Regulator calls for major reforms to Australian merger laws

Melbourne-based Lisa Meyer of Pinsent Masons, a specialist in corporate transactions, said: “While section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) currently prohibits mergers that would have the effect, or likely effect, of substantially lessening competition in a market (the SLC test). It prohibits mergers that are likely to result in substantially high prices, lower quality of service, less innovation and fewer choices available to the consumer. There is currently no mandatory requirement for merger parties to notify the ACCC of planned mergers. This allows for mergers to complete before receiving ACCC clearance.”

“Where a transaction is identified by the ACCC to be anti-competitive, and the parties do not heed the ACCC’s concerns and choose to proceed with the transaction on anti-competitive terms, the ACCC’s only real option is to take enforcement action by applying to the Federal Court to either halt or unwind the merger. This decision is a significant undertaking for the ACCC particularly where they are at disadvantage if they do not have complete information on the transaction or the market,” she said.

Cass-Gottlieb said the current regime is out-of-step with merger control regimes elsewhere in the world and leaves the public “bearing the risk”.

“Australia’s merger regime needs to move away from a voluntary enforcement model to a formal clearance model, where merger parties must demonstrate to the satisfaction of the ACCC that their transaction is not likely to substantially lessen competition before they can proceed,” Cass-Gottlieb said.

“We propose adopting measures common in overseas merger regimes. These include a mandatory requirement for the ACCC to be notified of mergers above specified thresholds, a requirement for transactions to be suspended from completion without ACCC clearance, and upfront information requirements. This would bring Australia into line with most other OECD jurisdictions,” she said.

“Determining the thresholds will require careful consideration but, as with international merger regimes, these could be based on the size of the proposed transaction, the size of the business being acquired globally and/or within Australia, or a combination of these factors. For situations where a transaction doesn’t meet the notification threshold, but nonetheless raises competition concerns, the ACCC should be able to call-in the transaction and assess it in the formal system,” she said.

In her speech, Cass-Gottlieb said some businesses are “pushing the boundaries of the informal regime” currently.

“Given that there are no up-front information requirements for an informal review, merger parties are increasingly giving us late, incomplete, or incorrect information,” Cass-Gottlieb said.

“An increasing number are threatening to complete their transaction before we have finalised our review. This leads to the situation where we find ourselves negotiating with the merger parties to obtain sufficient information and time to conduct our review,” she said.

“The ACCC needs to have the tools necessary to be able to properly scrutinise and, if necessary, prevent mergers that are likely to substantially lessen competition “Without these tools, some markets are particularly vulnerable to being adversely affected by further consolidation. In particular, markets that already have large incumbents with positions of market power and markets where it is difficult for new rivals to enter,” she said.

Under the ACCC’s proposals, the existing SLC test would be broadened out to capture the overall enhancement of dominant positions in the market, often held by large businesses. Among the proposed new factors, the ACCC would consider: the loss of actual or potential competitive rivalry; increased access to, or control of data, technology or other significant assets; whether the acquisition is part of a series of relevant acquisitions; and whether the acquisition entrenches or extends a position of substantial market power.

Meyer said: “This shift in focus away from incremental changes arising from a merger would also seek to address the enhancement of market power gained through creeping acquisitions, comprising of multiple small acquisitions, which on their own would not amount to a lessening of competition in a market, but when accumulated provides the acquirer with a dominant position in the market.”

Meyer said that this is not the first time there have been calls for reforms to Australia’s merger laws. She said: “Rod Sims, former ACCC chair, called for reforms following the pandemic in a speech to the Law Council of Australia in August 2021. However, until these changes are considered and progressed by the government, the ACCC’s key deterrent remains the high penalties imposed on organisations who are found to be in breach of the CCA, which in 2022 amounted to approximately $200 million in total.”

Alan Davis, competition law expert at Pinsent Masons, said: “The vast majority of jurisdictions around the world have a mandatory pre-merger notification system, with only a small number of countries, including Australia, New Zealand, and the UK, adopting a voluntary regime, while certain jurisdictions have a mandatory ‘post-merger’ or ‘pre- or post-merger’ regime. With an increasingly interventionist approach by competition authorities in relation to non-notified mergers in voluntary regime jurisdictions, a mandatory filing regime can offer merging parties greater legal certainty prior to completion, whilst also affording the competition authorities an increased ability to scrutinise mergers raising substantive competition concerns that might otherwise fall under the radar.”