ACCC review of contentious mergers: greater scrutiny, longer review periods

What you need to know

On 4 August 2017, the Chairman of the ACCC, Mr Rod Sims, confirmed a major shift in ACCC policy towards “more intensive information-gathering” when it is reviewing contentious merger proposals.¹

The new approach in contentious merger cases will include:

• more extensive informal voluntary information requests;
• an increase in formal mandatory information requests (s155 Notices), such as requesting:
  • company representatives to give oral evidence under oath; and
  • the production of large numbers of documents, including, in particular, company documents that pre-date the merger proposal.

As a consequence, the duration of informal clearance reviews of contentious mergers will be prolonged. A look at the ACCC’s past practice reveals that the average review period of “complex” mergers² has decreased from close to 30 weeks in the period 2011-2012 to around 20 weeks more recently.³ The new approach is likely to reverse this trend.

Background

The objective of the new approach is “to gather substantially more evidence for future Tribunal applications or Court proceedings”. The new approach reflects the fact that more informal clearance outcomes are being tested, including before the Australian Competition Tribunal (Tribunal) on public benefits grounds.

In the most recent Tabcorp/Tatts case, for example, the parties applied to the ACCC for informal merger clearance and, following public market enquiries, the ACCC released a Statement of Issues (SoI) expressing a preliminary view that the proposed merger raised (only) one competition issue of concern (even though the ACCC identified five further issues that may raise competition concerns). Four days later, Tabcorp lodged an application for merger authorisation with the Tribunal and withdrew its ACCC application. The Tribunal granted authorisation subject to a court-enforceable undertaking around three months after the application. The ACCC appealed the Tribunal's decision and, on 20 September 2017, the Federal Court set the decision aside and referred it back to the Tribunal for further consideration.

The ACCC is concerned that its current approach does not result in “adequately probative and persuasive evidence for Tribunal or Federal Court” proceedings. This includes, in particular, evidence that “tests the claimed commercial views presented by the merger parties' executives at the time of the hearing” which “seem to have been very persuasive in the recent merger cases” even without quantitative analysis or corporate strategy documents supporting these claims.

What are “contentious” mergers?

The new approach will not apply to the vast majority of mergers that are cleared by the ACCC by way of “pre-assessment”, without conducting any public market enquiries. In the last two financial years, close to 90% of all merger proposals notified to the ACCC were “pre-assessed”, with almost three quarters of those mergers obtaining ACCC clearance within three weeks after notification.⁴

Only approximately 10% of merger notifications are subject to a more thorough public review including market enquiries. However, the ACCC will not apply its more intensive information-gathering approach to all of those mergers. In particular, clear-cut cases which “present significant and clear competition concerns” are more likely to be resolved by the parties offering remedies or abandoning the transaction and therefore will not, as a general rule, require the collection of large amounts of evidentiary materials.

Rather, the new approach is designed for the relatively small number of “marginal” cases, namely those that “are most likely to end up being litigated”.

Implications

The new approach will have significant implications in contentious merger scenarios. For the informal clearance review of contentious mergers, it will result in:

• longer review periods, more akin to the duration of phase II reviews in the EU or US;
• more extensive demands for documents and information from the merger parties, which is likely to result in higher legal costs and require more significant commitments in terms of management time; and
• where timing is of essence, increased pressure on the parties to consider offering remedies to allay (potential) competition concerns early in the review process.

To counter possible criticism from the business community, the ACCC Chairman provided assurance that:

• the ACCC will continue to have regard to commercial timing pressures and, in most cases, consult with the merger parties prior to issuing a s155 Notice to avoid ‘overreach’;
• the ACCC does not intend to issue US-style ‘second request’ information requests (which often require the production of hundreds of thousands of documents related to the merger proposal); and 
• the ACCC’s timelines arising from the greater use of s155 Notices are unlikely to “approach those overseas”.