Answer ... The primary legislation that governs merger control in Australia is the Competition and Consumer Act 2010 (Cth) (CCA), which is federal legislation. In addition, in some circumstances other legislation may apply - for example, in the case of acquisitions by foreign persons and entities, the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) will also have application.
Section 50 of the CCA prohibits a person or corporation from directly or indirectly acquiring shares or assets if the acquisition would have the effect or be likely to have the effect of substantially lessening competition in a market. Only acquisitions that substantially lessen competition are prohibited; ‘substantial’ in this context has been interpreted to mean real or of substance or material in a relative sense. In addition, Section 46 of the CCA, which regulates misuse of market power, may be used by the Australian Competition & Consumer Commission (ACCC) to look at creeping acquisitions (ie, several small acquisitions over time).
Under FATA, foreign persons must obtain approval from the Australian Treasurer before acquiring a substantial interest (at least 20%) in an Australian entity that is valued above A$266 million (this amount is indexed annually). For investors from certain countries (as required by free trade agreements), such as Canada and the United States, the threshold is A$1.154 billion. ‘Foreign persons’ include corporations which are at least 20% owned by a foreign entity (including a foreign government) or in which two or more foreign entities hold at least 40%. There are lower thresholds in particular cases, including for media businesses and foreign government investors.
Answer ... Special regimes apply in different sectors. This is particularly relevant where foreign ownership is involved. For example, in addition to FATA, further restrictions are applicable in:
- the banking sector - see the Banking Act 1959 (Cth) and the Financial Sector (Shareholdings) Act 1998 (Cth);
- the airline sector - see the Air Navigation Act 1920 (Cth) and the Qantas Sale Act 1992 (Cth), which restrict foreign ownership of Australia’s international airlines (currently Qantas) to 49%; and
- the telecommunications sector - see the Telstra Corporation Act 1991 (Cth), which restricts foreign ownership of Telstra (Australia’s privatised telecommunications company) to 35% in aggregate; holdings of individual foreign investors are further limited to 5%.
There are also requirements for ownership notifications in particular sectors. For example, under the Security of Critical Infrastructure Act 2018 (Cth), a Register of Critical Infrastructure Assets is maintained. Owners and operators of critical infrastructure assets are required to register ownership and operational information. Critical infrastructure assets are critical electricity assets, critical gas assets, critical ports and critical water assets. Assets in other sectors may be declared over time; however, telecommunications assets have been excluded on the basis that these are subject to a separate regime. To take another example, under the Broadcasting Services Act 1992 (Cth), a foreign person with interests of 2.5% or more in an Australian media company must notify, and provide certain information to, the Australian Communications and Media Authority.
Answer ... The ACCC is responsible for enforcing the merger control regime under the CCA.
The parties to a merger or acquisition are not obliged under the CCA to notify the ACCC of the transaction. However, the ACCC may investigate any merger or acquisition, even if it is not notified, and has compulsory information-gathering powers which it may use in connection with any such proposed merger or acquisition. If the ACCC determines that Section 50 may have been breached, the ACCC has the power:
- to seek pecuniary penalties against the relevant corporation and its officers (noting the penalties for a corporation may be up to A$10 million, the value of the benefit attributable to the breach and 10% of annual turnover, whichever is higher);
- to seek a divestiture order (the court may also declare a merger or acquisition void if it finds that the vendor was involved in the contravention); and
- to seek an injunction to prevent such a transaction from proceeding.
Given the significant potential adverse consequences of a breach of Section 50 of the CCA, merger parties typically seek either an informal merger review or a merger authorisation. An informal merger review is, strictly speaking, outside the CCA legislative regime and involves the ACCC informally assessing the merger based on a substantial lessening of competition test. An informal merger review may be requested by the parties to a merger or acquisition or initiated by the ACCC itself. Alternatively, under Section 90(7) of the CCA, the ACCC may authorise a merger if it is satisfied that either:
the proposed merger or acquisition is would not be likely to substantially lessen competition; or
- the likely public benefit of the proposed merger or acquisition outweighs the likely public detriment.