INSIGHT

ACCC seeks overhaul of Australia's merger regime: what you need to know

ACCC Competition law Consumer law Mergers & Acquisitions

Starting the debate 5 min read

Today, the Chairman of the Australian Competition and Consumer Commission (ACCC) Rod Sims outlined the ACCC's vision for a dramatic overhaul of Australia's merger review regime. In summary:

  • existing channels for merger clearance would be replaced with a single, formal ACCC merger review process that is mandatory for acquisitions above certain value thresholds;
  • the substantial lessening competition test would be retained but with special rules for merger parties with existing market power and acquisitions by large digital platforms;
  • the factors that must be taken into account in assessing the competitive effects of a merger would be revised to focus on the structural elements of competition that are changed by the acquisition; and
  • the standard of proof would be lowered so that a merger would breach competition laws where there is a 'possibility that is not remote' that the transaction would substantially lessen competition.

Merger reform has been on the agenda in Australia for some time, but the ACCC's proposal today kicks off the debate in earnest. Here's what you need to know.

What reforms is the ACCC proposing and why?

At the annual Law Council of Australia's Competition and Consumer Workshop on 27 August 2021, ACCC Chairman Rod Sims reiterated the ACCC's long held concerns that Australia's current merger laws are not 'fit for purpose' and that the current merger review regime is 'skewed towards clearance'. In summary, the Chairman suggested that a combination of perceived shortcomings in Australia's merger regime are hampering the ACCC's ability to block anti-competitive acquisitions and outlined a package of possible reforms for addressing these issues. The ACCC's key concerns and proposed reforms are outlined below.

Issue

ACCC concern

Proposed reform

Australia's merger review regime  

Notification is not mandatory in Australia and merger parties are not prevented from completing the transaction until they have received merger clearance. To stop a merger that the ACCC considers to be anti-competitive, the ACCC must take enforcement action in the Federal Court. This voluntary, non-suspensory model can result in the ACCC having insufficient information and time to conduct its review. 

  • A new formal merger review regime to replace all existing channels for seeking merger clearance (ie ACCC informal clearance, ACCC authorisation and seeking a declaration from the Federal Court that the merger does not substantially lessen competition).
  • Merger review would be mandatory for transactions above certain thresholds, with the ACCC having a 'call in' power to review acquisitions below the thresholds where necessary.
  • A simpler 'notification waiver' process would be available for acquisitions that are above the thresholds but unlikely to raise serious competition concerns, effectively enabling merger parties to proceed with the acquisition without the need for a Phase 1 review.
  • To approve a merger, the ACCC must be satisfied that the proposed acquisition is not likely to have the effect of substantially lessening competition.
  • Parties would be prohibited from completing the merger until clearance was granted.
  • Parties would need to submit all information upfront to the ACCC.
  • Limited merits review to the Australian Competition Tribunal would be available based on the evidence before the ACCC. 

Merger factors

The current merger factors in section 50(3) of the Competition and Consumer Act 2010 (Cth) place undue weight on market characteristics which may limit or offset anti-competitive effects, rather than on factors indicative of anti-competitive effects, such as  how the acquisition will change the structural conditions for competition.

  • Revise the mandatory merger factors to be considered when assessing a transaction to focus on the structural conditions for competition that are changed by the acquisition.
  • As recommended in the ACCC's Digital Platform Inquiry Final Report, incorporate additional merger factors which consider (i) the likelihood that the acquisition will remove a potential competitor and (ii) the nature and significance of assets being acquired, including data and technology.

Standard of proof

To successfully challenge a merger, the ACCC must go to court and prove on the balance of probabilities that there is a real commercial likelihood of a substantial lessening of competition. The ACCC faces evidentiary difficulties proving future anti-competitive effects, including because suppliers and customers may be reluctant to provide evidence and because of the weight courts place on the evidence of the merger parties themselves. 

  • By amending the definition of 'likely' in s50, lower the standard of proof so that a merger will breach competition laws where there is a 'possibility that is not remote' that the transaction would substantially lessen competition. 

Firms with market power

The ACCC perceives market concentration and market power to be increasing in Australia. Acquisitions by firms with substantial market power are more likely to have the effect of substantially lessening competition. Accordingly, acquisitions that entrench market power ought not to require specific proof of anti-competitive effects.

  • Where one of the merger parties has substantial market power, an acquisition will be deemed to substantially lessen competition where it entrenches, materially increases or materially extends that market power.

Digital platforms

Current merger laws do not prohibit acquisitions by digital platforms where there is a low likelihood of a substantial lessening of competition, but where, if it does occur, the impacts are substantial and long lasting.

Large digital platforms perform a critical role in the economy. Acquisitions by these platforms therefore require a different level of scrutiny.

 

  • Specified digital platforms would be subject to a tailored merger test.
  • The ACCC has yet to reach a view on which test should apply, but at a minimum, the probability of competitive harm that needs to be established would be lower than that which applies for acquisitions in the economy more generally.
  • Other specific rules for digital platforms may also be required to govern their conduct and address competition and consumer concerns present in digital platform markets 

Other agreements in merger assessments

Merger parties may enter into other agreements that impact on competition. Due to the anti-overlap provisions, the effects of these agreements are considered separately to the effects of the merger.

  • The competitive effects of agreements entered into by merger parties can be considered together with the merger as part of the substantial lessening of competition assessment.

What's next?

The ACCC's proposed reform package intensifies the merger reform debate, but there will be a long road ahead before any proposals become law. If there is appetite within government for merger reform, extensive consultation will be critical as regulatory overreach in this area could hinder desirable industry consolidation which would benefit the Australian economy, creating more efficient and resilient firms in a critical recovery period. 

Allens welcomes an open discussion and an evidence-based approach to merger reform. In particular, post-merger analysis in relation to those markets where the ACCC unsuccessfully opposed a merger would provide useful insights as to whether the ACCC's concerns in fact materialised and, if so, whether any shortcomings in Australia's merger control regime contributed.

The fact that Australia's merger control regime differs from that in other jurisdictions is not in and of itself a basis for reform. There is a strong culture within corporate Australia of engaging with the ACCC on mergers and the flexibility of the informal merger regime has arguably served Australia well. The ACCC's proposals are informed by approaches in other jurisdictions, which is appropriate. However, effective reforms also need to account both for what works well in those jurisdictions, and what does not.