The ACCC has advocated for changes to Australia’s merger clearance regime for some time. In April 2023, the ACCC formally proposed a series of reforms to address its concerns and, in November 2023, the Government published a consultation paper seeking views on a number of reform options, with submissions due by January 2024. In this article, we briefly outline what’s on the table and how, in the meantime, the ACCC has used its existing powers to consider completed acquisitions that were not previously notified to it.
The ACCC is proposing a new, mandatory and suspensory merger clearance regime – but other options are also on the table.
ACCC’s proposals for fundamentally new merger laws and processes
The ACCC has long considered Australia’s merger clearance processes to be an outlier globally. Seeking ACCC approval is currently voluntary (although if a mandatory foreign investment filing is required, FIRB will not recommend approval by the Treasurer unless and until the ACCC has confirmed that the transaction does not raise any competition concerns). In addition, the ACCC cannot unilaterally block a deal that it considers anti-competitive – it needs to prove its case in Federal Court proceedings.
In contrast, most merger control processes globally are “mandatory and suspensory”, meaning that transactions which meet specified thresholds must be notified to the regulator, and the transaction cannot be complete until it is cleared by the regulator.
The ACCC has stated that the effect of Australia’s current system is that it is “skewed towards clearance” and too readily allows merger parties to avoid notifying transactions in a timely manner, provide incomplete or inaccurate information, or threaten to complete before the ACCC has completed its review.
The ACCC has also stated that there are significant challenges in satisfying the Federal Court that, under the current future focussed test, a transaction would be likely to have the effect of substantially lessening competition in a market.
The ACCC’s proposed reforms would address these concerns by bringing together various aspects of the merger clearance processes in other countries so that a new system in Australia would involve:
- A mandatory and suspensory regime – companies would be legally required to notify transactions to the ACCC if they meet certain thresholds, and completion would be prohibited until the ACCC clears the transaction. The thresholds reported as being proposed by the ACCC will capture a very large number of transactions – i.e., requiring notification if the parties have a combined turnover of $400m or the global transaction value exceeds $35 million.
- An ability for the ACCC to “call in” mergers for review, even if they do not meet the notification thresholds. The ACCC has also indicated that it wants to be able to issue “standing call-ins” for acquisitions by particular companies or in particular industries.
- A requirement for applicants to positively satisfy the ACCC that the transaction will not be likely to substantially lessen competition in any market (rather than the current test where the onus rests on the ACCC to prove to the Federal Court that this is the case).
- Augmenting the substantial lessening of competition test with an assessment of whether the merger would entrench, materially increase, or materially extend a position of substantial market power.
We have considered the ACCC’s proposals in detail separately in this April 2023 article.
The Government’s consultation paper outlines a series of potential options
The Government’s new Competition Taskforce, reporting to the Treasurer, has put forward options for reform in a November consultation paper. The ACCC’s proposals are one of the options on which the Taskforce is seeking comments. However, the paper makes it clear that other options are also on the table – effectively a spectrum from the status quo at one end, through to the ACCC’s preferred model at the other (see below).
For a detailed look at the consultation paper, and the options potentially under consideration, see our November 2023 article here.
Where the Taskforce ultimately lands with its report and recommendations to Government will be shaped by stakeholder input. However, it is likely that the Taskforce will recommend some reforms.
For companies and boards who are observing the debate, there is an element of “wait and see”. Whether companies will need to reset their thinking in how to plan for, and manage, ACCC requirements within overall transaction processes and timelines will depend on the precise recommendations adopted by the Government. For those who wish to be part of the debate, responses to the consultation paper are currently due by 19 January 2024.
ACCC examination of completed acquisitions – a new use of existing powers
While the debate about merger reform continues, the ACCC has demonstrated the flexibility of the current system by seeking to address concerns raised by several acquisitions that were implemented by Petstock between 2017 and 2021 as part of its current review of Woolworths’ proposal to acquire Petstock. In particular, Woolworths’ proposed acquisition of Petstock has seen the ACCC commence a retrospective “enforcement” investigation in relation to a number of past acquisitions by Petstock that Petstock did not notify to the ACCC. The ACCC identified those completed acquisitions in the context of its otherwise “forward-looking” assessment of the current acquisition by Woolworths.
This has already had direct implications, with Petstock proposing to divest 41 stores and 25 vet clinics that it acquired between 2017 and 2021. While not involved in those previous acquisitions, Woolworths has also offered a court-enforceable undertaking to the ACCC to support those divestments and to facilitate ACCC clearance of its proposed acquisition of Petstock.
For companies and boards considering acquisitions, the message is that – beyond any competition considerations on the deal itself – the deal team should consider, as part of the due diligence process, whether the target has made any other acquisitions in the past five or so years and, if so, whether the target sought (or should have sought) ACCC clearance.
If clearance wasn’t received, the ACCC may pick up on the completed acquisitions, start investigating, and potentially take retrospective “enforcement action” in parallel with the merger clearance process.
Effectively, it means that a deal may be caught up in competition issues beyond those associated with the deal itself. The deal could be stalled and the acquirer may need to make commitments to facilitate a resolution of the ACCC’s concerns in relation to those completed acquisitions.
While there are some unique aspects to the current Petstock clearance process, it clearly highlights both the flexibility of the current merger clearance processes in Australia, and the strategic approach adopted by the ACCC to enforce and ensure compliance with Australia’s competition laws.
