On 21 November 2008, the Australian Competition & Consumer Commission ("ACCC") published its new "Merger Guidelines". The Merger Guidelines are the ACCC's first published guidelines in the area of mergers since 1999.
What are the Merger Guidelines?
The Merger Guidelines outline the general principles that the ACCC considers in analysing mergers under section 50 of the Trade Practices Act 1974 (Cth) ("Act"). The Merger Guidelines do not represent a significant departure from the practice that the ACCC has taken since 1999 but provide an up-to-date insight into the ACCC's approach, as well as being a useful reference for affected firms.
Does this affect you?
The Merger Guidelines are relevant to any firm that is:
- in the process of a merger;
- is considering a merger; or
- may potentially merge with another firm in the future.
The Merger Guidelines do not have any legal force but an understanding of the Merger Guidelines will assist firms in deciding whether or not to notify the ACCC of a merger.
Types of mergers that may be subject to the Act
The Merger Guidelines cover each of the following types of mergers that may be subject to section 50 of the Act:
- Horizontal mergers – mergers that involve firms operating in the same market (i.e. competitors for a substitutable product);
- Vertical mergers – mergers that involve firms at different levels in a single vertical supply chain (e.g. a merger between a manufacturer and distributor); and
- Conglomerate mergers – mergers that involve firms that interact across several separate markets and supply products (e.g. firms that supply related products).
The prohibition under section 50 of the Act
Section 50 of the Act prohibits mergers that would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
Not all mergers that lessen competition are prohibited by section 50 of the Act. It is only mergers that lessen competition substantially that are prohibited. The Merger Guidelines detail the circumstances in which the ACCC believes a merger would substantially lessen competition. It is important to remember that there is no "golden rule" and, if you are considering a merger, you should seek legal advice.
The ACCC's threshold – "real chance"
When the ACCC is assessing whether a merger is likely to have the effect of substantially lessening competition, the threshold it uses is not whether it is more probable or not for the merger to contravene section 50. Rather, the ACCC considers whether there is a "real chance" that a substantial lessening of competition will occur in a market (a "mere possibility" is insufficient).
The ACCC's forward looking approach – "with or without"
The ACCC takes a forward looking approach to its analysis on the effects or likely effects of a merger. Under the Merger Guidelines, the ACCC focuses on the foreseeable future, which is generally within one to two years.
In this context, the ACCC applies a "with and without" test. This approach requires the ACCC to consider the future with the merger and the future without the merger.
Options for potentially liable firms
Merger parties have three options to have their merger considered and assessed:
- The ACCC assesses the merger on an informal basis;
- The ACCC assesses an application for formal clearance of a merger; and
- The Australian Competition Tribunal assesses an application for authorisation for a merger.
When to notify the ACCC?
The Merger Guidelines encourage merger parties to notify the ACCC well in advance of completing a merger where both of the following comply:
- The products of the merger parties are either substitutes or complements;
- The merged firm will have a post merger market share of greater than 20% in the relevant market/s.
The level of competition in the relevant market and the degree of market power of each of the merger parties is relevant in the context of the above issues.
Summary
If you are in the process of a merger, you are not legally required to notify the ACCC. However, not notifying the ACCC does not preclude the ACCC from subsequently investigating the merger and taking legal action against you.
If you are proposing to merge with another firm, failure to notify the ACCC may leave you exposed to the risk of contravening section 50 of the Act if the merger would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
We recommend that you seek legal advice in relation to these issues if you are proposing a merger where you believe the merger may have a significant impact on competition in a market.
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.
