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Still concerned about its recent losses in the Federal Court in TPG/Vodafone and Pacific National/Aurizon and in light of growing fears about the anti-competitive effects of acquisitions in highly concentrated sectors or by large companies (especially digital platforms), the ACCC has announced its much anticipated proposals for merger reform.
While the ACCC has indicated that its proposals seek to “begin a key debate”, it is important that you know what the key proposals are, what they mean, when they could come into effect and what they mean for your upcoming deals.
The ACCC wants to abolish the current voluntary informal clearance process (and merger authorisation process) and replace them with a single regime that requires parties to compulsorily obtain clearance for transactions that meet certain monetary thresholds. Transactions meeting the thresholds will be prohibited unless they have obtained ACCC clearance.
The ACCC is yet to propose the type or level of threshold that may apply but this is likely to be the value of the transaction and/or the separate or combined revenues of the parties to the transactions.
For transactions that:
The ACCC proposes to publish its reasons for clearing or not clearing a transaction and appeals will only comprise a limited merits review before the Australian Competition Tribunal (rather than having the ability to purse, or force the ACCC to pursue, court action).
It is unclear, at this stage, what role “public benefits” would play in the new proposal and whether complaints made by third parties would be more transparent.
The ACCC believes that the current merger factors required to be considered in determining whether a transaction substantially lessens competition “favour” clearance by focussing on the ability of future market forces to constrain the merged entity.
As a result, the ACCC wants these factors to focus on whether a transaction changes the structure of the market and result in the merger entity having the ability and incentive to increase price and reduce output, post-acquisition. The ACCC also wants to consider additional agreements between parties that accompany a transaction as part of the merger review process.
The ACCC believes these changes will enable a more balanced and rigorous approach that will prevent transactions that would otherwise harm the Australian public.
The ACCC considers that acquisitions by parties with substantial market power are more likely to have the effect of substantially lessening competition resulting in severe and long lasting negative effects on the economy.
Accordingly, the ACCC wants acquisitions to be deemed to substantially lessen competition in breach of the law where one party has substantial market power and the acquisition is likely to entrench, materially increase or materially extend its market power.
It is presumed this deeming provision will be rebuttable through providing evidence under the new clearance process.
The ACCC considers that the competition concerns raised by digital platforms will not be addressed by the above proposals to the merger review process.
As a result, it proposes a tailored merger test for digital markets, comprising a lower threshold for establishing competitive harm and paying greater attention to the possibility that a merger would remove a potential future competitor from the market.
Following the lead of the UK and EU, the ACCC also proposes that a new merger test specifically address acquisitions which leverage existing dominance and/or the control of data into market power in adjacent markets.
The calls for significant change to the merger review process are not a surprise.
For several years, the ACCC has highlighted the difficulties it has faced in proving that a transaction substantially lessens competition through the court process. It must overcome high evidentiary burdens about the future state of the market and courts have been more willing to accept evidence of executives even if that evidence may be self-serving.
On top of this, the ACCC has:
Although these proposals are yet to be considered by government and there will be broad consultation before any reforms are made, it seems that some form change is likely. As the ACCC will actively push these reforms after the next election, we predict some form of change will become law in late 2022 (at the earliest) but more likely in 2023.
This is because the ACCC has been successful not only in effecting major changes to competition law under Chair Rod Sims but also obtaining increased funding from the Government to enforce those changes. Under Mr Sims’ tenure, the ACCC has criminalised cartel laws and moved to an “effects” test for misuse of market power. The merger reform is the last major modification to the competition law landscape.
It also helps that Australia’s merger review process is the international outlier – while almost every other jurisdiction around the world has a compulsory regime based on thresholds, Australia’s continues to be voluntary with no thresholds.
Rod Sims indicated that “the proposals are intended to shift the dial”. We anticipate the following:
While the proposed reforms may still be 12-24 months away, there is no denying that the ACCC is already taking a tougher approach to transactions in highly concentrated sectors and by larger companies.
Its level of questioning on deals has become more comprehensive and it is very willing to issue compulsory information gathering notices to obtain board papers, emails and other internal documents to test submissions made by the merger parties as well as third party complainants. Timelines for decisions and costs continue to increase.
Accordingly, we expect that even now, before the reforms come into effect:
While the new proposals represent a significant change to Australia’s merger review process and laws, for the vast majority of transactions nothing will change when it comes to the prospects of securing clearance. That is, it is very unlikely that there is a “window of opportunity” to sneak deals through the ACCC before the new laws come into effect.
However, for those 1 or 2 major transactions that raise very significant competition concerns from the ACCC but are likely to be pressed by the parties, it may be preferable to complete these transactions under the existing framework by going to court. The ACCC has noted the difficulties it faces in challenging these deals in court and has suffered a number of losses as a result.
It may also be preferable for parties with substantial market power to complete key transactions now before any deeming provision makes your acquisition illegal thus reversing the burden of proof for your deal. This is likely to make ACCC clearance for those deals harder under the new regime.
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