Government consultation on merger clearance reform commences

Reforms on the table 

On 20 November 2023, the Competition Taskforce (established by the Australian Government within Treasury) released a consultation paper outlining potential options for reforms to Australia’s merger control regime (Consultation Paper).  

The Consultation Paper sets out three possible replacements for the existing informal merger clearance process:  

The Consultation Paper also includes three separate and independent options to amend the legal test for whether a merger should be blocked (which is contained in section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) and prohibits mergers that are likely to substantially lessen competition):

• Option A (Amend ‘merger factors’): Modernise or remove the list of matters that the ACCC may, and the court must, consider when assessing the impact of mergers on competition (known as the ‘merger factors’ in section 50(3)).
• Option B (Expand prohibition to entrenching market power): Expand the section 50 test to include mergers that ‘entrench, materially increase or materially extend a position of substantial market power’.
• Option C (Include related agreements in assessment): Allow consideration of related agreements between merger parties (such as non-compete agreements or agreements concerning supply of goods or services post-merger) to be considered as part of the consideration of the effect of the merger on competition.

Submissions from interested stakeholders are due by 19 January 2024, after which the Competition Taskforce will make recommendations to the Australian Government.  All of the options canvassed in the Consultation Paper would require legislative change, with consultation on exposure draft legislation likely to provide a further opportunity for scrutiny and comment.  The timeframe for implementation of any reforms is therefore likely to be at least 18 months or more.

Impact on merger parties

To varying degrees, each of these options could:

• provide the ACCC with a greater ability to block proposed mergers;
• increase the number of mergers that need to be notified to the ACCC;
• impose additional information requirements on merger parties that seek or require ACCC clearance; and
• fundamentally alter the judicial oversight over Australia’s merger control regime.

Equally, depending on the specifics of the reforms, the options may also provide:

• greater certainty for whether an acquisition needs to be notified to, or clearance obtained from, the ACCC (e.g., if quantifiable thresholds are set with no or very limited ACCC ‘call-in’ powers);
• greater transparency over the details of submissions made by third parties in relation to a proposed merger (e.g., similar to the existing merger authorisation process); and
• greater timing certainty (e.g., if there are specified timeframes for ACCC review and/or Australian Competition Tribunal reviews, with prescribed and limited circumstances for extension of the timeframes).

However, important details relevant to the assessment of the impact of the reforms have not been released, including:

• The prescribed thresholds for the options with mandatory and suspensory regimes. Typically in overseas jurisdictions, these thresholds are based on the merger parties turnover and/or the value of the transaction. 
• The circumstances in which the ACCC could exercise ‘call-in powers’, which will determine what certainty (if any) merger parties will have in relation to possible ACCC reviews.
• Timelines for ACCC review, including the consequences if the ACCC fails to make a decision within the timeline and the ability for timelines to be paused or extended.
• The type of information needed to be included in a notification and the extent to which the ACCC can reject a notification as incomplete (thereby delaying the commencement of the review timeframes).
• Simplified procedures for mergers that meet prescribed thresholds but are unlikely to have any competitive effects.
• Transparency over submissions to the ACCC (by merger parties and third parties) and ACCC decisions to grant or deny clearance.
• The extent of appeal processes, including the role of the Australian Competition Tribunal and the ability to rely on new evidence during a review by the tribunal.

The economic context for consultation

On 23 August 2023, the Treasurer announced a Competition Taskforce would undertake a two-year review of rolling projects, focusing on competition policy reforms that would encompass competition laws, policies, and institutions.  The Taskforce is to receive advice from an Expert Panel chaired by Dr Kerry Schott, which also includes Productivity Commission Chair Danielle Wood, former UK Office of Fair Trading Chief John Fingleton, antitrust economist John Asker, former ACCC chair Rod Sims, business leader David Gonski and competition lawyer Sharon Henrick.  The merger reform consultation is the first cab off the rank for the Taskforce. 

The Consultation Paper states that there is evidence of increased concentration and decreased competition in Australia that justifies consideration of whether the current settings for merger clearance remain appropriate. 

The paper also refers to:

• (ACCC concerns) the ACCC’s concerns that the existing informal voluntary merger control regime is:
  • ‘skewed towards clearance’ where there is uncertainty or a number of possible future outcomes; and
  • not as effective as it needs to be because merger parties are failing to notify the ACCC, providing the ACCC with incomplete or inaccurate information, or threatening to complete transactions before the ACCC can finish their review;
• (overseas economic studies) studies that suggest too many anti-competitive mergers have been allowed to proceed and that merger enforcement in overseas jurisdictions has been too lax over the past 25 years; and
• (concerns in relation to acquisitions by large firms) concerns raised internationally and in Australia that certain types of acquisitions by large firms are not adequately captured by current competition laws, including creeping acquisitions (i.e., a series of small acquisitions by large firms), killer acquisitions (i.e., acquisitions of nascent competitors by large incumbents), and acquisitions to expand into related markets (particularly by digital platforms).

As a reference for the assessment of the possible reforms, the Consultation Paper refers to OECD guidelines which provide that merger clearance processes should:

• be effective, efficient, timely and transparent;
• avoid imposing unnecessary costs, set reasonable information requirements, establish clear and objective notification criteria, and expedite review of mergers that do not raise material competitive concerns; and
• be procedurally fair, by providing the right to respond, the right to seek review, to hear from third parties and protect confidential information.

Next steps

To read more about the background to merger reform in Australia see our previous alerts in April 2023, March 2023, and August 2021.

Please reach out if you would like to discuss any of the reform proposals, or would like assistance preparing a submission to Treasury.

Annexure – possible new merger control regimes

Currently, merger parties can either seek informal merger clearance from the ACCC or apply for merger authorisation from the ACCC.  The informal merger clearance process is a non-statutory, administrative process, pursuant to which the ACCC indicates its view of whether a merger would be likely to substantially lessen competition (in breach of section 50 of the CCA).  The overwhelming majority of mergers use the informal merger clearance process.  The Consultation Paper outlines three options for replacements to the existing informal merger clearance regime. Submissions are also invited on whether the existing merger authorisation regime should be retained, assuming the informal regime is replaced.