The latest chapter in the saga of the proposed Tatts/Tabcorp merger has seen the Australian Competition Tribunal again determine that the merger would not lead to a lessening of competition in the Australian wagering market, but is likely to increase competition and have public benefits - a decision that should give some comfort to merger parties in competitive industry sectors that are undergoing digital disruption (Applications by Tabcorp Holdings Limited  ACompT 5 - Clayton Utz acted for Tatts).
The proposed Tatts/Tabcorp merger and its context in the Australian wagering market
Tatts and Tabcorp are two major players in the large Australian wagering market, which is undergoing strong growth and also significant digital disruption from well resourced online competitors. It was a complex and contested merger process; the prospect of the merged firm (which would be valued at around $11 billion) brought out multiple intervenors in opposition, including the ACCC, CrownBet, Racing Victoria and Racing.com.
The opponents' main concerns were:
- the alleged advantages of the exclusive retail licences held by each of Tabcorp and Tatts;
- whether Tatts was the only other likely bidder against Tabcorp for a new Victorian wagering licence in 2024;
- the advantages Tabcorp has through owning the racing vision provider Sky Racing; and
- whether the future growth of online bookmakers might slow, with speculation about future tax and regulatory changes.
In March 2017, Tabcorp took the merger approval directly to the Tribunal, short-circuiting an application for informal clearance which had been pending before the ACCC since October 2016.
Until recently, under the Competition and Consumer Act 2010, the Tribunal may grant authorisation for a merger or acquisition if satisfied that it will result in sufficient public benefits, including efficiencies. It must weigh the risks of a detrimental loss of competition from the merger against the public benefits and efficiencies from the merger (the Act has subsequently been amended to change the process, but the test is the same). However future merger authorisations must now be submitted to the ACCC - see below.
The Tribunal approved the merger in June; the ACCC successfully appealed, and the matter remitted to the Tribunal for reconsideration, and it has again authorised it.
The competitive landscape in the Australian wagering market
The Tribunal reaffirmed its earlier market definition finding: Australian punters switch freely between retail outlets and online, so that online forms part of the retail market. Competition in this industry is driven by technology and scale - it considered this merger was consistent with that trend.
Given this background, which means smaller operators may not be able to keep up, the Tribunal found that further consolidation in the Australian wagering industry is likely.
There is another factor: the international interest in the Australian wagering market. This is still an attractive market for the UK operators, despite the tightening of advertising rules and the possible introduction of a point of consumption tax on wagering.
Less competition in Australian wagering - or more?
The Tribunal is required to consider any "lessening" of competition that might arise from the merger, even if it is not a "substantial lessening" (which is the test in our merger law).
The Tribunal was satisfied the merger in fact will drive further competition, given the many corporate bookmakers active in the Australian market, including strong competition from largely UK-based corporate bookmakers who would constrain the merged entity.
It noted the "public benefit" test in the Australian regime has been applied to mean that the merger must be shown to give rise to benefits for a least a section of "the public". Greater weight is given to savings and efficiencies that are shared more widely than just the merger parties and their shareholders.
One intervener argued for a more limited test, that "public benefits" can only be recognised if they are shown to accrue to consumers. The Tribunal did not decide which approach was correct but held that on either interpretation this merger satisfied the public benefit test.
Either way, there were also found to be flow-on benefits for the racing industry (which is funded by the merger parties and by other bookmakers), and will benefit from the synergies that are created by it.
The impact of the Tatts/Tabcorp decision on future merger clearances
The decision confirms that a merger in a competitive market can be good for consumers, if there are genuine efficiency savings which are likely to be shared through greater competition.
Secondly, the decision is another example of how online competition can disrupt traditional retail models and why online providers must be included in the competition assessment.
Thirdly, the decision is a timely reminder that effects of a merger should not be judged against the past or even the status quo - if the market is changing rapidly, the future shape of the market is the relevant matter to consider, not past market shares or possession of a bricks and mortar retail network .
This decision is not only notable for its result. It is also the last Tribunal decision under the previous regime allowing parties to apply directly to the Australian Competition Tribunal, rather than first having to apply to the ACCC. Under amendments which came into effect on November 6, future deals which seek approval on public benefit grounds (such as this case) will have to be submitted first to the ACCC; there will only be a limited appeal to the Tribunal, and restrictions on introducing fresh evidence.
At this time it is not known if any of the parties which opposed approval will seek to appeal the decision. There is a 28-day period for a party to seek a limited judicial review on legal grounds, but no appeal on the merits is open.
UPDATE: The ACCC announced on 1 December that it had carefully read the Tribunal's decision and considered it did not contain an error of law, and consequently would not seek review of it.
Michael Corrigan acted for Tatts and was assisted by Mihkel Wilding and Ian Reynolds