ACCC announces new informal merger clearance process

By Michael Corrigan and Rob Shilkin.

Key Points:
In light of the new Guidelines, and the resulting lengthy and public ACCC clearance process, it is now more important than ever that parties to a merger carefully plan their ACCC strategy from the outset.

The proposed changes to its informal merger clearance process, designed by the ACCC to improve the system's accountability and transparency, increase businesses' need for detailed planning, sophisticated analysis and patience in navigating the ACCC's informal clearance process. The ACCC's new Guidelines, announced on 23 September 2004, will significantly affect all parties who seek an informal merger clearance from the ACCC.

There is no doubt that Australia's informal merger clearance process is becoming more legalistic and structured. While there is still no mandatory merger notification process (unlike the US and Europe), the new Guidelines reflect an attempt by the ACCC to ensure that the Australian system is rigorous, accountable and public.

Background - why have new Guidelines been published?

The recent Federal Court decision in relation to the AGL/Loy Yang acquisition broke new ground with respect to the ACCC's informal merger clearance process because it established that parties to a transaction may seek a declaration from the Federal Court if they are unhappy with the ACCC's decision. (Boral recently commenced, and then abandoned, proceedings in the Federal Court, testing the ACCC's rejection of its proposed takeover of Adelaide Brighton.)

In the AGL/Loy Yang matter, the ACCC considered the proposed acquisition over a period of six months and declined to grant an informal clearance. The Federal Court subsequently criticised the ACCC for being unprepared to defend its decision.

There are some signs that since the Federal Court's decision in AGL/Loy Yang, the ACCC's informal merger clearance process has become more "formal" in complex matters, where the timeframes are becoming longer. The ACCC will deliberate, carefully formulate its conclusions, and publicly articulate its reasons.

The new Guidelines reflect this trend.

The new Guidelines operate in conjunction with its existing Merger Guidelines and are intended to ensure that the ACCC's informal merger clearance process is consistent with the International Competition Network's Guiding Principles and Recommended Practices for Mergers.

It is intended that the new procedures will commence in mid-October.

The main changes proposed by the new Guidelines are set out below.

Timeframes for ACCC decisions - more clarity?

The current Merger Guidelines set out estimated timeframes for the ACCC's consideration of mergers, ranging from two weeks for a matter with no competition issues, to two months for a complex matter. However, in recent times, periods of five-six months have not been unusual in relation to contentious proposals.

Under the new Guidelines, in relation to more complex matters, the ACCC has stated that it will provide individual assessment timelines. These timelines will be determined based on the complexity and significance of the proposed transaction. The indicative timeline will, where appropriate, include:

• details of the key assessment milestones and any triggers for meetings with the merger parties;
• an outline of the timing for market inquiries; and
• the expected decision date.

The ACCC has stated that the clock may stop on the timeline if:

• incomplete information is provided by the parties; or
• the ACCC needs additional information; or
• timing issues arise with international mergers; or
• the ACCC is restrained from undertaking market inquiries due to confidential elements of the proposal.

"Statement of Issues" - disclosure to market of preliminary ACCC concerns

In some matters, the ACCC will now publish details of its preliminary competition concerns arising from a proposed transaction in the form of a Statement of Issues. This document will be placed on the public register. The intention is to ensure that the market is informed of the ACCC's views throughout the process.

A Statement of Issues is not a definitive decision and the parties to the transaction, and market participants, will be able to consider and respond to the ACCC's concerns.

Nevertheless, applicants will be concerned by this initiative and may be concerned that the Statement creates a higher onus to rebut. Third parties, opposed to the ACCC granting clearance, will welcome this development.

Information requests - "smoking guns" and board papers

The new Guidelines state that the ACCC prefers to request that parties voluntarily provide information sought by the ACCC. However, in more complex merger matters, the ACCC is increasingly looking to its statutory powers under section 155 of the Act to demand that information be provided. Recent experience demonstrates that the ACCC may call for all or any of the following:

• marketing, business and strategic plans for the transaction
• board minutes and board reports
• customer and supply details; and
• financial information.

Competition Assessment - publication of ACCC reasons

Since late 2003, the ACCC commenced the process of providing a public Competition Assessment outlining its reasons for decision where:

• a merger is rejected
• a merger is subject to enforceable undertakings
• the merger parties seek such disclosure; and
• a merger is approved but raises important issues that the ACCC considers should be made public.

The ACCC states in the new Guidelines that it will endeavour to provide Competition Assessments within approximately five working days (potentially more in complex cases).

Meetings with the ACCC

The new Guidelines outline the ACCC's preference for meetings to be held with ACCC staff, rather than Commissioners, at the early stages. The ACCC now clearly favours the course whereby the Commissioners remain above the review process and do not meet with the parties until the end.

The Commissioners will generally only be available for meetings in relation to major matters or where the issues to be discussed are of significance.

Public register

The ACCC's public register (on the ACCC website) will include various information in relation to the proposed transaction, including indicative timelines, Statement of Issues, Competition Assessment and draft section 87B undertakings, subject to appropriate protection of confidentiality requirements.

Conclusion

The new Guidelines and the ACCC's more rigorous approach have substantially changed the ground-rules in relation to the informal clearance process.

In light of the ACCC's more formal, protracted approach, especially in relation to complex transactions, it will be necessary to ensure that both parties to a merger are committed to the potentially lengthy and sometimes onerous ACCC process.

Comprehensive submissions addressing the various competition issues, supported by economic evidence, are now more important in complex cases.

The impact on the market of the public ACCC Statement of Issues needs to be factored into planning the transaction. Further, the public Statement of Issues may also give third parties greater scope to become involved in the ACCC process.

In light of the new Guidelines, and the resulting lengthy and public ACCC clearance process, it is now more important than ever that parties to a merger carefully plan their ACCC strategy from the outset.

For further information, please contact Michael Corrigan.