By Alicia Hill
Section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits acquisitions such as buyouts and mergers that would result in substantial lessening of competition in a market for goods or services.
Where a business wishes to acquire or merge with another competitor and wishes to avoid allegations of breach of section 50 a process has been established to obtain consent or authorisation from the regulator of the CCA, the ACCC.
In July 2010, Metcash applied to the ACCC for informal clearance to acquire shares in Franklins for $215 million. Metcash is Australia's largest grocery wholesaler supplying IGA and other independent supermarkets with produce.
On 17 November, the ACCC announced its decision to oppose the acquisition stating that it would significantly lessen competition in the market.
In response, Metcash took steps to continue the acquisition and the ACCC commenced proceedings.
In order to prevent Metcash from proceeding with the acquisition the ACCC had to establish;
- the relevant market affected by the proposed acquisition,
- the facts against which the merger should be assessed; and
- whether there was a substantial lessening of competition within that market.
The ACCC failed on all three fronts. Most notably, in response to the argument of the acquisition lessening competition within the market. The trial Judge, Justice Emmett, concluded that the share acquisition would not contravene s 50(1) of the CCA. It was found that competing with Woolworths and Coles at the retail level is essential for the success of the independent grocery network as a whole. Further that it was quite likely that the acquisition would strengthen the capacity of IGA retailers to compete more vigorously with Coles and Woolworths.
As a result in an ACCC news release dated 5 December 2011, chairman Rod Sims has agreed that in relation to any acquisition, the ACCC must take into account commercially relevant facts, assessments and evidence, rather than speculative possibilities alone.
When considering an acquisition, buyout or a merger involving a competitor and wanting to secure protection against a later allegation of breach of the CCA, utilisation of the notification, authorisation process should be considered to reduce risk of after the event issues and penalties.
The ACCC website displays a register which provides examples of notification and authorisations for mergers, buyouts and acquisitions that have been accepted. Click here if you wish to browse past notifications or authorisations.
Preparation of an authorisation or notification requires an initial investment of time which may need to be built in to terms and conditions of contracts to ensure it is clear who has responsibility and bears the cost for obtaining ACCC, the length of time prepared to be allocated to the process and how the parties will act with respect to the continuation of the businesses whilst that process is being undertaken. Co-operation and joint submissions addressing issues such as the market affected, market share and competition issues, may assist the process.
The recent case demonstrates that the ACCC's view and assessment on mergers, acquisitions and buyouts and their affect on markets and competition is not always correct, as factual circumstances individual to each deal will be different. If we can answer queries on when to use the process or when to challenge an ACCC determination please feel free to contact us.
Watch this space for another high profile merger still to be considered.
Another major merger in the pipeline is Foxtel's $1.9 billion takeover of Austar United, which currently holds market share for pay TV services in regional areas. As noted in an article published by the Australian Financial Review on the 16th of January, both parties feel competition will not be lessened as they only compete in the Gold Coast area. The ACCC however has refused to commit to a final ruling of their decision within the first anticipated deadline of February 2012. The deal has been under investigation since May 2011.
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.
