1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions govern merger control in your jurisdiction?
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.
1.2 Do any special regimes apply in specific sectors (eg, national security, essential public services)?
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.
1.3 Which body is responsible for enforcing the merger control regime? What powers does it have?
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.
2 Definitions and scope of application
2.1 What types of transactions are subject to the merger control regime?
Acquisitions of shares or assets, whether direct or indirect, will be subject to the merger control regime. Acquisitions include leases. However, acquisitions by way of security interests or in the ordinary course of business are not subject to Section 50 of the Competition and Consumer Act (CCA).
There is no threshold acquisition level (eg, X% of shares). The test is whether the acquisition has the effect, or will be likely to have the effect, of substantially lessening competition in any market for goods or services in Australia or in a state, territory or region in Australia.
The CCA applies where:
- the acquisition is of property in Australia, whether of shares in an Australian company, an Australian business or Australian-based assets; and/or
- the acquirer is incorporated in Australia, carries on business in Australia or is an Australian citizen or ordinarily resident in Australia.
If neither of the above is satisfied, the CCA will still apply where an offshore merger or acquisition occurs that results in the acquirer obtaining, directly or indirectly, a controlling interest in a body corporate that carries on business in Australia. A controlling interest is held if the relevant body corporate becomes the subsidiary of the acquirer.
Creeping acquisitions (ie, several small acquisitions over time) may not, when considered in isolation, breach Section 50. However, these acquisitions may be regulated by the Australian Competition & Consumer Commission (ACCC) under the misuse of market power prohibition in Section 46 of the CCA.
2.2 How is ‘control' defined in the applicable laws and regulations?
‘Control' is not a relevant concept, as the CCA does not provide for a mandatory merger filing threshold.
Instead, the ACCC's Informal Merger Review Process Guidelines encourage the parties to approach the ACCC for an informal merger clearance if:
- the products or services of the merger parties are either substitutes or complements; and
- the acquiring firm will, following the merger or acquisition, have a market share of greater than 20% of the relevant market.
This is an indicative guide only; and although the ACCC will rarely investigate a merger or acquisition in other circumstances, the parties must assess the impact on competition in the relevant market or markets on a case-by-case basis.
2.3 Is the acquisition of minority interests covered by the merger control regime, and if so, in what circumstances?
Minority interest acquisitions are covered by the merger control regime, as the test that must be applied is whether an acquisition would have the effect or be likely to have the effect of substantially lessening competition in a market.
The ACCC's Merger Guidelines provide that the ACCC will look at whether an acquirer will obtain control of a target even if majority ownership of the shares in the target is not acquired. For example, the ACCC will take into account:
- whether the ownership distribution of the remaining shares effectively means that the acquirer will obtain control via a minority interest;
- the distribution of voting rights;
- pre-emption rights; and
- the acquirer's rights under other contractual arrangements.
Even where a controlling interest is not acquired, the ACCC may consider that an acquisition or potential acquisition would be problematic under Section 50 of the CCA – for example:
- in the case of a horizontal acquisition, if this would increase interdependence between rivals which would have a negative impact on competition; or
- if an acquisition would provide access to commercially sensitive information in relation to competitors.
2.4 Are joint ventures covered by the merger control regime, and if so, in what circumstances?
The establishment of a new joint venture (whether the joint venture is incorporated or unincorporated) will be subject to Section 50 of the CCA if that establishment involves an acquisition of shares or assets – for example, if the joint venture acquires assets from one or more of the participants in the joint venture. The test remains the same as for other acquisitions – that is, whether the acquisition would have the effect or be likely to have the effect of substantially lessening competition in a market.
Acquisitions by an existing joint venture (whether the joint venture is incorporated or unincorporated) will also be subject to Section 50 of the CCA.
2.5 Are foreign-to-foreign transactions covered by the merger control regime, and if so, in what circumstances?
Foreign-to-foreign transactions are covered by the merger control regime. Under Section 50A of the CCA, the Australian merger control regime will apply where an offshore merger or acquisition occurs that results in the acquirer obtaining, directly or indirectly, a controlling interest in a body corporate that carries on business in Australia. A controlling interest is held if the relevant body corporate becomes the subsidiary of the acquirer.
If such an offshore merger or acquisition occurs, the Australian Treasurer, the ACCC or any other person may seek a declaration from the Australian Competition Tribunal. If it is so satisfied, the Australian Competition Tribunal may declare that the transaction is likely to substantially lessen competition in a market in Australia or in a state or territory in Australia, and will not result or be likely to result in a countervailing public benefit. If a declaration is made, the parties to the transaction are required to remedy this; if they do not do so within the relevant timeframe – typically, six months – they must cease carrying on business in Australia.
2.6 What are the jurisdictional thresholds that trigger the obligation to notify? How are these thresholds calculated?
There is no compulsory requirement to notify the ACCC of a proposed merger or acquisition. However, the ACCC has developed a notification threshold as a guide to when parties should consider applying for an informal merger review. Mergers that fall outside that notification threshold are rarely investigated by the ACCC. The notification threshold is that both:
- the products of the transaction parties are either substitutes or complements; and
- the merged firm/acquirer will have a post-transaction market share of greater than 20% in the relevant market or markets.
2.7 Are any types of transactions exempt from the merger control regime?
Acquisitions of assets by way of the grant of a security interest or in the ordinary course of business are not captured by Section 50 of the CCA.
There are several specific exemptions from the restrictive trade practices provisions of the CCA – that is, not limited expressly to the merger control regime in Section 50 – as set out in Section 51 of the CCA. For example, mergers or acquisitions which are specifically authorised by federal legislation (excluding those relating to patents, trade markets, designs or copyright) will not be subject to Section 50.
3.1 Is notification voluntary or mandatory? If mandatory, are there any exceptions where notification is not required?
Notification is voluntary.
Parties may seek an informal merger review of a proposed merger or acquisition from the Australian Competition & Consumer Commission (ACCC), which occurs outside of the formal provisions of the Competition and Consumer Act (CCA). As the informal merger review process is outside the formal provisions of the CCA, it is not binding, although it does provide merger parties with comfort regarding the ACCC's position. The ACCC will typically reconsider a transaction only where new information comes to light or where information provided for the purposes of the informal process is inaccurate or incomplete.
Merger parties may also seek legal protection from court action under Section 50 by applying to the ACCC for merger authorisation. Pursuant to Section 90(7), the ACCC may grant merger authorisation if it is satisfied that either:
- the proposed merger or acquisition would not or would not be likely to substantially lessen competition; or
- the likely public benefit from the proposed merger or acquisition outweighs the likely public detriment.
3.2 Is there an opportunity or requirement to discuss a planned transaction with the authority, informally and in confidence, in advance of formal notification?
There is an opportunity to discuss mergers and acquisitions with the ACCC on a confidential basis under the informal merger review process where there is a real likelihood that the merger may proceed – that is, before formal documents are signed. Under the merger authorisation process, the ACCC encourages parties to speak with it before an application is lodged. This can be done on a confidential basis prior to formal documents being signed.
3.3 Who is responsible for filing the notification?
Notification is voluntary, meaning that neither party is responsible for filing a notification. As the potential acquirer will generally be liable for the contravention of Section 50 (although it is theoretically possible for the vendor to be an accessory, the ACCC has not in the past prosecuted vendors), it is typically the acquirer that will initiate the informal merger review process or the formal merger authorisation process.
3.4 Are there any filing fees, and if so, what are they?
There are no fees for an informal merger review. There is a filing fee of A$25,000 for a formal merger authorisation.
3.5 What information must be provided in the notification? What supporting documents must be provided?
For an informal merger review, the ACCC requires the following information initially, but may require further information throughout the process:
- details of the parties to the transaction;
- details of the proposed transaction, including what shares and/or assets are to be acquired and whether the transaction is confidential;
- details of the Australian business operations of the acquirer and the target;
- for markets where the acquirer and target currently supply goods or services or where the acquirer and target have a customer/supplier relationship, details of market shares and other information; and
- if the ACCC considers that a public review is required, a list of key customer and supplier names and contact details.
For a formal merger authorisation, the ACCC encourages applicants to approach it prior to lodgement to discuss the information to be provided. The following information is necessary, at a minimum:
- details of the parties to the transaction;
- details of the proposed acquisition, including the assets and/or shares to be acquired and the proposed structure of the acquisition (including ancillary arrangements);
- copies of the transaction documents (either as signed or latest drafts);
- market information, including descriptions of products and/or services and distribution areas and a description of industries affected by the transaction;
- information on the impact of the transaction on competition;
- a description of the public benefits and detriments of the transaction;
- the contact details of actual or potential competitors, key customers and suppliers and trade associations that any of those parties is a member of; and
- any other information that the applicant considers relevant.
3.6 Is there a deadline for filing the notification?
There is no deadline for seeking an informal review. The ACCC states that where substantive competition issues do not arise, most informal merger reviews will be completed within two to three months. The ACCC encourages parties to approach it at an early stage; if insufficient time is provided to allow the ACC to conduct its informal process, it may seek to use its formal information-gathering powers and/or injunctive relief to enable it to properly consider the proposed transaction.
The ACCC is required under the CCA to make a determination on a merger authorisation application within 90 days of receiving a valid application, subject to any extension agreed by the applicant. If a determination is not made in that period, the application is deemed to be refused. Once the application has been made, given this timing constraint, there is limited ability to amend it. As the transaction cannot proceed while the application is being considered, the application should be submitted well in advance of the proposed completion date.
3.7 Can a transaction be notified prior to signing a definitive agreement?
The ACCC is willing to discuss mergers and acquisitions on a confidential basis under the informal review process where there is a real likelihood that the merger may proceed – that is, before formal documents are signed. The transaction must be more than speculative, so the ACCC should be approached only if there is a good-faith intention to proceed.
The formal merger authorisation process may commence before definitive agreements are signed. However, given the difficulties of making amendments following lodgement of the application, it will typically be the case that an application is not lodged prior to signing of a definitive agreement.
3.8 Are the parties required to delay closing of the transaction until clearance is granted?
Under the informal merger review process, which is outside the CCA legislative framework, there is no requirement to delay closing. However, the ACCC typically will not consider transactions that have been completed under the informal merger review process. Instead, if it determines to review a completed transaction, this will typically be treated by the ACCC as an investigation of a potential breach of Section 50 of the CCA.
The applicant for a formal merger review must provide a formal undertaking not to complete the transaction before the merger review has been completed.
3.9 Will the notification be publicly announced by the authority? If so, how will commercially sensitive information be protected?
The informal merger review process may occur in one of three ways:
- Pre-assessment: The ACCC may take the view that the risk of a substantial lessening of competition from the transaction is low and therefore that it will not undertake either a confidential assessment or a public review. In that case, no public announcement is made by the ACCC of the pre-assessment.
- Conditional confidential assessment: Details of confidential merger reviews (and the ACCC's assessment) are not made public. However, the ACCC reserves the right to undertake a public review of the transaction when details of the transaction are made public.
- Public review: If a public process is undertaken, it will be announced publicly by the ACCC. Both the fact that a public review is being undertaken and related information in relation to the proposed transaction will be published on the ACCC's website. The ACCC, however, does not publish the acquirer's submission itself.
The process for a formal merger review is public. The application for merger authorisation, all submissions made and the ACCC's determination will be made public by being published in the ACCC's merger authorisation public register. It is possible to make confidential submissions, though any claim for confidentiality will need to be substantiated.
4 Review process
4.1 What is the review process and what is the timetable for that process?
Under an informal merger review, once the relevant party (typically the acquirer) lodges its request with the Australian Competition & Consumer Commission (ACCC), unless the ACCC pre-assesses that the risk of a substantial lessening of competition is low (which will take approximately two weeks), the following will apply:
- Conditional confidential assessment: The applicant may seek a confidential review (ie, without market inquiries). This will normally take two to four weeks, but can take longer if substantive competition issues are raised. The ACCC may determine that it cannot form an opinion of the transaction via a confidential assessment. The ACCC will also reserve the right to undertake a public review process when the transaction becomes public.
- Public review: The ACCC will undertake market inquiries, after which it will either issue a statement of issues or announce a final decision. If the ACCC releases a statement of issues, it will consult further before it makes a final decision. If a statement of issues is released, the review may take up to six months (if not longer). Where no statement of issues is released, a review will typically take approximately two to three months.
Under a merger authorisation:
- the ACCC seeks submissions from interested parties, undertakes market inquiries and may seek further information from the applicant. The applicant may submit responses to the issues raised in submissions;
- the ACCC may issue a draft determination (though it is not obliged to do so) and will in any event discuss its proposed determination with the applicant; and
- the ACCC makes its final determination, which may be to grant authorisation conditionally or unconditionally, or to deny authorisation.
If the ACCC does not make a determination within 90 days, it is deemed to have denied authorisation. Therefore, applicants will typically agree to extend the 90-day period if the ACCC requests this.
4.2 Are there any formal or informal ways of accelerating the timetable for review? Can the authority suspend the timetable for review?
There is no fixed timetable for an informal merger review. There is thus no means to accelerate the timetable and no need for the ACCC to suspend the timetable.
There is no way to accelerate the timetable for a formal merger authorisation. If information is not provided promptly in response to requests from the ACCC or if the transaction raises substantive competition issues, this may result in the ACCC seeking an extension of time from the applicant.
4.3 Is there a simplified review process? If so, in what circumstances will it apply?
No. The informal merger review process is the most simplified review process that is available.
4.4 To what extent will the authority cooperate with its counterparts in other jurisdictions during the review process?
If a merger is being reviewed by overseas competition authorities, then as part of an informal review process, the ACCC may consult with those other agencies. The ACCC will work cooperatively with overseas agencies. Depending on the focus of a particular transaction or the expertise of particular regulators dealing with a potential transaction, the ACCC may take a leading role (eg, in relation to mining mergers) or may follow other leading agencies if the proposed transaction has minimal impact in Australia. Alternatively, it may simply work within its own process guidelines.
If no protected information (which is defined to include information provided to the ACCC on a confidential basis) is involved, then the ACCC will consult with its overseas counterparts under the informal process without seeking consent from the parties to the transaction. Otherwise, the ACCC will follow the statutory process set out in the Competition and Consumer Act (CCA) to discuss confidential information or seek waivers of the confidentiality obligation from the transaction parties. Where a confidentiality waiver is sought, the ACCC will not agree to limit its ability to use the information for any of its other functions or duties.
4.5 What information-gathering powers does the authority have during the review process?
As the informal merger review process is not a process prescribed by the CCA, the ACCC does not have mandatory information-gathering powers. However, the ACCC has separate powers to issue notices requiring information, documents and other evidence under Section 155 of the CCA (Section 155 notices) in the event that it determines, in the course of a review, that there may be actual or potential contraventions of the CCA and that a party (which may be a third party) may have information that is relevant to the possible contravention.
An applicant must provide the information required in the application for a merger authorisation; if it does not do so, the ACCC may reject the application. Although the ACCC cannot compel the applicant to provide further information during the authorisation process, a failure by the applicant to respond to questions from the ACCC may prejudice the likelihood of obtaining authorisation. Third parties may make submissions in connection with the authorisation process, but are not obliged to do so. However, as for an informal merger review, the ACCC may issue Section 155 notices.
The ACCC has stated that, under both the informal merger review and merger authorisation processes, it will use its Section 155 powers only where it considers this will be the most effective and/or efficient way of gathering the information necessary for the ACCC to make its decision.
4.6 Is there an opportunity for third parties to participate in the review process?
Yes, third parties will have an opportunity to respond to the ACCC's market inquiries for an informal review process and may make submissions in a merger authorisation process.
4.7 In cross-border transactions, is a local carve-out possible to avoid delaying closing while the review is ongoing?
This is theoretically possible. However, particularly given the availability of the informal merger review process and the fact that the ACCC consults with its international counterparts in assessing global transactions, it will seldom be the case that the ACCC's processes will delay closing on a global transaction.
4.8 What substantive test will the authority apply in reviewing the transaction? Does this test vary depending on sector?
Section 50 requires the ACCC to impose a forward-looking test in determining the impact that the merger or acquisition will have on competition, generally looking at a one to two-year period. Only mergers or acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition are prohibited.
Section 50(3) of the CCA requires certain matters, which are non-exhaustive (meaning that the ACCC may also take into account other factors), to be considered when assessing whether a merger or acquisition is likely to substantially lessen competition in the relevant market, including:
- the actual and potential level of import competition in the market;
- the height of barriers to entry to the market;
- the level of concentration in the market;
- the degree of countervailing power in the market;
- the likelihood that the merger or acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins; and
- the extent to which substitutes are available in the market or are likely to be available in the market.
The same test is applied in every sector; however, the ACCC has issued specific guidelines that apply to mergers in the media sector, which were most recently updated in 2017 to reflect changes made at that time to the media ownership rules in the Broadcasting Services Act 1992 (Cth).
4.9 Does a different substantive test apply to joint ventures?
No, there is no difference in the test applied to joint ventures.
4.10 What theories of harm will the authority consider when reviewing the transaction? Will the authority consider any non-competition related issues (eg, labour or social issues)?
In assessing a merger or acquisition under the informal review process, the ACCC will consider only the competition impacts of the proposed transaction. It will base its analysis on standard theories of competitive harm – that is, unilateral and coordinated effects. A transaction will have unilateral and/or coordinated effects when it weakens or removes the competitive pressure on businesses in the relevant market. The ACCC will find that a transaction is likely to breach Section 50 where unilateral or coordinated effects (or both) amount to a significant and sustainable increase in the market power of the merged or acquiring business and/or other businesses in the relevant market.
Although the ACCC will not consider any non-competition related issues under an informal merger review process, under the merger authorisation process the ACCC may grant authorisation if it is satisfied that, notwithstanding that the transaction would otherwise breach Section 50 of the CCA, the likely public benefit from the proposed merger or acquisition will outweigh the likely public detriment. The ACCC will give both ‘public benefit' and ‘public detriment' broad interpretations. The CCA does not limit the range of matters that may be taken into account. However, Section 90(9A) of the CCA requires that in considering public benefit, the ACCC have regard to:
- significant increases in the real value of exports;
- a significant substitution of domestic products for imported goods; and
- other matters that relate to the international competitiveness of any Australian industry.
In Re 7-Eleven Stores Pty Ltd (1994) ATPR 41-357 the Australian Competition Tribunal defined ‘public detriment' as any impairment to the community generally or to economic efficiency.
5.1 Can the parties negotiate remedies to address any competition concerns identified? If so, what types of remedies may be accepted?
Either at the commencement of an informal review process or during the course of that review process, if the ACCC indicates that the merger or acquisition raises competition concerns, the parties may decide to offer a court-enforceable undertaking under Section 87B of the Competition and Consumer Act (CCA) to address the Australian Competition & Consumer Commission's (ACCC) concerns.
A Section 87B undertaking can also be offered for a merger authorisation. However, the process is more difficult if a Section 87B undertaking is not offered as part of the application for authorisation, given that the 90-day assessment period for authorisations constrains the ability of the ACCC to accept amendments to an authorisation application. Nonetheless, the parties to the merger or acquisition transaction may propose a Section 87B undertaking during the authorisation process, which the ACCC will consider. As for the informal merger review process, the ACCC will generally consult with interested third parties regarding any such proposed undertaking. In a merger authorisation, the ACCC may also take into consideration in assessing a Section 87B undertaking whether it will assist in ensuring that anticipated public benefit arises or that the public detriment is avoided.
The ACCC has discretion as to whether to accept a Section 87B undertaking, and will do so only if it determines that the undertaking will address the issues that have been identified and maintain the level of competition that existed prior to the proposed merger or acquisition. Section 87B undertakings will provide for either:
- structural remedies (ie, to change the structure of the merged or acquiring business or the relevant market); or
- behavioural remedies (ie, to change the behaviour of the merged or acquiring business, particularly in terms of pricing, quality or output).
The ACCC has a very strong preference for structural remedies. The most common form of structural remedy is divestiture.
There are significant consequences for breach of a Section 87B undertaking. If the Federal Court finds that a Section 87B undertaking has been breached, it may make any order that it thinks appropriate.
5.2 What are the procedural steps for negotiating and submitting remedies? Can remedies be proposed at any time throughout the review process?
There are no formal procedural steps for negotiating and submitting a Section 87B undertaking under either the informal merger review or the merger authorisation process. Under the informal process, the undertaking must be put forward voluntarily by the parties; however, under the merger authorisation process, the ACCC will make grant of the Section 87B undertaking a condition of its authorisation.
The ACCC will generally conduct market inquiries regarding any proposed Section 87B undertaking where it has formed a preliminary view that the undertaking would be acceptable. Under the informal merger review process, the ACCC cannot require the parties to accept any amendments to a proposed Section 87B undertaking, but it will raise concerns that arise from market inquiries with the transaction parties. If the concerns are not addressed to the satisfaction of the ACCC, it may not accept the Section 87B undertaking that is put forward. Substantial changes to a proposed Section 87B undertaking may also require further consultation. As a result of market inquiries, it is also theoretically possible that the ACCC will determine that the proposed Section 87B undertaking is not required.
The ACCC will seek to ensure that the reasons for accepting a Section 87B undertaking are publicly available (subject to any confidentiality issues). The ACCC is also concerned to ensure consistency between undertakings accepted in different merger cases.
5.3 To what extent have remedies been imposed in foreign-to-foreign transactions?
A foreign-to-foreign transaction will be treated in the same way as any other transaction assessed by the ACCC.
6.1 Can the parties appeal the authority's decision? If so, which decisions of the authority can be appealed (eg, all decisions or just the final decision) and what sort of appeal will the reviewing court or tribunal conduct (eg, will it be limited to errors of law or will it conduct a full review of all facts and evidence)?
Under the informal merger review process, if the parties to a merger or acquisition transaction do not agree with the Australian Competition & Consumer Commission's (ACCC) decision, then – unless the parties also require approval under the Foreign Acquisitions and Takeovers Act (FATA) – the parties may decide to proceed nonetheless with the transaction. In such case, if the ACCC wishes to continue to oppose the transaction, the ACCC will be required to commence proceedings under Section 50 of the Competition and Consumer Act (CCA) for a remedy – for example, an injunction to stop the transaction completing – on the basis that the transaction breaches Section 50.
If approval is required under FATA, this course is not necessarily open, as the parties will require FATA approval to proceed to completion of the transaction. The Australian Treasurer grants or withholds approval under FATA on the advice of the Foreign Investment Review Board (FIRB). The Australian Treasurer makes its decision based on the national interest, which includes a consideration of the competition impacts of the proposed merger or acquisition. FIRB will consult with the ACCC on competition issues. Therefore, if the ACCC rejects a transaction under the informal merger review process, it is unlikely that FATA approval will be obtained.
If a transaction is opposed by the ACCC under the informal merger review process (and irrespective of whether approval is required under FATA), the parties may seek a declaration that there is no contravention of Section 50 of the CCA in the Federal Court. This is not a review of the ACCC's decision, but a full analysis of the transaction and the requirements of Section 50. In seeking such a declaration, the onus is on the parties to establish that the transaction will not have the effect or likely effect of substantially lessening competition.
Where a transaction is opposed by the ACCC under its informal process, the parties may also seek a merger authorisation which would allow the ACCC to approve a transaction that would otherwise breach Section 50 of the CCA if the public benefit outweighs the public detriment.
If the parties disagree with a merger authorisation, they may appeal to the Australian Competition Tribunal or to the Federal Court. An appeal to the Australian Competition Tribunal is a full merits review, and the tribunal will make its own findings and reach its own decision. An appeal to the Federal Court is a judicial review and is available only on a question of law.
6.2 Can third parties appeal the authority's decision, and if so, in what circumstances?
If the ACCC determines under the informal merger review process not to oppose a transaction (on either a conditional or unconditional basis), third parties can take action in the Federal Court under Section 50 of the CCA to oppose the proposed transaction. This is the case as the informal merger review process is not binding. Third parties may apply for divestiture orders or for damages for any loss suffered. Importantly, third parties may not seek an injunction to stop a transaction from proceeding.
If a third party disagrees with a merger authorisation decision of the ACCC, like the parties themselves, the third party may appeal to either the Australian Competition Tribunal or the Federal Court, on the same basis as the parties to the transaction. The tribunal must be satisfied that the third party has a sufficient interest before it will undertake a review. This test is not particularly onerous and requires the third party to establish that, for example, its business interests or prospects would be adversely impacted by the transaction. To apply for judicial review by the Federal Court, the third party must establish that it has standing, which may be more difficult.
Third parties may also seek to intervene in Federal Court proceedings or proceedings before the Australian Competition Tribunal in relation to Section 50 of the CCA.
7 Penalties and sanctions
7.1 If notification is mandatory, what sanctions may be imposed for failure to notify? In practice, does the relevant authority frequently impose sanctions for failure to notify?
Notification is not mandatory.
7.2 If there is a suspensory obligation, what sanctions may be imposed if the transaction closes while the review is ongoing?
The Australian Competition & Consumer Commission (ACCC) will not typically consider a transaction under the informal merger review process if it has completed, but will instead assess it on the basis of considering whether the parties have contravened Section 50 of the Competition and Consumer Act (CCA). The ACCC may seek pecuniary penalties for a breach of Section 50, as well as divestiture orders where a transaction has already completed.
The ACCC will require, as a condition of a merger authorisation application, a Section 87B undertaking that the applicant agrees not to complete the transaction until the merger authorisation process is complete. The ACCC may take action in the Federal Court to enforce such an undertaking if the parties propose to proceed with completion before the process is complete.
7.3 How is compliance with conditions of approval and sanctions monitored? What sanctions may be imposed for failure to comply?
If a Section 87B undertaking is given in connection with a proposed merger or acquisition under either the informal merger review process or the merger authorisation process, the ACCC will put in place monitoring arrangements to ensure that the Section 87B undertaking is complied with.
The ACCC will investigate suspected breaches of a Section 87B undertaking. This may include taking legal action under Section 87B of the CCA to seek an order from the Federal Court directing the person to comply with the term or any other order that the court considers appropriate if the court is satisfied that the person has breached a term of the undertaking.
Where the ACCC has granted a merger authorisation on the basis of a Section 87B undertaking, if the undertaking is not complied with, the ACCC may revoke the authorisation, meaning that it will be entitled to take action under Section 50 of the CCA in relation to the transaction.
8 Trends and predictions
8.1 How would you describe the current merger control landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
There are likely to be legislative reforms in the next 12 months. The Australian Competition & Consumer Commission (ACCC) has recently completed its Digital Platforms Inquiry, which examined the impact of digital platforms such as Google and Facebook on competition in the media and advertising services markets. The government has yet to formally respond to the ACCC's recommendations from that inquiry. However, it is likely to adopt the two recommendations that the ACCC made in relation to mergers, as follows:
- that Section 50(3) of the Competition and Consumer Act (CCA) be amended to include as a factor that the ACCC should take into consideration in assessing mergers and acquisitions:
- the likelihood that the transaction would result in the removal from the market of a potential competitor; and
- the nature and significance of assets, including data and technology, being acquired directly or indirectly as part of the transaction; and
- that large digital platforms, particularly Google and Facebook, agree a notification protocol with the ACCC to provide advance notice of any proposed acquisitions that may potentially impact on competition in Australia.
It is likely that the ACCC, as a result of its Digital Platforms Inquiry, will have an increased focus on mergers and acquisitions generally in the online space over the next few years.
In addition, the ACCC in recent times has been unsuccessful in opposing mergers in the Federal Court and the Australian Competition Tribunal. The ACCC chair has indicated that if this trend continues, the ACCC will press for amendments to the CCA to make it easier to oppose mergers in concentrated markets.
9 Tips and traps
9.1 What are your top tips for smooth merger clearance and what potential sticking points would you highlight?
- Engage early with the Australian Competition & Consumer Commission (ACCC). The earlier the engagement, the more opportunities the parties to a merger or acquisition have to address issues before these become blockers to the proposed transaction. The ACCC has recently criticised lawyers for not properly identifying competition issues so that these may be addressed early in a transaction.
- Be comprehensive in the information that is provided to the ACCC, whether under the informal merger review process or the merger authorisation process. Providing comprehensive information will limit delays in the ACCC's processes.
- In the case of transactions involving an offshore counterpart, remember that approval may also be required under the Foreign Acquisitions and Takeovers Act (FATA); and that in assessing national interest under FATA, the Australian Treasurer will also consider the competition issues arising from a transaction.
- Data matters. If you have a transaction which involves the transfer of significant amounts of data (whether personal information or otherwise), consider whether it will cause concerns for the ACCC from a competition perspective or, if the transaction requires approval under FATA, also from a national security perspective.
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.