Having taken over the helm of the ACCC just over 12 months ago, Chair Gina Cass-Gottlieb recently fully endorsed the need for significant reform to be made to Australia’s merger regime, as was first championed by the previous Chair Rod Sims back in 2021. At the same time, she has very much put her own, considered spin on what the review process and merger laws should look like.
During a speech to the National Press Club speech in April 2023, the ACCC Chair has outlined the changes the regulator considers are needed to ensure the merger regime is fit for purpose and gives the ACCC the time and tools it needs to effectively oversee mergers and “help preserve a competitive economy”. Whilst some of the changes suggested back in 2021 have been wound back, the ACCC is still proposing some truly ground-breaking changes to the way mergers are regulated. Read on to get up to speed on the ACCC’s proposed changes and what this will mean for your deals if the government decides to pass them into law.
Current merger regime no longer “fit for purpose” – ACCC Chair
In a recent speech to the National Press Club, ACCC Chair Gina Cass-Gottlieb identified a number of reasons why reform to our current merger regime is needed. The Chair made the argument that the current voluntary regime is failing to protect competition (and therefore consumers) with merger parties “pushing the boundaries” of the informal clearance regime by not engaging with the ACCC, or only doing so at the eleventh hour with sometimes incomplete, incorrect information. The call for reform comes at a critical time according to the Chair given market concentration is a growing problem, the economy is transitioning following the disruptions of the pandemic and there is a growing push for a “more sustainable and technologically advanced economy”.
ACCC’s reform proposals
The ACCC is proposing some fundamental changes, across two broad areas:
1. New merger review process
The ACCC is proposing a new merger approval process that will bring Australia’s regime into line with most other OECD countries. This will involve a fundamental shift away from the current voluntary merger clearance model to a mandatory clearance model with the following components:
- Mandatory, suspensory notification system for mergers above specified thresholds will require these mergers to be notified to the ACCC. They will be prohibited from completing until ACCC clearance is granted. The notification thresholds are yet to be identified but they are likely to be based on revenue (eg. the size of the proposed transaction or target globally/locally or a combination of these). The thresholds mean merger parties will need to conduct a thorough market analysis up-front just to decide if notification is required.
- ACCC wants call-in powers for below-threshold mergers that raise competition concerns so it can interject to formally assess the merger. This will create significant uncertainty for business and will mean separate to any threshold analysis, merger parties will need to conduct an early risk assessment to determine the likelihood of the ACCC intervening in a proposed merger.
- A notification waiver will be available for above-threshold mergers that are “non-contentious” which, if granted, would allow these mergers to proceed more quickly and without undergoing a full merger review. The ACCC has said it expects the bulk of mergers will fall in this category, much like the current pre-assessment process in the informal regime.
- A proposed merger would not be cleared by the ACCC unless the regulator is positively satisfied that the transaction is not likely to substantially lessen competition.
- Review by the Australian Competition Tribunal of ACCC decisions will be available, with limited recourse to seek judicial review of certain issues and for mergers that don’t trigger the notification threshold.
- Upfront information requirements will require merger parties to provide their best information at the time of filing a notification.
2. Changes to merger law
The ACCC is also proposing various changes and clarifications to the legal test for mergers:
- There will be a broader legal test which makes it clear that substantial lessening of competition includes “entrenching, materially increasing or materially extending a position of substantial market power”. This replaces the deeming provision that was proposed by Rod Sims in 2021 and embeds into the legislative test a focus on the structural conditions for competition rather than its effect on competition. This will capture creeping acquisitions.
- The “merger factors” (which must be considered when assessing a merger’s impact on competition) will be updated to ensure they focus not just on the current level of competition in a market, concentration and availability of substitutes but also the changes that occur overall as a result of the merger (eg. the impacts on the height of barriers to entry). Various new merger factors are also slated such as the loss of actual/potential competitive rivalry; increased access to, or control of data, technology or other significant assets; whether the acquisition is part of a series of relevant acquisitions; and whether the acquisition entrenches or extends a position of substantial market power.
- If merger parties cannot convince the ACCC that a merger won’t substantially lessen competition, they will be able to go back to the ACCC using a second stage public benefit based clearance option. The 2021 reform proposals dropped the public benefit clearance option but this has been retained to build in greater flex to the clearance system.
What will the proposed reforms mean for mergers?
The ACCC Chair calls the proposed reforms “measured and appropriate”. However, if they are passed into law, there will be a quantum shift in the way mergers are regulated in Australia. Mergers will be effectively blocked where they are above set thresholds and have not received ACCC clearance. Merger parties will also have the burden of positively demonstrating to the ACCC up front that there is no possibility that the merger will substantially lessen competition.
Whilst it’s not yet clear what sort of thresholds the ACCC has in mind that will trigger compulsory notification, the proposed reforms will usher in a far less flexible system which could well significantly increase the ACCC’s power to block deals.
If passed, deals which are arguably pro-competitive or competitively neutral will be far harder to get across the line in Australia. The knock-on is that the cost of obtaining a merger clearance is likely to increase and will significantly add to the regulatory burden on merger parties. Deals are also likely to take far longer to get through the ACCC. Given that the ACCC freely admits that only a small subset of mergers in fact give rise to significant competition concerns, we’re not convinced the current system is so broken to justify these far-reaching changes. This is a position that is shared by plenty of other competition lawyers. It seems to us that the minority who have failed to appropriately engage with the ACCC and have aggressively steamrolled the regulator have put our current flexible system at risk.
So, where to from here?
The far-reaching nature of the ACCC’s reform proposals cannot be overstated even though some of Rod Sim’s ambit claims for reform back in 2021 have been scaled back. Lots of questions also remain about how the new system will work in practice. For example, what notification thresholds will apply? What will the ACCC clearance process and timing be? What is a “non-contentious” merger?
Whilst it’s up to the government to progress these reforms and we wait to see the full detail of what the ACCC is proposing, it seems certain that we’re heading towards a compulsory merger notification regime which will have far reaching cost and timing implications for business and will put the ACCC more clearly in the box seat with a greater number of merger deals. We wait to see how the government proceeds from here.