Instrumental changes: Treasury consults on draft notification thresholds instrument

Last Friday, Treasury released the exposure draft of the Competition and Consumer (Notification of Acquisitions) Determination for public consultation. The draft legislative instrument sets out details of the merger notification thresholds announced by the government on 10 October 2024 (see our alert here) under the new mandatory merger clearance regime commencing on 1 January 2026, including additional targeted notification requirements for major supermarkets (Coles and Woolworths) and limited exceptions. The draft instrument also details proposed information and document requirements for notification, with a short form (for acquisitions unlikely to raise competition concerns) and a more extensive long form (for other or more complex transactions). This morning, the ACCC also released guidance setting out provisional criteria for when merger parties should complete the long form, which is linked to the likely level of competition risk raised by the deal.

Treasury’s draft instrument clarifies several key details including turnover calculation and required information and documents to accompany clearance notification. We expect more details to follow on key concepts like ‘connected entity’, ‘connected with Australia’ and what constitutes a ‘commercial business’. Further details are also expected to follow on a number of other important areas including the proposed requirements for notification waivers, which many businesses will need to rely upon in the new mandatory merger regime.

Key takeaways

• The draft instrument outlines key details about the turnover thresholds announced by Treasury last year and clarifies essential concepts for assessing these thresholds, some of which are drawn from the Corporations Act 2001 (Cth) and GST legislation.
• The proposed notification requirements are onerous, particularly under the long form notification. Merger parties will need to start collating relevant data (i.e., market shares) and documents (i.e., materials on strategy and rationale) several months prior to notification. Based on the ACCC’s guidance released this morning, the long form may be required for a significant number of deals which may trigger the ACCC’s market share based provisional criteria for assessing when a long form is appropriate.
• Merger parties using the long form will need to provide materials from the prior 3 years, relating to the acquisition and broader competitive/market dynamics where those materials have been prepared by or for (or received by) a member of the Board, Board Committee or a shareholders’ meeting. This includes documents on the rationale for the acquisition, analysing the acquisition (including any post-acquisition plans or strategy) and market shares. Deal parties will need to take care in ensuring their internal documents accurately reflect these matters given they will be important inputs into the ACCC’s assessment.
• Notifying parties will also be required to provide a detailed declaration that the information and documents provided are true, correct and compete, which may require a detailed exercise in verification.
• Parties are encouraged to consult with the ACCC pre-notification to seek their views on whether a short form or (much more extensive) long form notification is required.
• The draft instrument sets out a number of proposed exemptions, including for certain land acquisitions, extensions or renewals of leases over land on which a commercial business is currently being operated, acquisitions by administrators or liquidators and certain financial and lending securities acquisitions. The scope of the relevant ‘land’ exemption will depend on what constitutes a ‘commercial business’ which is currently undefined in the draft instrument.
• As foreshadowed last year, the draft instrument contains targeted notification requirements for Coles and Woolworths, as well as their connected entities.
• The anti-avoidance provisions in the draft instrument make clear that the effects of any scheme will be disregarded if it would be reasonable to conclude that the purpose of any person who enters into or carries out the scheme is to avoid an acquisition being notifiable. The instrument will be updated in due course to include a number of important details on notification waivers, the contents of the Acquisitions Register and review by the Australian Competition Tribunal.  

Merger notification thresholds as announced last year  

The draft instrument provides important details regarding the merger notification thresholds that the Government announced and consulted on late last year (see our previous alert here). These details are set out below.

• Connection with Australia: A transaction will only be notifiable if it is ‘connected with Australia’, which will be the case where the target carries on a business in Australia (Treasury appears to be consulting on whether this should also capture an intention to carry on business in Australia).
• What turnover is assessed? Treasury has proposed using ‘current GST turnover’ as the relevant measure of a merger party’s turnover. This has the same definition as set out in Australia’s GST Act, and captures the sum of the values of all the supplies that a merger party has made or is likely to make in the 12 months ending on the contract date. This is intended to simplify the process for merger parties, by allowing them to rely on information they already collect for their Business Activity Statements.
• When is turnover assessed? A merger party’s GST turnover is proposed to be assessed as at the ‘contract date’, being ‘the date on which a contract, arrangement or understanding has been entered into, pursuant to which the acquisition of the share or asset is to take place’ (i.e., the date of the asset or share sale agreement or, in the case of public M&A, the date of the Scheme Implementation Deed). It’s unclear how turnover will be assessed by parties who lodge an application with the ACCC when they simply have an intention to enter into a contract, arrangement or understanding (but haven’t yet entered into one).
• Whose turnover is assessed? This depends on the relevant notification threshold to be applied but, in general, the relevant turnover will be the turnover of the notifying party, the target of the transaction in question, and any ‘connected entities’ of either of these parties.  For asset acquisitions, the turnover of the target will be ‘the current GST turnover of the target to the acquisition to the extent that it is attributable to the asset’. This does not appear to capture greenfield land acquisitions, where there will not be any turnover attributable to the relevant asset (i.e., the land) as at the contract date.  
• Connected entities: ‘Connected entity’ is defined by reference to the definition of ‘associate’ in the Corporations Act 2001 (Cth), and – at a high level - includes any party that ‘controls’, or is ‘controlled by’, the relevant party.
• 3-year look back: As previously flagged, acquisitions within the previous three years of the same product or service market/s (irrespective of geographic location) by the acquirer and connected entities are proposed to be aggregated for the purposes of assessing whether an acquisition meets the monetary turnover threshold. This excludes acquisitions that have previously been notified to the ACCC under the new regime (including voluntarily) and acquisitions where the target’s turnover was $2 million or less at the time it was put into effect.

Clarification on short and long form notification requirements

The draft instrument sets out proposed short and long form requirements to be used by notifying parties. 

The Explanatory Statement accompanying the draft instrument states that the simpler short form can be used for acquisitions unlikely to raise competition concerns, with the more detailed longer form to be used for other acquisitions. This morning the ACCC has also released further provisional guidance on when the long form should be used (see below).

The broad categories of information and documents required by the forms are not dissimilar to those required for mandatory filings in other jurisdictions (i.e., the UK, US and EU). However, understanding when the long form will be appropriate will be crucial as its requirements are significantly more extensive, and appear to resemble (and in some respects go beyond) the types of information and documents the ACCC would typically request in its review of a transaction under s 155 of the Competition and Consumer Act 2010.

Short form

In general, the short form requires:

• Merger party details: party names, contact details and legal representatives,
• Details of the acquisition: a 500 word non-confidential summary of the acquisition to be published on the Acquisitions Register and other details regarding the transaction (including transaction rationale, transaction value and turnover details, goodwill protection provisions and whether the transaction is a hostile takeover or voluntary transfer of business),
• Details of past relevant acquisitions: details of any acquisitions made by the parties during each of the last 3 years, excluding any transactions under $2 million,
• Markets and competitors: details of the relevant market definition, key competitors and market shares,
• Customer and competitor details: contact details for the merger party’s top 5 competitors and customers (based on spend and median spend in the last financial year), and
• Transaction documents and financial reports: all final and recent versions of transaction documents, audited financial reports and income statements and organisation charts.

Long form

In addition to the requirements set out above, the long form also requires:  

• Further details regarding the commercial relationships between the parties, details of any sale process undertaken in relation to the target and alternative proposals received by the target,
• Details of any non-controlling shareholdings or directorships held by the parties in companies that supply the same or similar goods or services as the merger parties,
• Contact details for a broader range of customers (top 10 based on spend and median spend in the last financial year),
• Broad range of board, board committee and shareholder meetings’ documents describing the transaction rationale or analysis of the acquisition or target,
• Board documents within the 3 years prior to the date of the notification which describe or analyse the competitive conditions, market conditions, market shares or competitors’ business plans,
• Identification of new entrants or market participants who have exited the market in the last 3 years, and factors which influence market entry, and
• Identification of third-party datasets that have been used to assess market shares.

Merger parties are also required to provide a significant amount of further information and data relevant to assessing competition based on whether the transaction is a horizontal, vertical or conglomerate merger.

Given the breadth and range of requirements in the long form, parties to complex deals will need to start preparing the necessary information and documents well in advance of any notification to avoid delays.

Criteria for assessing whether to use long form

This morning, the ACCC released guidance on the provisional criteria for when parties should use the long form. The criteria is linked to the likely level of competition risk raised by the transaction, as defined by market shares that differ based on the type of acquisition being entered into (i.e., horizontal acquisition, vertical acquisition or conglomerate acquisition). The guidance also provides that even if one of the relevant ‘market share’ criteria isn’t satisfied, parties should consider using the long form where the merger involves a vigorous and effective competitor, the merger involves the acquisition of a firm developing a significant product in a market where both parties are active (or potentially active) or where the target supplies or controls access to a significant input or asset.

The ACCC has also provided guidance on how market shares should be calculated. In general, the ACCC encourages merger parties to adopt a market definition that gives rise to the largest market share and the largest share increment based on turnover, volumes and/or capacities of the parties to the acquisition but acknowledges that these may not be relevant or appropriate market shares for assessing the competitive effects of the acquisition.

The emphasis on market definition in the provisional criteria (and in the notification requirements which require documents describing market shares and market conditions) stands in some contrast to the ACCC’s apparent de-emphasis on market definition in its draft analytical guidelines. Deal parties may need to consider engaging economists early on to conduct market share analysis in order to assess which form is appropriate, and to build a compelling data driven case to support clearance.

Targeted notification requirements for Coles and Woolworths

As foreshadowed last year (and reflecting the ACCC’s overall concerns about major supermarket consolidation and market power), the draft instrument identifies Coles and Woolworths as “major supermarkets” that are subject to targeted notification requirements. These thresholds require Coles and Woolworths and their connected entities to notify the ACCC of:

• any acquisition of shares or assets in a supermarket business (regardless of whether control is acquired),
• acquisitions of land with a commercial building that has a gross lettable area above 700 square metres, or
• acquisitions of land above 1,400 square metres if no commercial buildings are on the land,

excluding lease extensions or renewals for land in which that major supermarket is operating a commercial lease. Adjacent land to existing land already acquired are aggregated and treated as a single parcel of land.

The draft instrument does not, at this stage, contain any specific notification requirements for other sectors that were flagged for consideration late last year (such as fuel, liquor, oncology and radiology).