11 April 2024 The Treasurer this week announced far-reaching reforms of Australia’s merger control regime. The reforms proposed by the Government include the introduction of a mandatory notification requirement for mergers and acquisitions that exceed certain monetary or market-based thresholds and a prohibition on completing a notifiable merger prior to obtaining approval from the ACCC. The ACCC had advocated for these changes, which will align Australia’s merger control regime with the regimes in most other jurisdictions around the world.
Further important reform proposals are targeted at serial or creeping acquisitions and acquisitions that entrench the power of market-leading firms. However, the Government rejected the ACCC’s call for a reversal of the onus of proof with regard to the competition test.
The proposed reforms are expected to come into force on 1 January 2026, subject to the passage of legislation through the Australian Parliament.
This article discusses the key aspects of the proposed merger reform.
The most fundamental change will be the introduction of a mandatory notification requirement for all mergers that exceed certain notification thresholds. The mandatory regime will be supplemented by a prohibition on completion of notifiable mergers (“suspensory effect”) prior to having obtained approval from the ACCC. The ACCC will act as an administrative decision-maker and have the power to determine whether a merger may or may not be put into effect, with or without conditions.
The notification thresholds will be both monetary and share of supply- or market share-based. The monetary thresholds will be subject to consultation and set by reference to business metrics such as turnover (sales revenue), profitability or transaction value. Share of supply or market share thresholds will ensure that mergers that may harm competition despite being below the monetary thresholds will be notifiable.
To capture serial or creeping acquisitions, all mergers within the previous three years by the acquirer or the target will be aggregated for the purposes of determining whether the notification thresholds are met, irrespective of whether those mergers were themselves individually notifiable.
Mergers below the notification thresholds may be voluntarily notified to the ACCC, but the ACCC will not have the ability to ‘call-in’ mergers that do not meet the notification thresholds.
The merger process will be subject to set review periods, and where the ACCC does not make a determination within the relevant review periods, the parties will be allowed to proceed with the merger.
The Treasury will set the merger review timelines following consultation in 2024. The current indicative timelines are set out in the table below.
Steps in the ACCC merger review process
Working Day
Length of time period (Working Days)
Optional pre-notification discussions
Phase I: Initial public review starts / notification
0
30
Fast-tracked determination (Merger approved or review continues)
15
Phase I determination (Merger approved or phase II if competition concerns)
Phase II: In-depth review starts
90
Phase II determination (Merger approved or blocked on SLC grounds)
120
Parties can apply for:
ACCC public benefit determination
~170
Tribunal determination
~180
These time periods may be extended by the ACCC in appropriate circumstances, for example if remedies are offered by the parties, by mutual agreement or if requested information is not promptly provided. The Treasury will consult on the rules as to how the ‘clock’ can start and stop in 2024.
To enhance transparency and accountability, a public register for all mergers notified to the ACCC will be created and the ACCC will be required to provide written reasons including findings of material facts for all of its determinations.
The Government will introduce cost recovery fees that will be scaled to reflect the complexity and risks of a notified merger. Currently, the Government expects that the fees will be between $50,000 -$100,000 for most notified mergers, with an exemption for mergers notified by small businesses.
The Government rejected the ACCC’s call to reverse the onus of proof with regard to the competition test. The ACCC had argued that the parties should have the onus to satisfy the ACCC that a merger will not have the effect, or be likely to have the effect, of substantially lessening competition (SLC). It will therefore continue to be the case that the ACCC must approve a merger unless it is satisfied that the merger would have the effect or likely effect of SLC.
The Government, however, proposes to include a provision that clarifies that a merger may have the effect of SLC if it creates, strengthens or entrenches a position of substantial market power. This is said to emphasise the importance of considering the competitive structure of the market when assessing the competitive effects of a merger, for example in the case of “killer” acquisitions of nascent competitors by market-leading firms.
To allow a proper assessment of the competition effects of serial or creeping acquisitions, the ACCC will have the power to consider the cumulative effect of all mergers within the previous three years by the parties as part of the assessment of the notified merger.
Where the ACCC determines, following a phase II review, that a merger would be likely to have the effect of SLC, the parties can apply for the ACCC’s approval on public benefits grounds on the basis that the merger will likely result in a substantial benefit to the public which will outweigh the anti-competitive detriment of the merger.
ACCC determinations will be subject to a limited merits review by the Tribunal upon application by the merger parties or third parties (subject to having standing). The Tribunal may make a determination affirming, setting aside or varying the ACCC’s determination.
The scope and basis for the Tribunal’s review will be consistent with the current approach for merger authorisation, that is, the Tribunal will apply the same test as the ACCC and it will not conduct a rehearing of the matter.
A judicial review of Tribunal decisions will be available in the Federal Court.
Foreign investors will not be required to notify mergers that are below the notification thresholds to the ACCC. However, the Government will explore opportunities to streamline the competition assessment of mergers in sectors subject to separate national interest considerations under foreign investment laws and regulations (given that, if a foreign investment filing is required, there is effectively a de facto ACCC clearance requirement on transactions by foreign investors).
It is to be welcomed that the Government does not propose to give the ACCC “call-in” powers for transactions that do not meet the notification thresholds or to reverse the onus of proof with regard to the competition test.
One of the advantages of a mandatory regime based on regulated notification thresholds is that it provides the business community with certainty about the existence of a notification requirement. Giving the ACCC “call-in” powers would have undermined the legal certainty provided by the mandatory regime.
Requiring the parties to satisfy the ACCC that a transaction will not have the likely effect of SLC in circumstances where the ACCC will be the administrative decision-maker has been criticised as amounting to a “presumptive ban” of contentious mergers. Indeed, disproving that a transaction will be likely to result in an SLC may be difficult for businesses, in particular in emerging markets.
With regard to the notification thresholds, it will be important to include appropriate minimum domestic turnover and/or transaction value thresholds to ensure that mergers with no or only de minimis effects in the Australian market are not notifiable.
The Treasury anticipates that the notification thresholds will be set such that the overall volume of notifications to the ACCC will be similar to current volumes (approximately 300 a year). It remains to be seen whether this can be achieved. It may be difficult to calibrate the thresholds such that all (or the vast majority of) potentially anti-competitive mergers are caught while keeping the number of notifiable mergers at that low level. The net of many overseas mandatory regimes (in particular, in Europe) is cast much wider to ensure that not too many potentially anti-competitive mergers escape scrutiny.
The inclusion of a provision that clarifies that a merger may have the effect of SLC if it creates, strengthens or entrenches a position of substantial market power will be unlikely to change the assessment of mergers to any significant extent or result in more mergers being blocked. Already today, the ACCC can, and regularly does, put significant emphasis on the competitive structure of the market when assessing the competitive effects of a merger.
However, the proposed provisions dealing with serial or creeping acquisitions are likely to have significant practical implications. They will make it harder for market-dominating firms to evade scrutiny by only incrementally increasing market share through a series of small acquisitions and it will improve the ACCC’s ability to oppose such incremental acquisitions.
The mandatory notification regime will necessitate extensive up-front information requirements and the review periods will only start to run once a “complete” notification has been received by the ACCC.
In some overseas jurisdictions (the EC is a prominent example), a process of lengthy pre-notification consultations with the authority has emerged to ensure that the parties provide all necessary information in a notification. This minimises the risk of submitting a deficient notification which would not trigger the review period. The ACCC will facilitate such pre-notification consultations under the new regime. While such consultations will be optional, in more complex transactions, parties will be well advised to take advantage of this process.
The Government’s proposal for the Tribunal’s review of an ACCC determination is based on the rules which currently apply to the review of merger authorisation determinations by the ACCC. That is, the Tribunal’s review will be a limited merits review (not a rehearing) based on the information and evidence which was available to the ACCC for its determination (subject to some limited exceptions).
The current rules for the review of ACCC merger authorisations has been criticised as unnecessarily limiting the parties’ ability to argue their case on review. This criticism equally applies to the limits proposed for the Tribunal’s review of ACCC determinations under the new regime. Many competition lawyers and members of the business community had hoped that the Government would take the opportunity to improve the rights of merger parties to challenge ACCC determinations opposing (or imposing conditions on) their merger proposal under the new regime.
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