeditiously (expected to be similar to the ACCC’s existing ‘pre-assessment’ process);
- review of the ACCC’s decision by the Australian Competition Tribunal, which is what presently occurs in merger authorisation matters; and
- a change to the process so that public benefits can only be taken into account as part of a second stage of review (unlike the current merger authorisation process which provides a first stage public benefits test), with the initial stage being focussed only on the competitive impacts of the transaction.
Further details concerning the precise materiality thresholds that the ACCC is proposing for this regime or the circumstances in which a waiver might be able to be obtained are yet to be provided. However, the ACCC Chair has commented that the ACCC expects the overwhelming majority of transactions would be able to be dealt with expeditiously through the waiver process in a similar manner to how the current pre-assessment regime works.
PROPOSED SUBSTANTIVE CHANGES TO THE MERGER PROVISIONS
The ACCC is also proposing some amendments to section 50 of the Competition and Consumer Act 2010 (CCA) which sets out the substantive legal test for mergers and how it is applied.
These changes are intended to ‘modernise’ the merger test to more appropriately deal with dynamic and modern markets and to increase the focus on how a merger changes the structural conditions of a market and any overall enhancement of dominant positions in markets, rather than just the incremental change.
The substantive changes proposed to the test include:
- amending the merger factors that apply to the test to make it clear that it takes into account:
- whether the acquisition entrenches, materially increases or extends a position of substantial market power;
- the loss of actual or potential competitive rivalry as a result of the merger;
- increased access to, or control of data, technology or other significant assets; and
- whether the acquisition is part of a series of relevant acquisitions. The ACCC considers that this will help to deal with concerns around a smaller series of creeping acquisitions that individually would not substantially lessen competition; and
- the need for merger parties to positively satisfy the ACCC (or Tribunal) that the merger would be not likely to substantially lessen competition.
The ACCC;’s view is that the current default position is for the ACCC to clear a transaction where there is uncertainty about whether it would substantially lessen competition. The ACCC considers that this change will recalibrate the way mergers are assessed by changing the default position so that transactions are not cleared unless they are certain that it would not substantially lessen competition. The ACCC’s intention is to shift the competitive risk of the transaction to the merger parties, instead of the public who ultimately bear any anti-competitive impacts.
The Government has expressed broad support for the ACCC’s proposed reforms and is presently consulting with them. We expect further announcements and consultation to occur in the coming months.