When the ACCC decides to publish a Statement of Issues (SOI) there are flow on effects for potential transactions. We've crunched the numbers to determine how a SOI affects your exposure to M&A risk and in turn, your strategy.
Merger review in Australia
Where a merger or acquisition could have competition law implications in Australia, the usual course is for parties to seek an informal merger clearance from the ACCC prior to completion. Whilst parties are not obliged to notify the ACCC, failing to do so may result in the ACCC independently investigating the merger which can be disruptive. If the ACCC ultimately has concerns, it can take legal action to obtain a court order to block or unwind it.
Under its informal merger clearance process, the ACCC will consider whether or not a proposed transaction has the effect or is likely to have the effect of substantially lessening competition. In doing so, it may clear a transaction in "pre-assessment stage", or undertake a more in-depth review.
The review stats
Only a relatively small proportion of informal merger clearance applications are subject to an in-depth review by the ACCC that extends to market inquiries. In the 2012-13 financial year for example, only 76 of 289 applications (or 26%) were opened for review by the ACCC. The remainder were cleared in pre-assessment stage.
If, after review of the transaction and the making of market inquiries, the ACCC has real competition concerns about the transaction, it will release a Statement of Issues (to those in the know, an "SOI"). The Statement of Issues will detail the ACCC's concerns and seek public comment on these issues before the ACCC makes a final decision on whether or not to oppose the transaction.
A small number of Statements of Issues are published each year. In the 2012-13 financial year, only around seven non-confidential applications filed during that financial year progressed to a Statement of Issues. This was less than 3% of all merger filings for that period.1
Statistically, the release of a Statement of Issues means that the transaction has put the ACCC on comparatively high alert. On face value, the publication of a Statement of Issues may seem damning to the prospects of the transaction being cleared. However, the statistics tell another story.
Crunching the SOI numbers
Over the calendar years from 2008 and 2013, the ACCC published 63 Statements of Issues. The table below illustrates the ultimate outcome of the ACCC's deliberations where a Statement of Issues was published.
|Calendar Year||Number of SOIs issued||Not opposed||Not opposed (subject to conditions)||Opposed||Review|
In the table above:
- "Not opposed" refers to the applications which the ACCC concluded that the transaction would not be likely to substantially lessen competition.
- "Not opposed (subject to conditions)" refers to the applications which the ACCC concluded would not substantially lessen competition, subject to the fulfilment of certain undertakings by the merger parties.
- "Opposed" refers to the applications which the ACCC concluded would have the effect of substantially lessening competition, which equates to 23%.
- Finally, 17% of applications over which the ACCC issued a Statement of Issues had the application withdrawn (review suspended). This may have been for a combination of commercial reasons, including deal fatigue or the passing of a deal sunset date and concerns that the ACCC would oppose the merger through the courts.
It is pertinent to note that whilst the statistics vary year-to-year, across the six years combined, conditional and unconditional approval made up 60% and only 23% of transactions found themselves formally opposed. This bodes as a positive reinforcement for entities that are subject to a Statement of Issues that it is more likely than not that their transaction will be cleared. Of course, the issuance of a Statement of Issues can be a wake-up call to merger parties and, assuming that sunset dates and other deal-related imperatives permit and/or require the parties to proceed, cause them to dedicate significant expertise and resources to answering the ACCC's concerns. That is one reason that could explain why the ACCC's concerns appear to be able to be dispelled more often than not.
Maximising your chances
So how then, do parties maximise the chance that the outcome of their transaction won't defy the statistics? Among other things, they should:
- judge the scale of notification/application required having regard to:
- the post-merger market position and counter factual;
- the likely market feedback and opposition to the transaction; and
- the ACCC's Merger Guidelines.
- if a Statement of Issues is released:
- comprehensively respond to matters raised in the Statement of Issues;
- engage directly with ACCC staff to obtain a sense of their key concerns; and
- consider whether or not there are any divestiture or behavioural undertakings that can be offered to the ACCC that might answer (or lessen) its concerns.
What if your deal is opposed?
For the most part, a transaction will generally not proceed if the ACCC opposes it. However, the informal merger clearance process is just that. An ACCC opposition in itself has no legal force and does not prevent a transaction proceeding.
Of course, if the ACCC is of the view that the transaction would be likely to substantially lessen competition in contravention of the Competition and Consumer Act, it can apply to the Court to have the transaction halted. Also, post-completion it is open to the ACCC to seek orders unwinding the deal and/or pecuniary penalties against merger parties in excess of $10 million. Whilst pecuniary penalties are seldom sought, this is a clear deterrent to avoiding the voluntary informal clearance process and can present a useful alternative to divestiture orders when a transaction has already proceeded.
There are other avenues that may be pursued by a party that receives an opposition, still has an appetite to proceed but desires comfort before doing so.
- Apply to the Australian Competition Tribunal to "authorise" the transaction. This process permits an assessment of the transaction on a broader set of criteria – the Tribunal must consider the net public benefit of the transaction when weighed against the anti-competitive detriment. This course was recently adopted by AGL when the ACCC informally opposed its proposed acquisition of Macquarie Generation.2 The outcome is not yet known.
- Seek a declaration from the Federal Court of Australia that the transaction is not likely to substantially lessen competition and therefore not contravene the Competition and Consumer Act. This course has rarely been taken up but AGL was successful in 2003 in doing so.3
Each of these alternatives is available to a party even if they have not been through the informal clearance process. However, it is uncommon for parties to opt for a far more involved and potentially lengthy process instead of the ACCC informal process unless the circumstances of the transaction are unique.
All is not lost if the ACCC takes a close look at your merger. Mostly, those that are reviewed are cleared. Even the release of a Statement of Issues will not statistically correlate to an adverse final decision by the ACCC. However, a smooth and speedy clearance process is always desirable and demands the dedication of resources and expertise accordingly. Where the release of a Statement of Issues cannot be avoided, the strategy going forward must be carefully managed. Although an adverse decision does not technically close out alternatives, it creates significant deal risk and, where possible, should be contemplated in transaction documentation at the outset.
Norton Rose Fulbright has a market leading Competition and Antitrust practice. Please contact Nick McHugh if you would like to know more about merger clearance issues and the implications for your business.
1Note that in this period 6 confidential merger clearances were opposed, meaning that a Statement of Issues would have been published had the merger been public.
3Australian Gas Light Company (ACN 052 167 405) v Australian Competition & Consumer Commission (No 3)  FCA 1525
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.