The Australian Competition and Consumer Commission (ACCC) has announced its much anticipated proposals for merger control reform, which, if adopted into law, would grant the ACCC far greater discretion to block transactions and establish Australia as having one of the most interventionist merger regimes in the world.
The proposals represent a seismic shift in approach and, if implemented, would fundamentally change the way in which merger control clearances are sought, reviewed and contested in Australia.
Although merger litigation is rare in Australia, the ACCC has lost every merger challenge that it has brought in the past 20 years, including several successive high-profile merger cases in the last decade.1 While the courts in each case identified various failings and gaps in how the ACCC ran and supported the cases, the ACCC Chairman, Rod Sims, places the blame on deficiencies in Australia's merger laws. Mr Sims has suggested that: (i) the burden on the ACCC of proving that a transaction is likely to substantially lessen competition in court proceedings is unrealistically high; and (ii) courts have too little regard to the impact of a transaction on the structural conditions of competition and too much regard for the self-interested evidence of corporate executives.
The ACCC's proposed changes
In his opening speech to the Law Council of Australia's Competition and Consumer Workshop on 27 August 2021, Mr Sims sought to start a debate on reforming Australian merger laws by setting out a range of proposed reforms:
- All transactions above certain thresholds (not yet specified) would be required to be notified to the ACCC. There is presently no mandatory requirement for parties to notify the ACCC of a transaction – rather, merger parties must conduct their own assessment as to whether to notify the ACCC.
- Transactions that are filed with the ACCC would be prohibited from closing without ACCC approval.
- The ACCC would implement a process for parties to transactions that obviously do not raise competition concerns to obtain a 'notification waiver'. This waiver would enable merger parties to proceed with the transaction without the need for a detailed review.
- The ACCC would have a 'call in' power over any transactions that do not meet the mandatory filing thresholds, but that the ACCC considers require review.
- The ACCC would be required to publish detailed reasons for its decisions.
- At present in Australia, an acquisition of shares or assets that has, or is likely to have, the effect of substantially lessening competition in a market in Australia is prohibited under section 50 of the Competition and Consumer Act 2010 (Cth). The ACCC proposes changing the legal meaning of the word 'likely' from a 'real commercial likelihood' to a 'possibility that is not remote'.
- The ACCC proposes revising the factors that the ACCC (and any review body) must take into account in determining whether a merger is likely to have the effect of substantially lessening competition to focus on the structural conditions for competition that are changed by the transaction to the detriment of competition, including to introduce factors to address whether the transaction may result in the loss of potential competitive rivalry and/or to increase access to or control of data, technology or other significant assets.
- The ACCC proposes a provision that deems transactions by corporations with a substantial degree of market power to substantially lessen competition if they entrench, materially increase or materially extend that market power.
Digital platforms changes
- The ACCC proposes introducing lower notification thresholds for transactions by digital platforms.
- The ACCC proposes a different substantive test for digital platform transactions that are caught by the notification thresholds. Although no details have been provided, the test would require the ACCC to establish a lower probability of competitive harm than that which applies for transactions in the economy more broadly (presumably lower still than a 'not remote possibility'). The ACCC's focus appears to be on preventing: (i) digital platforms from being able to buy out possible competitive threats before they have a chance to develop into effective rivals; (ii) transactions that leverage existing dominance; and/or (iii) transactions that leverage the control of data into market power in adjacent markets. The ACCC intends to publish these rules together with a wider package of proposed digital platform-focused regulatory measures in early 2022.
Review right changes
- The ACCC proposes that merger parties would only be able to seek limited merits review of ACCC decisions by the Australian Competition Tribunal. This would mean that merger parties could no longer apply to the Federal Court for a declaration that a transaction does not substantially lessen competition and the review would be "on the papers" and limited to the material before the ACCC.
- If properly structured, a mandatory filing regime would bring greater timing and process certainty to ACCC merger review – albeit at a cost to the timeliness and efficiency of the review of many small deals. A mandatory regime would bring Australia into line with other major jurisdictions and would provide certainty for businesses as to when to notify in Australia. Inevitably, establishing mandatory filing thresholds will result in more deals needing to be notified in Australia, but the extent to which this occurs will depend upon the notification thresholds and safe harbours, which the ACCC has not proposed.
While the greater timing certainty provided by statutory timetables would be welcomed, given the general recent trend towards longer reviews of more complex deals, this benefit will be greatly undermined if the ACCC adopts the practice from several other jurisdictions of having long 'pre-notification' periods before a filing is formally accepted and the statutory clock started.
The proposal for a bar on closing transactions pending ACCC approval would mean that the ACCC would no longer have to resort to seeking a court injunction to prevent closing, or threatening such an injunction application as a means to obtain an undertaking not to close. It would also allow the ACCC to delay closing of global deals, including those that have been scrutinised and cleared by agencies in other jurisdictions that often represent the vast bulk of merging business' revenues.
A 'call in' power would be an unwelcome addition to any mandatory regime, as it would undermine the main benefit of a mandatory regime for companies doing business in Australia – i.e. certainty as to when a transaction requires notification. Also, if the ACCC is able to call-in transactions at any time before completion, some parties may still elect to make voluntary notifications to obtain certainty and de-risk an ACCC intervention shortly before completion.
Publication of detailed reasons would bring the ACCC in line with its international peers and would be a welcome development. At present, the ACCC's reasoning for, and analysis in relation to, its merger decisions is often opaque – both for parties and non-parties. Publication of detailed reasons would allow interested parties and practitioners to better understand the ACCC's analysis and allow a more useful body of decision precedents to develop.
- Proposals to reform the legal test(s) could lead to more deals being blocked on the basis of speculative theories of harm and weak evidence. The change to the legal meaning of 'likely' would set a very low standard for opposing a transaction, reject decades of Australian Court precedents that are based on sound legal and economic principles,2 and make Australia's merger laws inconsistent with comparable international regimes that require agencies to show anticompetitive effects on the balance of probabilities standard (e.g. the UK3) or higher (e.g. the EU4). It seems the ACCC wants to be able to more easily block mergers where it is concerned about a mere possibility of competitive harm, even if that possibility is improbable. The ACCC also appears to intend to take a more precautionary approach to transactions by larger firms on the basis that the transactions risk greater potential harm – so the larger the acquirer, the more tenuous the potential concern can be. If implemented, the proposal will inevitably result in an increase in blocked transactions on the basis of speculative theories of harm, including in circumstances where the same transaction is approved by overseas authorities.
The proposals to include new merger factors to examine potential competition and data aggregation appear redundant, as the ACCC and review bodies are already able to, and do, take these factors into account when assessing the likely effect of a proposed transaction.
- New deeming provision unnecessary and unclear in application. The deeming of any transaction that entrenches, materially increases or materially extends the existing market power of a merger party to substantially lessen competition is extreme. The proposal goes further than even a rebuttable presumption that places the burden on the acquirer to demonstrate that competition would not be lessened. If implemented, this proposal would greatly enhance the ACCC's ability to block transactions involving large companies on the basis of speculative theories of harm because the ACCC will not be required to demonstrate the likelihood of anticompetitive effects.
It is also unclear how this would work in practice. Would merger parties have to make submissions that they do not have substantial market power in any relevant market; but if they do, it is not 'entrenched' (at all) or 'enhanced' or 'extended' (to a 'material' degree) by the transaction; and that the acquisition does not substantially lessen competition on its merits (to the 'not remote possibility' standard)?
- A lower probability test for digital platforms is an unprincipled approach to merger assessment. Lowering the probability of competitive harm that needs to be established for a specific industry is an unprincipled approach to economic regulation. Australia has never had a more stringent or restrictive merger regime for particular industries or companies, and no proper case has been made for why one is necessary in relation to certain digital platforms.
Although unclear, it seems the ACCC wants the power to deem some types of transactions by digital platforms (e.g. transactions that involve an increase in data held by the digital platform or an acquisition of a nascent but potential competitor) as likely to substantially lessen competition without being required to analyse or show why such transactions are in fact likely to have this effect. As with the deeming proposal in respect of merger parties that may have substantial market power, any use of a deeming provision applied to particular industries or companies would be an extreme and unjustified mechanism.
- Proposal to remove full merits review erodes important safeguards. The ACCC's proposed removal of the right to apply directly to the Federal Court would remove important safeguards against over-enforcement and poor decision-making.
In a limited merits review, merger parties would be placed at a disadvantage to the ACCC because they would be unable to properly test third parties' submissions and evidence. The limited merits review proposed would occur 'on the papers' and there would be no oral hearing or cross-examination and no ability to submit new evidence that was not before the ACCC. Because the ACCC can examine merger party executives on oath during the clearance process using its compulsory powers and receive full access to all of the evidence, but the merger parties never obtain access to complainant witnesses and may obtain only limited access to their submissions and data, it is likely that the merger parties' evidence and arguments will be tested far more robustly than opposing parties.
In an environment in which merger parties' appeal rights are limited to the material before the ACCC, there will be a strong incentive to front-load the ACCC process with factual and economic evidence - potentially increasing review costs dramatically.
The ACCC has flagged that it was opening debate on these proposals and seems to recognise that changes are unlikely in the near term. Given the political landscape in Australia and the impending federal election, it is likely to be some time before concrete proposals are considered or developed by legislators and the prospects of these (or any) changes becoming law are currently unclear.
1 Australian Competition and Consumer Commission v Pacific National Pty Limited  FCAFC 77; Vodafone Hutchison Australia Pty Limited v Australian Competition and Consumer Commission  FCA 117; Application for Authorisation of Acquisition of Macquarie Generation by AGL Energy Limited  ACompT 1; Applications by Tabcorp Holdings Limited  ACompT 5; Application by Sea Swift Pty Limited  ACompT 9; Australian Competition and Consumer Commission (ACCC) v Metcash Trading Ltd  FCAFC 151.
2 Application for Authorisation of Acquisition of Macquarie Generation by AGL Energy Limited  ACompT 1; Australian Competition and Consumer Commission (ACCC) v Metcash Trading Ltd  FCAFC 151.
3 Competition and Markets Authority, Merger Assessment Guidelines, 18 March 2021, paragraph 2.36.
4 Case T-399/16, CK Telecoms UK Investments Ltd v European Commission, judgment of 28 May 2020.
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