Overview

The Australian Competition and Consumer Commission (ACCC) has released a final version of its revised merger guidelines. The greatest practical change for merger parties under the revised guidelines is the simplification of the 'notification' thresholds applied by the ACCC.

Background

The revised guidelines were released following input from the business and trade practices advisory community on a draft released in February this year. They provide a long anticipated update to the existing guidelines, which were first published in 1999.

Importantly, the revised guidelines do not require a radically different approach to merger analysis. The legal test for acquisitions of shares and assets under section 50 (viz, whether it is likely to have the effect of substantially lessening competition in a market) does not change. The guidelines continue to set out the principles applied by the ACCC when considering merger factors such as barriers to entry, imports, market concentration and countervailing power as part of its competition analysis. However, in doing so the revised guidelines place a much greater emphasis on the competitive theories of harm and the effects of market constraints on the merged entity, allowing for a more integrated analysis of proposed merger transactions. They also include a new, streamlined threshold for the notification of mergers to the ACCC.

Simplification of notification thresholds

Formerly, the guidelines prescribed a 'safe harbour' market concentration threshold test, under which merger parties were encouraged to notify the ACCC of any transaction where the post-merger market share of the merged entity would be:

  • more than 40% or
  • more than 15% where the combined market share of the four largest participants would be greater than 75%.

The revised guidelines replace these 'safe harbours' with an indicative notification test where both of the following criteria are satisfied:

  • the products of the merger parties are either substitutes or complements and
  • the merged entity will have a market share of more than 20% post-merger in the relevant market(s).

The guidelines also advise parties to approach the ACCC in cases where the ACCC has previously recommended that a particular company or industry provide notification of any proposed mergers by that company or industry.

Notably, the new notification threshold represents a departure from the thresholds proposed in the draft guidelines released in February, which were based on the quantitative Herfindahl-Hirschman Index (HHI) test of market concentration, plus a list of four qualitative criteria. Under the revised guidelines, the ACCC will only apply the HHI test of market concentration as part of its broader analysis of the competitive effect of the proposed transaction.1

Strategy for ACCC merger clearance

Despite the new merger notification threshold test, notification remains discretionary rather than compulsory under the revised guidelines. Consequently, merger parties will still be entitled to make their own decision as to whether or not they notify the ACCC of the proposed transaction. Whilst mergers which fall under the notification thresholds will 'rarely' be investigated, the thresholds are merely 'indicative' and do not provide a guarantee against future ACCC review. Merger parties should therefore continue to seek specific advice on whether the ACCC should be notified of any proposed transaction, and the form that notification should take. Depending on the circumstances, this may simply involve sending the ACCC a 'courtesy letter' containing basic factual information about the transaction, or may require a more detailed (informal or formal) clearance application.

Footnote

1 The HHI is calculated by adding the sum of the squared post-merger market shares for the merged firm and each rival firm in the relevant market. A transaction will be less likely to present horizontal competition concerns where the post-merger HHI is less than 2000, or where the change in the HHI as a result of the merger is less than 100.

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