The Australian Government has announced sweeping
reforms to Australia’s merger rules that will commence in
January 2026.
Australia will replace its voluntary, non-suspensory regime with
a mandatory and suspensory system, subject to forthcoming economic
and market share thresholds. The new rules are largely consistent
with other comparable jurisdictions’ regimes. The changes
represent a reasonable balance between the ACCC’s proposals and
the Australian business community’s responses to the
Treasury’s consultation process.
There are some limited changes to the legal test, but no
fundamental changes as to the substantive assessment of mergers.
The major changes will be procedural, and our view is that more
potential acquisitions will be subject to notification obligations
and suspension, even where there are no or limited competition
concerns. Much depends on how effectively the economic and market
share thresholds are set. The Treasury will consult on draft
legislation, including notification thresholds, in 2024.
Key reforms
Australia’s merger control system will change in the
following ways:
- Nature of regime will change. From January
2026, a single mandatory and suspensory merger control system will
replace the ability to approach the Federal Court for a negative
declaration, informal merger review process and merger
authorisation process. The ACCC will be responsible for a single
merger control pathway, replacing the current three voluntary
pathways and will be the only first instance decision-maker. - Legal test and substantive assessment. A
merger may proceed unless the ACCC reasonably believes it is likely
to substantially lessen competition, including if it ‘creates,
strengthens, or entrenches substantial market power’. Further,
to respond to concerns regarding serial or creeping acquisitions
and ‘roll up’ strategies, the cumulative effect of all
mergers within the previous three years by the merger parties may
be considered as part of the assessment of the notified merger,
whether or not those mergers were themselves individually
notifiable. - Notification thresholds. Notification will be
required for transactions that exceed certain economic and market
share thresholds, which have not yet been identified. A person
acquiring ‘control’ of a business or assets will be
required to notify the ACCC of a merger that meets the thresholds.
All mergers within the previous three years by the acquirer or the
target will be aggregated for the purposes of assessing whether a
new merger meets the notification thresholds, irrespective of
whether those earlier mergers were themselves individually
notifiable. The Treasury will consult on the thresholds in
2024. - Penalties / consequences of contravention. A
failure to notify a notifiable merger or closing prior to ACCC
approval will be subject to substantial penalties for merger
parties and executives or officers. In addition, any illegally
implemented merger, or contract, arrangement or understanding
related to it, will be void. - Fees. Merger reviews will be subject to fees
in the likely range of A$50,000-A$100,000. There will be additional
fees for Australian Competition Tribunal
(Tribunal) review. An exemption will be available
for small businesses. - Transparency and precedent. The ACCC will be
required to maintain a public register including details of
notified mergers and the ACCC’s reasons for its
determinations. - Appeal rights. The Tribunal will be the only
route to review ACCC decisions, on a limited merits basis, subject
to material placed before the ACCC. The Tribunal may seek
clarifying information, and the Tribunal may allow the parties to
present new information or evidence which was not in existence at
the time of the ACCC’s determination. A fast-track review by
the Tribunal may be sought, based only on the material before the
ACCC, and the Tribunal would be bound by the findings of fact made
by the ACCC.
The new indicative review timelines and processes are as
follows:
- ACCC. Indicative timeframes of 30 working days
for ‘Phase I’ reviews and 90 working days for ‘Phase
II’ reviews, with fast-track determinations after 15 working
days if no competition concerns are identified. The Phase I review
period would commence upon receipt by the ACCC of a complete
notification. The ACCC will consult on the form of notification to
be required in 2025. If the ACCC does not make a determination
within those time periods, the merger is deemed cleared. Merger
parties will be able to engage in prenotification discussions with
the ACCC. The Treasury will consult on the rules as to how the
statutory ‘clock’ can start and stop and other procedural
safeguards in 2024. Following a Phase II rejection, merger parties
may seek approval from the ACCC if the ACCC is satisfied the merger
would be likely to result in a substantial benefit to the public
which outweighs the anticompetitive detriment of the merger. That
will replace the existing merger authorisation process (with a
50-working day timeline). - Tribunal. The Tribunal’s review will be
subject to a time limit of 90 calendar days (approximately 60
working days), which could be extended by a further 90 calendar
days where necessary, as it is currently. If a fast-track review by
the Tribunal is sought, the Tribunal’s review will be subject
to a time limit of 60 calendar days (approximately 40 working
days), with no option for extension.
The Treasury will set the merger review timelines following
consultation in 2024. The initial timelines, as published by the
Treasury, are set out in diagrammatic form below:
Source: The Australian Government, the
Treasury, Competition Review, Merger Reform: A Faster, Stronger
and Simpler System for a More Competitive Economy, 10 April
2024.
Implications
The new rules are largely consistent with other comparable
jurisdictions’ regimes and represent a reasonable balance
between the ACCC’s proposals and the Australian business
community’s responses. The ACCC has welcomed the new rules, as have some
business community stakeholders (noting the
requirement for further consultation).
Our views on the likely implications are as follows:
1. Limited changes to the legal test, and no fundamental
changes in the substantive assessment of mergers
The addition of the words ‘creates, strengthens, or
entrenches substantial market power’ to the current substantial
lessening of competition test will not materially change the way in
which the ACCC analyses mergers. There is a risk that the addition
of this language will embolden the ACCC to increase its reliance on
more fringe conglomerate or ‘ecosystem’ theories of harm,
but it already has the power to investigate a variety of
concentrative transactions by large companies, including
transactions where large companies extend their operations into
adjacent products or services.
The Government rejected a radical proposal to reverse the burden
of proof in the legal test. The ACCC had proposed to shift the
burden to prove that a merger is not likely to substantially lessen
competition onto merger parties. That proposal would have placed
Australia out-of-step with international peers. The Treasury heard
from stakeholders that this could introduce systematic bias,
increase the number of rejected mergers every year, and effectively
introduce a presumptive ‘ban’ on mergers.
The ACCC is concerned by serial acquisitions or ‘roll
up’ strategies, and has made two proposals to counter strategic
behaviour in this area. All ‘mergers’ within the previous
three years by the merger parties may be considered as part of the
review of a notifiable merger and will be aggregated for the
purpose of assessing whether a merger meets the notification
thresholds, irrespective of whether those mergers were themselves
individually notifiable. Those changes are likely to affect the
strategies of serial acquirers (like private equity players) and
may also affect exiting founders (for example of technology or
startup businesses). The ACCC can already consider, and develop
enforcement strategies to combat, the anticompetitive effects of
previous non-notified acquisitions. It has done so recently in Woolworths/Petstock, where Petstock
was required to make a number of divestments to address local
concentrations created by previous non-notified transactions.
As these tools are already available to the ACCC, we do not
anticipate any significant change in substantive review focus.
However, dealmakers with these strategies (on both the buy-side and
sell-side) will need to accept that more potential acquisitions
will be subject to ACCC conditions and the proposed suspension
obligations, even where there are no or limited competition
concerns. Some bidders, whose overlap with a target has increased
over time through a series of acquisitions, may face more complex
or longer reviews arising from their recent transaction
histories.
2. If thresholds are effectively set, the new rules
could deliver greater timing and process certainty
The Treasury anticipates that the thresholds will be set such
that the overall volume of notifications to the ACCC will be
similar to current volumes (approximately 300 per year). We
anticipate that substantially more mergers will be subject to
notification obligations and suspension after the new rules
commence. Much will depend on how effectively the economic and
market share thresholds are set, and draft legislation, including
the merger notification thresholds and the definition of a
notifiable merger, will be forthcoming in 2024.
The rejection of another radical proposal to give the ACCC a
power to ‘call in’ transactions that fall under the
economic and market share thresholds, which would have reduced
certainty for dealmakers and placed Australia out-of-step with
international analogues, is welcome. That power would have
undermined the main benefit of a mandatory regime which is
certainty as to when a transaction requires notification.
We note that merger parties are encouraged to make informal
contacts with the ACCC in respect of their notifications
pre-filing. Again, the greater timing certainty provided by
statutory timetables is welcome, but it would be undermined if the
ACCC engaged in excessively long ‘prenotification’ contacts
before a filing is formally accepted and the statutory clock
starts.
For smaller deals, or deals with no or very limited overlap,
which would not likely have been filed with the ACCC under the old
rules but would be caught by the new notification thresholds, the
new rules inevitably imply delays of at least a month (to account
for prenotification and even a fast-track review), increasing
transaction costs, deal risks and complexity in competitive sales
processes.
3. Increased precedent and more transparency is
welcome
Publication of detailed reasons for decisions would bring the
ACCC into line with its international peers and would be a welcome
development. At present, the ACCC’s reasoning for, and analysis
in relation to, its merger decisions is often opaque – both
for parties and non-parties. Publication of detailed reasons would
allow interested parties and practitioners to better understand the
ACCC’s analysis and allow a more useful body of precedent to
develop. In the last 12 months, the ACCC published only six
statements of issues and a smaller number of public competition
assessments. It only reviews publicly between 20-30 mergers, and
some public register entries in relation to those deals are
cursory.
We anticipate that the ACCC will face a significantly increased
resourcing burden from the larger numbers of merger reviews, and
will need to take on a range of new resources to draft and publish
decisions and process guidelines that contain sufficient detail for
merging parties.
4. Limited merits review erodes a material procedural
safeguard against ineffective decision-making
The new rules remove the option to seek a negative declaration
from the Federal Court and limit appeal rights to limited merits
review before the Tribunal. That erodes an important safeguard
against over-enforcement and poor decision-making. Full merits
review would have been fairer and improved the process.
In a limited merits review, merger parties are placed at a
disadvantage because they are unable to properly test third
parties’ submissions and evidence, as cross-examination
opportunities and the ability to submit new evidence that was not
before the ACCC are limited. This is an important differential
between the rights of merger parties and the rights of the ACCC,
because the ACCC can examine merger party executives on oath during
the merger review process using compulsory powers. The ACCC also
has full access to all evidence in the review process, including
complainant witnesses, while merger parties will obtain only
limited access to those submissions and data. Treasury intends to
consult on procedural safeguards in 2024, but it is imperative that
those safeguards include effective and practical ‘access to
file’ provisions, permitting merger parties access to all of
the evidence before the ACCC in complex merger reviews.
The role of the Federal Court will now be limited to judicial
review of Tribunal decisions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
 |
 |
| Lawyers Weekly
Law firm of the year 2021 |
Employer of Choice for Gender Equality
(WGEA) |
#Sweeping #reforms #Australias #merger #control #rules #announced #MAPrivate #Equity
