Stop right there: Australia’s merger regime set to change

Today, the government announced its proposal to overhaul Australia’s merger laws. At the 10^th annual Bannerman Competition Lecture, Treasurer, the Honourable Dr Jim Chalmers outlined the planned move to a mandatory and suspensory regime by 1 January 2026 – whereby companies have to notify the ACCC if their transactions meet certain thresholds, and they can’t complete the deal unless the ACCC clears it. This announcement comes almost 3 years after then-Chair Rod Sims announced the ACCC’s proposals for merger reforms in August 2021 (which you can read more about here), and follows Treasury’s November 2023 consultation paper setting out options for potential reforms (which you can read more about here).

Summary

Today’s announcement involves significant changes to Australia’s merger control regime. A summary of the changes is set out below, with the key call outs being:

Mandatory and suspensory regime to be introduced: Transactions that meet certain thresholds must be notified to the ACCC and cannot proceed unless the ACCC grants clearance. The existing voluntary informal regime will be scrapped, as will the current formal authorisation process.
More certainty on notification obligation and timelines: The new mandatory and suspensory regime will mean that businesses will have greater certainty over which deals must be notified to the ACCC, the information required to be provided, and the timelines for the ACCC’s review (although this will depend on ACCC ability to ‘stop and start’ clock). A non-decision by the ACCC within the timelines will be deemed to be a clearance.
More ACCC notifications and more detailed notifications: While the thresholds for notification are yet to be determined, we can expect more mergers will require ACCC clearance.
Thresholds yet to be set: Thresholds have not been set, but are likely to be based on turnover, profitability, or transaction value – with separate market share thresholds for mergers below monetary thresholds. However, there will be a carve out for the Minister to set different thresholds for certain high-risk transactions or industries in response to evidence-based concerns (which may lead to lower thresholds for certain transactions).
Fees for merger parties: New fees for merger clearance applications will be introduced (with indicative figures at $50,000 to $100,000 scaled according to the complexity and risk of the review process).
Different legal standard and test moves the bar for merger clearance: The ACCC will be required to clear a transaction unless it has a ‘reasonable belief’ that it would or would be likely to substantially lessen competition. Other clarifications to what is meant by a ‘substantial lessening of competition’ (including expressly expanding the concept to include creating, strengthening or entrenching market power) may change how the ACCC considers certain complex and contentious transactions.
Quicker, more certain – but more limited – appeal rights: Appeal rights are streamlined into an efficient appeal pathway for limited merits review by the Australian Competition Tribunal, which must make a determination within prescribed timeframes. However, merger parties lose the ability to force the ACCC to prove its case in the Federal Court.
Greater transparency: Market participants should expect greater transparency from the ACCC as to its reasons for decisions.
Ongoing consultation: Treasury will continue to consult in relation to a number of aspects of the new regime, including filing thresholds, timeframes, and procedural matters.

Key implications - what does this mean for you?

Depending on the thresholds which are set, more deals may require ACCC clearance. This will be balanced out with greater certainty for business on when they will need to notify the ACCC, and around timing for an ACCC determination

A single streamlined merger control system will replace the existing pathways for informal merger clearance and merger authorisation in sections 50, 50A, 88 and 90(7) of the CCA. Introducing significant clarity for businesses, the new merger control system will involve a mandatory and suspensory regime – in which transactions that meet certain thresholds must be notified to the ACCC and must not proceed until the ACCC grants clearance. In the event the ACCC fails to make a determination in the time available, that will be taken to be a constructive clearance.

This brings Australia’s merger control regime into line with most comparable overseas jurisdictions, and will be an important change for global mergers that currently grapple with different regimes in different jurisdictions.

The ACCC will not have a ‘call-in’ power to review transactions that do not hit the thresholds, which it requested. However, there will be a carve out for the Minister to set different thresholds for certain high-risk transactions or industries in response to evidence-based concerns (which may lead to lower thresholds for certain transactions).

There will be civil penalties for parties that take steps to bring transactions into effect without seeking notification, prior to the ACCC making a determination, or in the event the ACCC determines that the transaction would be likely to substantially lessen competition.

There will also be requirements around the information that parties must provide to the ACCC as part of a merger control notification – including a simple shorter notification for mergers unlikely to raise competition concerns, and a longer form notification for others. Each merger control notification will also be accompanied by a fee, proposed to be between A$50,000 and $100,000 (with an exemption for small businesses).

For the vast majority of deals, there will be improved certainty around timing of receiving an ACCC determination

Most dealmakers will be pleased to see clarity around timing for ACCC merger control reviews and determinations, as well as any appeal to the Australian Competition Tribunal (Tribunal). Businesses will also be happy with the deeming of a non-decision by the ACCC to be taken as a clearance – such that merger parties can move to implement the transaction after the timeline runs out if the ACCC fails to make a determination.

Timeframes are subject to further consultation, but Treasury has released indicative timelines on the following basis:

non-controversial transactions can obtain a fast-track determination in as little as 15 working days.
other transactions will reach a Phase I initial review in 30 working days (and may be cleared at this point). If required, transactions may then proceed to an in-depth Phase II review, to be determined in 90 working days. This takes the total possible ACCC review time to 120 working days before a final determination by the ACCC (with or without conditions), at which point parties may apply to the ACCC for a determination on substantial public benefits grounds, or apply to the Tribunal for limited merits review.
The Tribunal will have 60 working days (which could be extended by a further 60 working days) from the date of appeal to affirm, set aside or vary the ACCC determination.

For complex mergers that will be contested, there remains some grey areas around timelines in the Government’s proposal, including:

pre-notification consultation – while this is available to parties, the ACCC will not provide an informal view in this period, but it may operate as an unofficial assessment period for significantly complex mergers.
information requirements – the review period only commences when the ACCC accepts receipt of a complete notification. This may mean that the ACCC considering that a notification does not meet the information requirements will result in extended periods of engagement with the ACCC before the formal timeline has started running. It will be important for businesses that the acceptance of a notification and the starting of the timeline is not unduly or unreasonably delayed.
instances where the ACCC is able to ‘stop the clock’ – including where remedies are offered by the merger parties, if requested information is not promptly provided (for example in response to a s 155 notice), or by mutual agreement.

There is a new legal test – the ACCC must clear a transaction for a ‘change of control in a business or asset’ unless the ACCC has a ‘reasonable belief’ that the transaction would have the effect or likely effect of substantially lessen competition, including if the merger ‘creates, strengthens or entrenches a position of substantial market power’, having regard to a number of principles, and subject to a second step test of public benefits.

These changes to the legal test are not as significant as some previously proposed changes, but nonetheless may shift the dial for a small number of transactions that are complex. There are five key takeaways in relation to the amended legal test:

a. ‘Reasonable belief’ standard

The ‘reasonable belief’ standard does not require the ACCC to come to a ‘balance of probabilities’ civil standard of proof before opposing a merger (as it is required to show in a Federal Court hearing under the current regime). ‘Reasonable belief’ is an administrative threshold and not a civil legal one.

The Government has given the ACCC this administrative discretion because it believes the ACCC is best placed to investigate, analyse and weigh up relevant information. While a ‘reasonable belief’ concept exists under many other pieces of legislation, it is not clear how the ACCC will apply the ‘reasonable belief’ standard in this context, including where the ACCC has concerns about potential future impacts of a transaction. The guidance to be issued by the ACCC should address this.

b. ‘Create, strengthen or entrench’ element of the test

The addition of the phrase ‘create, strengthen or entrench a position of substantial market power’ to the legal test makes clear the importance of the competitive structure of markets as part of the ACCC’s assessment of likely effect. No doubt merger parties will be keen to see the precise formulation of the new legal test and where this element fits.

c. Jurisdiction of the regime over ‘changes of control’

The merger control regime will apply where there is a ‘change of control in a business or asset’. This differs from the existing jurisdiction in s 50 which applies to ‘any acquisition of shares or assets’. It’s expected that this will capture transactions where there an acquisition of control (including de facto control or material influence), but will not catch some minority transactions which are currently caught by the s 50 jurisdiction.

The new ‘control’ jurisdiction may be analogous to – but not the same as – the ‘decisive influence’ standard that exists in the EU. It will be important for businesses to have clarity around whether joint ventures or interests of less than 100% will be caught by the new regime, and in what circumstances.

d. New merger ‘principles’

The existing ‘merger factors’ in section 50(3) of the CCA are being replaced by a series of ‘principles’ - it will be interesting to see by what degree this broadens the ACCC’s discretion in how it considers these principles. It’s expected that these principles will more or less replicate existing factors, with some new additions:

maintaining and developing effective competition having regard to the structure of all markets concerned and the conditions for competition, and the actual or potential competition from other businesses,
the merger parties’ access to supplies and inputs including data, supply and demand trends, the interests of the intermediate and ultimate consumers, and the development of technical and economic progress provided that it is to consumers' advantage and does not form an obstacle to competition, and
the cumulative effect of all mergers within the previous three years by the merger parties, whether or not those mergers were themselves individually notifiable.

e. Second step public benefits test

Following a Phase II determination by the ACCC that a transaction would be likely to substantially lessen competition, parties may apply for clearance of the transaction if the ACCC is satisfied that the transaction would result or be likely to result in a substantial benefit to the public which outweighs the anti-competitive detriment. This closely resembles part of the existing merger authorisation test, where public benefit is broadly considered to be benefits that enhance the welfare of Australians.

The Government explicitly noted significant structural shifts in the Australian economy around net zero, growth of the digital economy, and the care sector as examples where a public benefit test may be appropriately considered.

An indicative timeline for a ‘public benefits’ review is 50 working days (which would be on top of the Phase II review which would have already taken place). Parties may also appeal an ACCC determination on the ‘public benefits’ test to the Tribunal, which will have 60 working days from the date of appeal to affirm, set aside or vary the ACCC determination.

Appeal rights are being streamlined into a single avenue for limited merits review by the Australian Competition Tribunal

On appeal rights, it’s something of a mixed bag for merger parties. A clear legal right to and timelines for appeal to the Tribunal (comprised of Federal Court judges, economic and business experts) is an important procedural safeguard for parties. Parties may apply for judicial review (i.e. for legal error) of the Tribunal’s decisions to the Federal Court.

The review by the Tribunal is confined to limited merits review and is intended to act as an expeditious review pathway. This means that – with confined exceptions – the Tribunal is not conducting a rehearing but is simply considering the facts and materials that were before the ACCC and applying the same legal test. The Tribunal may seek clarifying information, and parties may be able to present new information which was not in existence at the time of the ACCC’s determination.

There will also be a fast-track option available for confined merits review ‘on the papers’, being on the material before the ACCC and with the Tribunal being bound by the findings of fact made by the ACCC – in which the Tribunal will make a determination within 40 working days without the option for an extension.

It is possible that this clarity on appeal rights and timelines will result in more ACCC decisions being appealed. It will also likely mean that – for complex and contentious transactions – parties require considerable time before notification to prepare evidence in support of their case for clearance, such as affidavits and expert reports.

On the whole, businesses can expect greater transparency from the ACCC – around process, timing and reasons for its determinations

Depending on the mandatory notification thresholds which are set, if there are more mergers being notified to the ACCC then the business community can expect to see more information about the ACCC’s views on merger in general. This is because the ACCC will maintain a register of all notified mergers, and will set out its findings for every notified merger, with reference to evidence or other material on which the findings are based. The ACCC will also be required to publish updated guidance for businesses on the new regime, including in relation to thresholds, pre-notification consultation, form of notification and information requirements, and its application of the merger control test.

This can be expected to improve transparency around the ACCC’s administrative decision making, economic and legal reasoning, and approach to market definition and the new mergers test – which can only be a good thing for market participants.