Insight,

The eagle has landed - New Merger Reform Bill introduced into Parliament today

10 October 2024

Today, the Government introduced into Parliament the much anticipated Bill for its proposed new mandatory ACCC merger clearance regime. As set out in our previous alert on the Exposure Draft, the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 sets out the legal framework for the new regime, including what types of transactions cannot proceed without ACCC clearance, the timeframes for the ACCC’s review and the appeal rights from any ACCC decision.

The Bill incorporates some welcome and significant changes following consultation on the previous Exposure Draft over the past two months, including greater clarity on the types of acquisitions subject to the new regime, important narrowing of the proposed changes to the SLC test and the introduction of more practical transitional provisions. The Government has also announced updated notification thresholds, which are higher than the previous consultation proposal and do not contain any market share thresholds.

The Bill is detailed – comprising over 100 pages, with a further 200-plus pages of explanatory materials – and some of the Government’s announcements today may be reflected in regulations that have not yet been released. While the Second Reading of the Bill was moved this morning, debate on the Bill has been adjourned until 4 November 2024.

Update: Since publication of this alert, the Senate has also referred the provisions of the Bill to the Senate Economics Legislation Committee for inquiry and report by 13 November 2024. Interested parties are invited to make submissions to the inquiry (here) by 24 October 2024.

Key highlights from the Bill and the Government’s announcement today are summarised below.

Brief recap on what’s happening if the Bill is passed

New merger clearance regime: the Bill introduces a new mandatory and suspensory merger clearance regime, to replace the existing informal merger notification process and formal merger authorisation regime. Transactions that meet certain monetary thresholds must be notified to the ACCC and cannot proceed unless the ACCC grants clearance (or the relevant timeframe expires).
More deals subject to ACCC clearance: The new regime will extend the scope of the merger clearance regime to cover certain acquisitions of land and patents in the ordinary course of business and will result in more transactions being subject to ACCC clearance than is currently the case. The Government has announced today that land acquisitions involving residential property development and certain commercial property acquisitions won’t be included unless they are captured by additional targeted notification requirements. However, the Government has also said it will use powers to set targeted notification thresholds to mandate that every merger in the supermarket sector must be notified to the ACCC, and that it is considering targeted notification requirements for sectors such as fuel, liquor and oncology radiology.
More timing certainty for some deals: Statutory timeframes will provide greater timing certainty for transactions that do not raise any competition issues (e.g. a 15 business-day fast track approval process) but more complicated reviews are still likely to take many months (e.g. a 120 business day timeframe with the possibility of the timeframe being delayed in certain circumstances).
Broader scope for ACCC to block deals but quicker appeal route: The ACCC will have broader scope to block deals based on its determination of whether a deal would have or be likely to have the effect of substantially lessening competition. Appeal rights for a decision by the ACCC to block a merger will be more limited than what is currently available for ACCC decisions in the informal merger clearance process. This is because ACCC decisions will only be subject to limited merits review by the Australian Competition Tribunal (Tribunal) instead of full review by the Federal Court. However, the Tribunal appeal process will be significantly cheaper and provide much more timing certainty than the existing Federal Court appeal process for the informal merger process regime.
Applications under the new regime can be made from 1 July 2025: The new regime will become mandatory on 1 January 2026, but voluntary applications for clearance under the new regime can be made from 1 July 2025.
Transition arrangements for notifications that receive ACCC clearance prior to 1 January 2026: Notification is not required if a transaction is cleared under the current informal merger regime or the merger authorisation regime between 1 July 2025 and 31 December 2025, provided that the deal is completed within 12 months after receiving that clearance. However, no transition arrangements have been provided for deals that are still in the process of being assessed by the ACCC on 1 January 2026, or for deals that receive ACCC clearance before 1 July 2025 but have not completed as at 1 January 2026.

Key changes from the Exposure Draft

The Bill incorporates some welcome and significant changes following consultation on the previous Exposure Draft over the past two months. The key changes are outlined below.

Acquisitions subject to new regime (definition of a “notifiable acquisition”)

Exposure Draft legislation proposal	Updated Government position	Example uses 2
Acquisitions of shares and assets notifiable if thresholds met unless the acquisition does not give control (or another exclusion applies).	Same concept but with an updated definition of ‘control’ and updated exclusions (see more details below). A new waiver process has been included to enable parties to request that the ACCC relieve them of the obligation to obtain ACCC clearance for an otherwise notifiable acquisition.
‘Control’ includes de facto control and minority acquisitions, where there is a ‘capacity to directly or indirectly determine the policy’ of the target including through ‘practical influence’.	The definition of ‘control’ has been amended so that it more closely reflects the definition of ‘control’ in section 50AA of the Corporations Act (which depends on the capacity to determine the financial and operating policies of a body corporate).
Rebuttable presumption that the acquirer has control if the acquirer’s voting power is 20% or more.	The rebuttable 20% presumption has been removed. Instead, acquisitions of shares in ‘Chapter 6 entities’ do not need to be notified if it does not result in the acquisition of more than 20% voting power (within the meaning of the Corporations Act). ‘Chapter 6 entities’ is defined to include listed companies and registered schemes, and unlisted companies with more than 50 members, within the meaning of the Corporations Act. The Government has also announced that it intends to set a targeted notification threshold that requires any acquisition of more than 20% of shares in an unlisted or private company to be notified to the ACCC if one of the companies has more than $200 million in turnover.
‘Asset’ defined to include any kind of property and a legal or equitable right that is not property.	No change.
Acquisitions of land and patents constitute notifiable transactions if the thresholds are met, even if the acquisitions occur in the ordinary course of business.	Land and patents can still be notifiable acquisitions but the Government has announced that it intends to include exemptions for land acquisitions: involving residential property development; and by any business that is primarily engaged in buying, selling, or leasing property and does not intend to operate a commercial business other than leasing property, subject to any other targeted notification thresholds (such as the proposed threshold for any merger in the supermarket sector). However, this is not reflected in the text of the Bill and so may be implemented by regulation or the use of Ministerial Instrument.

Notification triggers

Exposure Draft legislation proposal	Updated Government position	Example uses 2
Merger parties will be required to notify the ACCC if: they meet the relevant thresholds (see more on this below), and the target business/asset has a ‘material connection to Australia’.	The updated regulations containing the notification thresholds have not been released but the Government has announced that the notification thresholds will only involve monetary thresholds (i.e. no market share thresholds). No announcement has been made yet on the requirement for a ‘material connection to Australia’. The Government has announced that it intends to set targeted thresholds requiring every merger in the supermarket sector to be notified to the ACCC, and that it is considering targeted notification requirements for sectors such as fuel, liquor and oncology radiology. More detail on the updated notification thresholds is below this table.

Timeframes for ACCC review

Exposure Draft legislation proposal	Updated Government position	Example uses 2
15-business days for fast-track determination 30 business days for Phase I review plus further business 90 business days for Phase II review further 50 business days if parties seek to rely on net public benefits	No change.
ACCC able to extend timeframes if there are outstanding RFI responses or it exercises its compulsory information gathering powers under section 155.	This has changed so that parties effectively have 10 business days to respond to a compulsory information request under section 155 before the ACCC can extend the timeframe for review. The ACCC may extend timeframes for any delay in responding to a voluntary request for information.
Timeframes also extended if remedies are offered by the merger parties.	No change.
If ACCC determination not made within timeframes, clearance deemed to be granted.	No change.

Legal test for ACCC clearance

Exposure Draft legislation proposal	Updated Government position	Example uses 2
ACCC must grant clearance unless it ‘reasonably believes’ that the merger would be likely to substantially lessen competition.	This has changed so that the ACCC must grant clearance unless it ‘is satisfied that the acquisition would, in all the circumstances, have the effect, or be likely to have the effect, of substantially lessening competition’.
If ACCC reasonably determines there is a likely substantial lessening of competition, merger parties can apply for ACCC to consider whether there are public benefits that ‘substantially outweigh’ the public detriments.	This has reverted to the existing public benefits balancing test under the current authorisation regime. The ACCC can clear an acquisition if it is satisfied that the acquisition would result in a benefit to the public which would outweigh (rather than ‘substantially outweigh’) the detriment to the public resulting from the acquisition.

‘Substantial lessening of competition’

Exposure Draft legislation proposal	Updated Government position	Example uses 2
‘Substantially lessen competition’ includes where a merger ‘creates, strengthens or entrenches a position of substantial market power’ (expanded definition).	The Bill now states that, for the purposes of the ACCC’s determination, an acquisition ‘may’ have the effect or likely effect of lessening competition if it would have the effect or likely effect of creating, strengthening or entrenching a substantial degree of power in the market. This does not operate as an automatic deeming provision. The Government has stated that these amendments emphasise ‘the importance of considering the competitive structure of the market in the overall assessment of the effects of the acquisition on competition, by making it clear that a substantial lessening of competition can include ‘creating, strengthening or entrenching a substantial degree of market power’ and that it is intended to increase the focus on the market power of the parties to the acquisition and to clarify that ‘even an incremental change in market power may still amount to a substantial lessening of competition, if the acquisition strengthens the acquirer’s market power.’
Expanded definition applies not just to mergers, but to all provisions in the CCA which are subject to the ‘SLC test’ - including misuse of market power (s 46), exclusive dealing (s 47), anti-competitive agreements and concerted practices (s 45).	This has changed so that the ‘create, strengthen or entrench’ a substantial degree of market power concept does not apply across the CCA, but is specific to the merger regime.
Existing ‘merger factors’ to be replaced by a new list of ‘relevant matters’, including efficiencies resulting from the acquisition (such as ‘technical innovations, economic developments and productivity gains’).	The list of ‘relevant matters’ has been removed. Instead, the Bill provides that the Commission must have regard to the object of the CCA and ‘all relevant matters including the interests of consumers’. The Bill also lists two factors to which the Commission may have regard, being the arrangements or contracts giving rise to the transaction and the commercial relations of the parties.
Acquisitions in the same industry as the acquisition in question by any of the merger parties within the previous 3 years are to be aggregated for the purposes of determining whether the acquisition in question would substantially lessen competition.	The cumulative effect assessment has been retained. However, rather than looking at transactions in the ‘same industry’, the Bill provides that the cumulative effect be assessed having regard to previous acquisitions where the targets are involved (directly or indirectly) in the supply or acquisition of the same goods or services or goods or services that are substitutable for, or otherwise competitive with, each other (disregarding any geographical factors or limitations).

Appeal rights

Exposure Draft legislation proposal	Updated Government position	Example uses 2
On appeal, merger parties can only bring new information, documents or evidence to the Tribunal if: the review is not a fast-track review (i.e. 60 days rather than 180 days), and the Tribunal is satisfied the information, documents or evidence was not in existence at the time the ACCC made its decision.	This has been expanded so that the Tribunal may permit merger parties to rely on new documents or evidence if the Tribunal is satisfied that it is relevant to the grounds on which the ACCC made its determination, and the merger parties were not given a reasonable opportunity to make submissions to the ACCC in relation those grounds (including because the merger parties were not informed by the ACCC of the grounds, evidence or other materials). The Tribunal also has the power to cross-examine experts and allow merger parties and the ACCC cross-examine experts. The fast-track review mechanism has been removed.

Transitional provisions

Exposure Draft legislation proposal	Updated Government position	Example uses 2
Ability to seek merger authorisation on the basis of public benefits ends from 1 July 2025 – meaning there is no ability to seek ACCC clearance on the basis of public benefits between 1 July 2025 and 30 November 2025.	This has been changed so that there is no ‘gap’ in the ability of parties to seek ACCC clearance on the basis of public benefits. Merger authorisation applications under the existing regime can be made until 30 June 2025 (and the ACCC is able to make authorisation determinations through to 31 December 2025). From 1 July 2025, parties wishing to seek clearance on the basis of public benefits can voluntarily make an application under the new regime.
No transitional provisions for deals signed (but not completed) prior to 1 January 2026.	Transitional provisions have been introduced. Notification is not required if a transaction is cleared under the current informal merger regime or the merger authorisation regime between 1 July 2025 and 31 December 2025, provided that the deal is completed within 12 months after receiving that clearance. However, no transition arrangements have been provided for deals that are still in the process of being assessed by the ACCC on 1 January 2026, or for deals that receive ACCC clearance before 1 July 2025 but have not completed as at 1 January 2026.

Notification thresholds

The thresholds that were released for consultation in September were based on turnover, transaction value and market concentration, with merger parties required to notify the ACCC if they met either the monetary thresholds OR the market concentration thresholds (see our previous alert here).

The Government has also announced updated notification thresholds, which are higher than the previous consultation proposal and do not include any market share thresholds. The regulations that contain the details of the thresholds have not yet been released.

The updated thresholds based on the Government’s announcement today are shown below:

Even with these changes, more acquisitions are likely to require ACCC clearance. Historically, the ACCC has received around 300 to 400 notifications for informal merger clearance or authorisation per year. This number is likely to materially increase due to transactions being captured by the thresholds that do not give rise to competition concerns, the definition of ‘control’ and the requirement to notify acquisitions of land and patents where the thresholds are met.

The Government has indicated that the notification thresholds will be reviewed after 12 months.

Finally, the Bill also provides the ACCC with the power to grant a ‘notification waiver’, which would remove the obligation to obtain ACCC clearance prior to completion.

DIRECTIONS REPORT 2024

TAX & MERGER REFORM AT THE TOP OF DIRECTORS' MINDS

Australia's directiors and senior business leaders see implementing tax reform as the 2nd most effective pathway to productivity growth enhancement, according to the KWM's Directions Report.

Asked which tax reforms they would support, the clear favourite (51%) was abolishing / replacing ‘inefficient’ taxes, like payroll tax, stamp duties, levies and fringe benefits tax. Attitudes towards GST also reflect the hunger for reform that would deliver efficiency dividends. Provided that any additional tax take is offset by reducing state taxes or other inefficient taxes, respondents are supportive of increasing the total amount of GST.

We also asked whether the proposed changes to Australia's merger regimes would achieve their stated policy objective of boosting competition and productivity in the Australian economy. Only 10% of respondents thought that the regime will better safeguard the competitiveness of markets in Australia; reflecting a scepticism amongst the business community as to whether the reforms will deliver meaningful productivity improvements.

Read the report here.

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