In brief 4 min read
The new merger authorisation process has been used for the first time since it was introduced following the Harper Reforms in November 2017. We report on the AP Eagers decision and its likely impact.
Key takeaways
- The proposed transaction was reviewed and undertakings were agreed and negotiated within the 90-day statutory review period. Most mergers are reviewed under the ACCC's informal merger review process, in which there are no statutory deadlines. The ACCC's guidelines provide that informal reviews where the transaction raises competition concerns can take up to 24 weeks, but in practice can take longer, particularly if undertakings are involved.
- The public nature of the process contrasts with the informal merger review process, in which third party or market feedback is not directly conveyed to the merger parties, but summarised by the ACCC. In this case, the submissions (including the applicant's) were published on the ACCC's register, with confidential information redacted.
- In circumstances where merger parties are dissatisfied with the ACCC's authorisation determination, they (and other interested parties) can apply to the Australian Competition Tribunal (the ACT) for a limited merits review of the determination. There is no review to the ACT of an informal clearance, although parties may apply to the Federal Court for a declaration.
- An authorisation provides the merger parties with statutory immunity. This immunity bars the merger from being challenged so long as it is completed within a period of time determined by the ACCC. In the case of the proposed acquisition, the period of time is 12 months.
- While the informal process works well, and is likely to continue to be used in the vast number of merger clearances, authorisation is a viable alternative and we anticipate more companies may now look closely at the option of merger authorisation.
Background
ASX-listed AP Eagers Limited (AP Eagers) has secured the first formal merger authorisation from the ACCC under the new regime, in relation to its proposed acquisition of ASX-listed Automotive Holdings Group Limited (the proposed acquisition) (the parties). The authorisation is conditional upon AP Eagers divesting its Newcastle and Hunter Valley dealerships, according to an undertaking given to the ACCC. The ACCC's conditional authorisation determination was secured just short of the 90 calendar day statutory deadline. Allens acted for AP Eagers.
The deal
AP Eagers is Australia's second-largest car dealership group, with operations in NSW, Queensland, Victoria, South Australia, the Northern Territory and Tasmania. AHG is Australia's largest car dealership group, with operations in NSW, Queensland, Victoria and Western Australia. On 5 April 2019, AP Eagers launched an off-market takeover bid to acquire all the fully paid ordinary shares in AHG that it did not already own. The deal was conditional upon a number of matters, including securing ACCC approval or authorisation.
The merger authorisation process
The new merger authorisation process was introduced as a result of the Harper reforms, and became law in November 2017. The reforms combined the previously unused formal merger clearance process with the previous process of merger authorisation by the ACT. Under the new process, applications for authorisation may only be lodged with the ACCC, and the ACT has the ability to conduct a limited merits review of an ACCC authorisation determination. Accordingly, it is no longer possible for parties to apply directly to the ACT for authorisation. Furthermore, a merger authorisation application may be approved if it does not substantially lessen competition or the public benefits outweigh any detriment to the public. Before the reforms were introduced, it was necessary to demonstrate the merger would deliver public benefits in order to seek authorisation. This is the first authorisation on the grounds that the merger (with the undertaking) did not substantially lessen competition, rather than on the basis of public benefits.
A feature of the formal authorisation is the public nature of the parties' and third parties' submissions (subject to confidentiality excisions). AP Eagers' application was published on the ACCC's website. The ACCC then invited submissions from more than 270 parties, receiving more than 20 public submissions, which were then published on its website (with confidential information redacted).
The ACCC published a 'market feedback letter' on its website on 24 June 2019. This set out its preliminary views on the proposed transaction. The parties, as well as third parties, were invited to submit responses to this letter.
The ACCC issued its authorisation determination on 25 July 2019, just 88 days after the application was lodged, which is within the 90 day statutory period in which it has to review a merger authorisation application. The authorisation is conditional upon AP Eagers divesting its Newcastle region dealerships, which eliminates the overlap between the parties in this area.
The outcome
The ACCC's authorisation determination outlined its concerns regarding the proposed transaction. The ACCC did not consider that the proposed transaction raised any concerns nationally, or in Melbourne, Sydney or Brisbane, but identified concerns in the Newcastle and Hunter Valley region. AP Eagers indicated that it did not consider that the proposed transaction would have the effect, or the likely effect, of substantially lessening competition in the supply of new cars in the Newcastle and Hunter Valley region; but, to address the ACCC's concerns, AP Eagers offered an undertaking to divest its dealerships in that region.
Next steps
If you'd like to discuss the first use of the new merger authorisation process, please contact any of the people below.