There has been a lot written in the last few weeks about the upcoming changes to Australia’s merger system, as the Federal Government seeks to “modernise” the system by making it “faster, stronger, simpler, more targeted and transparent”.
To get you up to speed, here are the top 10 things you need to know about the reforms:
1. New clearance system: The current regime will be replaced by a formal mandatory clearance system for mergers above certain thresholds. Mergers will be prevented from proceeding without clearance by the ACCC (or the Australian Competition Tribunal). The clearance system will continue to be run by the ACCC as the first instance decision maker and the ACCC will be growing its team. The respected economist, Dr Philip Williams, is also set to join the ACCC as a fifth Commissioner to deepen the regulator’s economic credentials.
2. Legal test updated: The substantive merger test in the Competition and Consumer Act 2010 (Cth) will be broadened. Creeping acquisitions of the acquirer/target over the last three years will be able to be taken into account, and consideration will be had as to whether a merger “creates, strengthens or entrenches a position of substantial power in any market”. Additional economic principles will be added too.
3. ACCC must approve a merger unless it has the “reasonable belief” the merger will substantially lessen competition: The ACCC failed to convince the Government that the onus of proof needed to be shifted from the ACCC to merger parties, a move that would have required merger parties to positively prove to the ACCC that their deal was not likely to substantially lessen competition. This means that in the new system, the ACCC will still bear the onus and must allow a merger to proceed unless it has the “reasonable belief” that the merger has the effect or likely effect of substantially lessening competition in any market. This “reasonable belief” threshold is an administrative one rather than being on the balance of probabilities.
4. Public benefits clearance option remains: Merger parties can continue to use the substantial public benefits test, but only if the ACCC doesn’t clear a merger on competition grounds.
5. Clear timelines for clearance, and a fast-track option for pro-competitive mergers: Timelines are yet to be settled, but it’s currently slated that the ACCC will have to assess all notified mergers within 30 working days and decide whether to approve them or refer them to a more in-depth (Phase 2) review, with these reviews then needing to be completed within a further 90 working days. Whilst the ACCC will no doubt be able to “stop and start” the clock, mergers will effectively be deemed to be approved if the ACCC fails to make a decision within 120 working days. There will however be an option for fast-track determinations to be made by the ACCC in as little as 15 working days for mergers that don’t raise any competition concerns.
6. Notified mergers will be public: No confidential approval options will remain and once notified, mergers will go on the ACCC’s public register (via the ACCC website). This will increase transparency and accountability for the ACCC but will obviously be unpalatable for certain deals or merger parties.
7. Filing fees introduced: There will be a user-pays system which will see merger parties paying between $50,000 – $100,000 per application, scaled to reflect deal complexity and risk. Currently there are no fees payable for informal clearances, as opposed to $25,000 for merger authorisations.
8. Notification thresholds: Only deals above certain, yet to be decided, materiality thresholds will trigger the compulsory notification requirement. Below-threshold deals will still be able to be put to the ACCC for clearance. The ACCC will not have “call-in” powers for below-threshold deals as was initially slated.
The reach of the new system hangs on these thresholds but Treasury is still consulting on them. The Government has indicated that they will be based on international best practice and set at a level to ensure that the ACCC sees mergers “that matter”. It seems likely they will be based on a combination of monetary value (turnover of parties, profitability, deal value) and market share. The ACCC has previously suggested a deal threshold of companies with a turnover of $400M or a global transaction value of $35M so we wait to see where the Government lands with this.
9. Appeal rights clearer but more limited: Merger parties will have more streamlined rights to appeal an ACCC determination to the Australian Competition Tribunal for a limited merits review. However, there will be no appeal rights to the Federal Court for a merits review as is currently the case.
10. Timing of reforms: The reforms are set to commence on 1 January 2026, but this is subject to further consultation on certain key issues (like thresholds and clearance timeframes) and the passage of legislation through Federal Parliament.
What’s the word on the street?
The Government says the reforms will mean more clarity and certainty for businesses, more help to safeguard consumers and more competition. Unsurprisingly, the ACCC has welcomed the reform proposals even though it didn’t secure all the changes it pushed for, after consecutive Chairs have run a “not fit-for-purpose” argument about the current system for a number of years.
Against this backdrop, there has been a loud chorus of people from the business community who are seeing more red tape, huge fees and deals being put at risk, the upshot of which they say will see a chilling of M&A activity in Australia. Whilst there are some key details about the new system that remain unknown, there’s no doubt the proposed reforms will usher in extremely significant changes to the merger system in Australia, which will mean most deals will require an ACCC process with associated knock-ons in terms of costs and deal timing.
However, similar merger regimes apply in most other developed economies so Australia is very much playing catch up with these jurisdictions, as is likely to be case with New Zealand too. The reforms may also lead to a more streamlined, transparent and accountable clearance process for merger parties than is currently the case for many mergers, especially those where the ACCC is approached for pre-assessment or informal clearance. Time will tell…
For further information contact the Addisons Competition, Consumer & Antitrust team.
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