On 25 February 2022, the Australian Competition and Consumer Commission ("ACCC") published a report detailing the findings from internal reviews of six of its merger determinations from between 2017 and 2019. Through this report, the ACCC has expressed an intention to learn through hindsight, focusing on "useful insights and lessons which are informing our current merger reviews, and the weight we give to different types of evidence from different interested parties."
Throughout the report, the ACCC has identified a number of 'key takeaways' that will likely impact the way future merger proposals are assessed.
Amongst other things, the takeaways may lead to more pressure-testing of justifications put forward by the involved parties, as well as a broader view of what actually has the potential to lessen competition in the modern Australian marketplace.
THE REMOVAL OF A VIGOROUS AND EFFECTIVE COMPETITOR CAN HARM COMPETITION, EVEN WHEN MARKET SHARES APPEAR RELATIVELY LOW
The Caltex/Milemaker merger underscored the fact that market share is but one of the factors that should be used to assess competition. As acknowledged by the ACCC, while market share is the starting point of a merger assessment, there are other potentially anti-competitive effects that must not be overlooked. Following the approval of the Caltex acquisition of Milemaker, the ACCC noticed a "quantifiable reduction" in price competition in the Melbourne metropolitan region, despite the joined firms accounting for just 11% of the market in the area. In this case, the ACCC acknowledged that the substantial reduction in price competition resulted from "the removal of Milemaker as a vigorous and effective competitor."
Moving forward the ACCC will likely take a more holistic approach to merger reviews As such, market share or lack thereof will unlikely be sufficient to satisfy the ACCC that the merger proposal will not have an adverse effect on competition. Instead, the ACCC may give greater consideration to the strength and vigour of competitors within the market. Therefore, in addition to looking at market share, the ACCC will need to be satisfied that the removal of a competitor from the market will not have the effect of substantially lessening competition.
SOME CLEARED MERGERS HAVE RESULTED IN SIGNIFICANT PRICE INCREASES FOR SEGMENTS OF MARKETS
In addition, ACCC has acknowledged that, in the increasingly segmented modern Australian market, certain mergers might adversely impact competition in specific market areas. In the Emergent/Oxford review, the ACCC saw tangible lessening in price competition for mid-size customers – in spite of the high competition that remained for large customers.
As a result, the ACCC may focus more on market segments for future proposals. Accordingly, any potential merger would be assessed from a competition standpoint at a micro, segmented, level in addition to its impact on broad competition in the Australian market.
SELF-REPORTING AND INTERESTED ENTITIES IN THE MERGER REVIEW PROCESS
One of the more important findings to come out of this ex-post review process, the ACCC has expressed concerns in relation to the self-reporting of interested entities in the merger review process. In particular, interested parties have made assertions that mergers will allow them to purchase property that would otherwise fall redundant, or that new entrants expected in the market will offset the competition effects of the merger.
As outlined by the ACCC "Across the ex-post reviews conducted to date, we identified numerous claims by industry participants across various industries about potential new entry. However, the ACCC identified that in almost none of these cases had any entry transpired in the time since the merger." As a result, the ACCC will likely approach submissions made by interested parties with an increased degree of caution and and may not be as willing to engage with assertions that relate to how competition issues may be offset. Firms looking to draw no objections from the ACCC should be ready to provide tangible proof that their assertions will ring true, lest they be subject to their own ex-post review in the future.
Finally, the ACCC report contains a deep dive into the six ex-post reviews that the Commission conducted. The reviews provide an insight into the lessons that can be learnt from allowing such an open submission process in a merger review. The repercussions of this report are set to have a significant impact on the approach taken by the ACCC when assessing future merger proposals.
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.