The ACCC’s proposed merger reforms – how will it affect your future deals?

Last week, Chair of the ACCC, Ms Gina Cass-Gottlieb announced the ACCC’s proposal for merger reform.  The ACCC’s position is similar to the proposals introduced by former Chair Rod Sims in August 2021, but there are some key differences.

Given the strong reputation of the ACCC across the Parliament and the growing concern about concentrated industries in the economy, there is a real possibility that the new regime will become law (in substantially the same or similar terms as the ACCC proposal).

While the details are yet to be released, here are the top 10 things you need to know about the new proposed regime and what it might mean for your future deals.

What are the new merger law proposals?

• A mandatory requirement for parties to obtain ACCC clearance for their deal based on certain financial thresholds (i.e. value of the deal and/or turnover of parties). 

This would be a significant change to the current informal clearance regime, which is “voluntary” and parties are not required to notify the ACCC of transactions, regardless of the value of the deal or size of the parties.

The ACCC would also have the ability to “call in” transactions of concern that do not meet the nominated financial thresholds.

• An absolute prohibition on completion until ACCC clearance is obtained for the above transactions.

Currently, parties can complete transactions prior to obtaining ACCC clearance (and often do so, even without engaging the ACCC).Under the new proposals, such conduct could attract significant penalties, regardless of whether the transaction raised any competition concerns.

• The parties must prove to the satisfaction of the ACCC that their transaction would not substantially lessen competition (or if it did so, there are public benefits that outweigh that detriment).

Under the current process, the ACCC ultimately bears the burden of proof if they are required to take a matter to Court. This proposal reverses that burden and places it on the parties.

In addition, the ACCC has proposed a two-step clearance process whereby if the ACCC blocks a transaction due to competition concerns, the parties can have a “second bite at the cherry” and argue that the merger provides “real, verifiable and significant public benefits” that outweigh the detriments arising from those concerns.It remains to be seen whether this proposal will be modified to allow parties to argue both competition and public benefits at the same time.

• There will be substantial upfront information requirements to lodge a valid application for ACCC clearance.

The current regime does not prescribe any information requirements for parties seeking informal clearance, which means parties can theoretically apply for clearance using a simple “one-pager”.

The proposed regime will require parties to provide substantial information and evidence before the clearance process commences.The ACCC will have the power to waive these information requirements if it is clear that a deal is unlikely to raise competition concerns (which is likely to be a substantial majority of transactions notified to the ACCC).

• Acquisitions that increase or entrench a party’s substantial market power will be prohibited.

The ACCC proposed to revise the merger test, which currently prohibits transactions that are likely to substantially lessen competition, to include a reference to “entrenching, materially increasing or materially extending a position of substantial market power”.

This proposal seeks to address the ACCC’s long held concerns in relation to “creeping acquisitions” (i.e. the practice of acquiring a number of very small competitors over time such that each acquisition incrementally increases market share but may not raise competition concerns of itself).

We anticipate this proposal is largely targeted at small acquisitions by large scale digital platforms, supermarkets, petrol stations and banks but it will extend to all sectors.

• The law will expressly require consideration of a number of new factors in determining whether a transaction gives rise to competition concerns.

In addition to the current considerations (namely, import competition, barriers to entry, level of concentration, countervailing power, pricing power, substitutes, the dynamic nature of the market, removal of a vigorous competitor and vertical integration), it is proposed that the law be amended to include the consideration of a number of other matters.

These include: loss of potential competition (to address acquisitions of nascent competitors); impact on barriers to entry; increased access to, or control of data, technology or assets; and a series of acquisitions (to address creeping acquisitions).

• There will be a new review/appeal process.

Under the current regime, there is no review or appeal process from ACCC informal clearance decisions.

Rather, parties are required to seek a declaration in the Federal Court that a transaction does not raise competition concerns in breach of the law, or the ACCC can seek a declaration or injunction on the basis that the transaction is likely to raise competition concerns in breach of the law. These are in effect “new” hearings rather than appeals.

Under the ACCC proposal, informal clearance decisions will be able to be reviewed by the Australian Competition Tribunal (Tribunal) similar to the current authorisation process. It is unclear whether this review will be a new hearing or (largely) on the papers before the ACCC but we anticipate the latter. The right to obtain a declaration from the Federal Court will still exist.

• It is likely that timelines will be fixed.

Under the current regime, the ACCC provides the following indicative timelines for determining informal merger clearance applications: 2-4 weeks for pre-assessment; 6-12 weeks if market enquiries are required; and a further 6-12 weeks if a statement of issues is published.

We anticipate that the ACCC will propose fixed timelines under the new regime for determining clearance applications (albeit, there is likely to be flexibility to “stop the clock”).

• Nothing has been said about remedies.

Under the current regime, parties can offer remedies at any stage in the process and the ACCC will ordinarily consult with the market on whether those remedies alleviate the relevant competition concerns.

It is unclear whether the ACCC will seek changes to this process including timing, information requirements and stakeholder engagement.

• Nothing has been said about publication of submissions and confidentiality.

Under the current regime, the informal clearance application and submissions from third parties are kept confidential and not published on the ACCC’s website.

Given the proposed information requirements under the new regime and criticisms that the current regime lacks transparency, it is possible that the new regime will see the merger application and all submissions made publicly available (subject to genuine claims of confidential information).

If passed, what do these proposals mean for your future deals?

The new regime should ultimately provide increased regulatory certainty for parties in terms of ACCC engagement, timing, process and completion. It will, however, also result in increased costs for parties and longer timelines to completion.

For deals below the threshold, parties can complete their transaction without engaging with the ACCC (unless the ACCC “calls in” the transaction for review).

For deals above the threshold that do not raise competition concerns, these should continue to be cleared by the ACCC in a timely manner as the upfront information requirements are likely to be waived.

For deals above the threshold that may raise or are likely to raise competition concerns, parties will likely need to:

• factor in the time required to obtain ACCC clearance into the completion timeline (and will not be able to complete until ACCC clearance is granted);
• meet all of the information requirements to commence the ACCC clearance process. This will require substantial upfront work and is likely to include the production of board papers and financial information (which means incurring increased costs upfront);
• address the new considerations the ACCC will take into account in assessing deals (although it is our view that the ACCC has already started doing this);
• provide all information and evidence in support of its case to ensure it maximises prospects of any Tribunal review (assuming that review is largely on the papers before the ACCC); and
• be prepared for the application and submissions to be published on the ACCC website.

Deals by parties with substantial market power will be extremely challenging from an ACCC regulatory perspective if the “entrenchment” proposal becomes law. 

Deals which raise significant competition concerns will face increased costs and timelines and will require clear and persuasive evidence to obtain ACCC clearance.

Should you bring forward your deal before the new regime commences?

It is too premature to make a decision to fast-track a deal without seeing the details of the new regime.

However, parties that have substantial market power or wish to complete a transaction that raises serious competition concerns (and are prepared to go to Court) might want to consider whether bringing their deal forward to the current regime will maximise the prospects of completion.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).