05 September 2016

Draft legislation reflects Harper recommendation to streamline formal merger clearance process

A key recommendation of the Harper Review was the combination and streamlining of the current merger authorisation process with a revamped formal merger clearance process. The draft legislation sets out the new combined process but differs in some respects from the framework proposed by the Harper Review.

Currently, parties wishing to have a merger reviewed have three options: the ACCC’s informal merger clearance process (which is non-statutory and the most popular option), the formal merger clearance process (which is set out in the CCA and has never been used) or merger authorisation (which is heard by the Australian Competition Tribunal and involves a public benefit test).

Harper criticism of the current formal clearance process

Whilst the Harper Panel was supportive of the concepts of a formal merger clearance process and authorisation, it found that the existing processes are unsatisfactory and should be reformed. Particular reference was made to the unduly complicated and strict technical requirements for a compliant formal merger clearance application and the fact that the merger authorisation process has seldom been used.

Since the current framework was introduced in 2007, no party has sought formal merger clearance from the ACCC and only three parties have sought merger authorisation from the Tribunal (one of which was withdrawn).

The Harper Panel recommended that the two processes be combined and set out the elements of a general framework for a new process, with the ACCC to be the decision maker at first instance and empowered to authorise mergers which it is satisfied do not substantially lessen competition, or alternatively, result in public benefits that outweigh any detriments.

The Government supported this recommendation.

Key elements of the new process

The key elements of the new combined merger review process in the draft legislation are:

  • the ACCC will be the decision maker at first instance and empowered to authorise a merger on the basis of a net public benefits test - that is, if the merger would be likely to result in public benefits and those benefits outweigh the public detriment caused by any lessening of competition arising from the merger;
  • if the ACCC does not make a decision within 90 days of receiving an application, the ACCC will be deemed to have refused to grant authorisation, unless the applicant agrees to a longer period;
  • the Tribunal can review decisions of ACCC and will have 90 days in which to do so; and
  • the regulations may require merger parties to give a section 87B undertaking not to proceed with the acquisition while the Tribunal is considering the matter.

The two key differences between the draft legislation and the Harper proposal are that:

  • The Tribunal’s review will not be a full-rehearing of the issues. Rather, its considerations must be limited to information referred to in the ACCC’s decision, information given to the ACCC as part of the ACCC’s review, any reports or other information required by the Tribunal from the ACCC and such other information as it considers it needs to clarify information provided by the ACCC.

    In contrast, the Harper Review’s recommendation was that the Tribunal would have the discretion to allow a party to adduce further evidence, in addition to what was before the ACCC. This difference of approach is said to be so that “
    parties have the incentive to put all relevant matters to the Commission in the first instance”.

  • The application for authorisation of a merger must be in a form that is “approved by” the ACCC, rather than set out in regulations. This leaves the form and content of the application within the control of the ACCC, rather than subject to legislative stipulation.

    The Harper Review believed it was important that there be no “
    prescriptive information requirements” for the new formal merger process in order for it to be attractive to merger parties. In this sense, the draft legislation is consistent with the Harper recommendation, however, whether or not the requirements imposed by the ACCC are “prescriptive” remains to be seen.

The streamlined authorisation process will also apply to applications for authorisation of conduct that contravene other sections of Part IV of the CCA. A merger authorisation will not automatically extend to any conduct involved with the merger that falls under Part IV. Merger parties will have to specify all relevant sections of Part IV in their authorisation application, so that the ACCC can grant a single authorisation that deals with both the merger and any other provisions.

For overseas mergers falling within section 50A of the CCA, the existing authorisation processes continue to apply.

Impact of the reforms

The vast majority of mergers will continue to be assessed via the informal merger clearance process. This process remains attractive in many cases due to its flexibility, informality and speed.

For complex or contested mergers, an alternative to the informal merger review process for complex mergers is a welcome development.

However, it will not bring greater certainty to merger reviews in the short term. Under the new process, the ACCC will continue to be front and centre. Its willingness to accept public benefits arguments in a mergers context has not been tested for many years, and it has a poor track record opposing mergers in the Tribunal and the Federal Court when required to prove its case.

Leaving the design of the application process to the ACCC also raises the prospect that the process could flounder before it begins, if the ACCC imposes onerous information requirements before it will accept an application as valid.

Whilst the ability to appeal to the Tribunal is sensible, it will add additional time to the overall process, as parties can no longer bypass the ACCC and apply straight to the Tribunal for a decision.

The ultimate success of the new process will be measured by its ability to deliver transparent and timely decisions in complex or contested cases, without unnecessary and overly burdensome requirements.

For the rest of Australian mergers, the outcomes of the ACCC’s current review of its informal merger process are likely to be of greater significance. The increasing number of mergers being pre-assessed by the ACCC means there is less public transparency of ACCC decision making and little guidance on the approach being adopted in around 90% of mergers being considered by the ACCC. These reforms will not reverse this trend.

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