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2017: The Year in Australian Merger Control

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This article was written by Sharon Henrick and Haidee Leung.

In 2017, the Australian Competition and Consumer Commission (ACCC) completed 26 public merger reviews, which was a 21% decrease from 33 public reviews in 2016. In this alert, we set out recent trends and developments in Australian merger control. 

Headline stats

In 2017, the ACCC cleared 17 mergers without conditions. Those 17 mergers account for approximately 65% of the mergers the ACCC reviewed publicly.

The ACCC opposed one merger outright in 2017.

It published a Statement of Issues (SOI) in 10 cases (nearly 40% of the public reviews it undertook). 

In half (or 5) of the instances where the ACCC published an SOI, the parties abandoned their proposed merger. Those 5 instances could be a de facto measure of cases the ACCC would have opposed, or would only have cleared with conditions, had they not been abandoned.

The figures below illustrate the key statistics from the ACCC's public reviews in 2017.

Outcome of ACCC public merger reviews in 2017

Outcomes after the ACCC publishes an SOI

2017 also saw the Australian Competition Tribunal (the Tribunal) authorise Tabcorp's and Tatt's merger in the wagering and gaming sector. In that case, the ACCC published an SOI but had not yet made its final decision before the parties switched tracks and applied to the Tribunal for authorisation based on public benefits, including efficiencies.

Trends and developments

There were several trends and/or developments that stood out for us in 2017:

Theories of harm –removal of innovation and use of data

In 2017, the ACCC continued to explore the "innovation theory of harm" in merger control:

  • Although the ACCC granted clearance for the merger of El du Pont de Nemours and Company (DuPont) and The Dow Chemical Company (Dow), the ACCC expressed some concerns in its SOI regarding the impact of the merger on innovation. In its SOI, the ACCC's preliminary concern was that the proposed merger might lead to a substantial lessening of competition in upstream markets for the development of new technology for crop protection products. The ACCC noted that both Dow and DuPont were leading innovators in this sector and the removal of competition between them may "lead to less innovation across a broad spectrum of products", which may reduce the rate at which new products come to the market. When it ultimately cleared the merger, the ACCC took into account the divestment of the parties' R&D business in Europe. 
  • Australian Grain Technologies Pty Ltd (AGT) abandoned its proposal to acquire InterGrain Pty Ltd (InterGrain) after the ACCC published an SOI. The ACCC never made a final decision on the proposal. However, the ACCC expressed a preliminary concern that, with AGT and InterGrain being the only two significant barley breeding programs in Australia, the loss of competitive tension resulting from the proposed acquisition may lead to less research and development in barley. 

The ACCC has increased its focus on the use of data. In its public decisions, the ACCC stated that it considered the effect of a party's access to, or use of, information or data, but did not express any ultimate concern or articulate any clear theory of harm:

  • In its decision to unconditionally cleared Cabcharge's proposal to acquire Yellow Cabs Queensland, which owned and operated a taxi network in Queensland, the ACCC focussed on whether the acquisition would raise barrier to entry or otherwise give Cabcharge an ability to foreclose rivals. Interestingly, the ACCC's decision also specifically considered whether Cabcharge's access to its downstream competitor's information through its in-taxi payment terminals would provide it with a significant competitive advantage (the ACCC ultimately found it would not).
  • In its decision to unconditionally clear the global merger between Essilor (a global prescription lens manufacturer) and Luxottica (a global luxury eyewear manufacturer and optical retail chain operator), the ACCC focussed primarily on whether the merger would give rise to vertical and / or conglomerate effects. The ACCC also specifically considered whether the merger would allow the merged entity access to downstream rival's commercially sensitive information through Essilor's practice management system. The ACCC ultimately found that the commercially sensitive information would be protected through contractual arrangements. 

The ACCC remains strongly focused on concentrated market structures

In 2017, the ACCC continued to stand by its longstanding theory of harm that mergers which reduce the number of players in a market from three to two, or two to one will substantially lessen competition because they will allow the merged entity to increase prices and/or reduce service levels:

  • Bain Capital LP, the owner of Camp Australia Pty Ltd (Camp Australia), withdrew its proposal to acquire part of Advent Private Capital's shareholding in Junior Adventures Group Ltd Ltd (JAG) after the ACCC published an SOI expressing concerns with the acquisition. The ACCC's preliminary view was that the proposed acquisition would be likely to substantially lessening competition for the supply of before and after-school care in several States because it involved the consolidation of two of the largest providers, who would not be effectively constrained by the other remaining competitors. The ACCC considered the acquisition may lead to higher prices and lower quality of services.
  • APN Outdoor Group Limited (APO) and oOh!media Limited (OML) abandoned their proposed merger following the ACCC's publication of an SOI. In the SOI, the ACCC expressed a preliminary view that the proposed merger would likely result in a substantial lessening of competition because it would result in the consolidation of the number one and two providers of outdoor advertising services in Australia and create a market leader with over 50% share. In the ACCC's view, the proposed merger would have been likely to result in higher prices, reduced level services and "possibly less innovation" (which is another illustration of the ACCC's focus on competition for innovation).
  • South32 Limited (South32) withdrew its proposal to acquire Metropolitan Colleries Pty Ltd (Metropolitan), an Australian subsidiary of Peabody Energy Corporation after the ACCC published a SOI. In the SOI, the ACCC expressed a preliminary view that the proposed acquisition would remove the competitive rivalry between South32 and Metropolitan for the supply of coking coal to Australian customers. The ACCC considered that this could result in a single supplier of material volumes of coking coal from a particular region in Australia, which was considered to be the closest source of coking coal to Australian customers. 

The ACCC may be persuaded to clear a transaction where proposed merger would result in the reduction of the number of competitors from four to three. For example, in Platinum Equity's proposal to acquire OfficeMax Australia (OfficeMax) from Office Depot Inc, the ACCC expressed some preliminary concerns over the horizontal aggregation of two leading suppliers of office products to large and commercial and government customers in Australia in circumstances that would reduce the number of credible suppliers from four to three. However, the parties were ultimately able to obtain unconditional clearance from the ACCC on the basis that, should the merged company seek to increase prices, the large customers in this sector could easily switch to the other suppliers and the other suppliers would seek to grow their respective market shares.

Authorisation may not provide more timing certainty than informal clearance

2017 saw the third (and last) successful application to the Tribunal for authorisation of a merger authorisation since 2007, when the Tribunal was empowered to be the decision-maker at first instance for applications for authorisation based on public benefits. 

Following amendments to the Competition and Consumer Act 2010 (Cth), which took effect as of 6 November 2017, the first-instance decision making power for merger authorisation applications transferred from the Tribunal back to the ACCC. The amendments were not driven by any dissatisfaction with the Tribunal. Rather, they seemed to be driven by a desire for philosophical consistency - to re-empower the ACCC to be the first instance decision-maker for all mergers. The amendments provide the Tribunal will be the body responsible for reviewing the ACCC's decisions on applications for authorisations of mergers based on public benefits.

The Tribunal authorised Tabcorp's proposed merger with Tatts in the Australian wagering sector. The Tribunal's decision followed orders made by the Full Federal Court of Australia, on application by the ACCC and CrownBet, to set aside the Tribunal's earlier decision authorising the proposed merger because of an error of law.

Tabcorp first applied to the ACCC for informal clearance of the merger, but withdrew from this process and applied to the Tribunal on 13 March 2017 (109 days after the ACCC commenced its public review with at least 53 days of further review necessary to obtain a decision from the ACCC). The withdrawal was prompted by the ACCC's publication of an SOI that identified one 'red light' issue and several 'amber light' issues.

One of the reasons Tabcorp gave for "switching tracks" was to obtain greater timing certainty for the merger to allow implementation of its proposed scheme of arrangement by December 2017. Another reason was that the Tribunal was allowed to take into account a wider range of factors under the "net public benefits" test for authorisation (in contrast, under the ACCC's informal process, only competition factors can be taken into account).

Until the ACCC's appeal of the Tribunal's decision to authorise the Tabcorp and Tatts merger, some commentators considered that the authorisation process provided more timing certainty for parties because the Tribunal is subject to a 90 day statutory timeframe. In contrast, the ACCC's informal clearance process is not subject to a statutory timeline. However, the ACCC's decision to appeal the Tribunal's initial decision demonstrated how uncertain the timing of an application to the Tribunal could become. In that case, it forced Tabcorp to change the timetable for its proposed Scheme of Arrangement.

Under the new regime, the ACCC is also subject to a 90 day statutory deadline, which may be extended by consent, when it considers applications for authorisations of mergers. 

The 90 day statutory timeframe may not provide parties with timing certainty for two key reasons (which we discuss in more depth in this article):

  • Firstly, it is highly likely that parties will consent to extending the 90 day statutory deadline, and/or spend considerable time in pre-filing discussions with the ACCC before the commencement of the 90 days. One reason for this is that, under the legislation, the ACCC is deemed to have refused to authorise the merger if it has not made a determination within 90 days. The ACCC's draft guidelines for merger authorisations state that the ACCC expects applicants to contact it for informal discussion and guidance before lodging their applications. Consequently, parties are likely going to want to engage with the ACCC prior to lodging an application for authorisation. This is consistent with the practice in other jurisdictions with formal merger clearance regimes, including the European Union, the United States and China. In the European and the United States, 'pre-notification' discussions allow the competition regulator to commence the substantive assessment of the merger before the start of the statutory timeframe.
  • Secondly, if the ACCC denies the parties' application for authorisation, the appeal process is likely to result in further timing uncertainty. Under the new merger process, the acquirer has a right to appeal the ACCC's decision to the Tribunal for a limited merits review or to the Federal Court of Australia for judicial review for errors of law. Although there is a statutory timeframe of either 90 or 120 days (if Tribunal allows new information, documents or evidence) for the Tribunal's limited merits review process, the Tribunal has the power to extend this timeframe further if it considers it necessary. Any application to the Federal Court for judicial review of the Tribunal's decision will further delay the final decision on whether the transaction is authorised.

The ACCC continues to cooperate with international agencies, but there is evidence of independent outcomes

The ACCC continued to engage with its international counterparts in 2017 during complex, multi-jurisdictional merger reviews. 

For example, the ACCC worked closely with competition regulators in the United States, the European Union, Canada and New Zealand during its review of the DowDuPont merger. In granting unconditional clearance, an ACCC Commissioner stated that "[a]s the remedies provided to other regulators have resolved competition concerns in Australia, the ACCC has taken a pragmatic approach and not sought standalone remedies in Australia."

At the same time the ACCC was reviewing Essilor's merger with Luxottica, regulators in other jurisdictions – including the US and the EU – were assessing the transaction. Significantly, the ACCC made a decision not to oppose the Essilor/Luxottica deal, without requiring remedies, prior to regulators in other key jurisdictions issuing their decisions. This demonstrates that the ACCC is willing to be the "first mover" in clearing a transaction, where the evidence before it supports it doing so.

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