The ACCC has published a report setting out the results of its first ex post review of merger cases. The review focused on identifying lessons that can be learned from past cases to inform and improve the ACCC's current investigative and decision-making processes.
The review follows the ACCC's announcement last August of a range of radical proposals designed to re-engineer the merger clearance process which, if implemented, would include replacing the existing voluntary and informal clearance process with a mandatory and suspensory notification regime. This is an agenda that the ACCC will continue to push over the next year.
While the ex post review work was conducted independently of the law reform proposals, the ACCC has used it as another opportunity to advocate for reform. In particular, the report raises concerns about the factual accuracy and completeness of information provided by parties in past cases, arguing that this is a weakness of the current informal regime.
ACCC merger decisions reviewed
The ACCC conducted detailed ex post reviews of six mergers which it originally reviewed, and did not oppose, between 2017 and 2019. This compares to 78 public merger reviews appearing on the ACCC's register in the same period (this number excludes numerous others that would have been confidentially cleared (or 'pre-assessed') in the same period). The six merger reviews were:
- Caltex Australia’s acquisition of assets from Milemaker Petroleum (Caltex/Milemaker);
- Platinum Equity’s (Winc) acquisition of OfficeMax Australia;
- Complete Office Supplies’ acquisition of Lyreco;
- Emergent Cold’s acquisition of AB Oxford Cold Storage Company (Emergent/Oxford);
- Propel Funeral Partners’ acquisition of Gregson & Weight Funeral Directors; and
- The remedy package in Landmark’s acquisition of Ruralco.
The cases were selected based on a range of criteria including the nature of the issues raised and relevance to future reviews, availability of information and data, and the time that had elapsed since the merger.
The report also noted that the ACCC has received complaints from industry about a number of mergers that were originally opposed by the ACCC but ultimately cleared by the Federal Court of Australia (Court) or the Australian Competition Tribunal (Tribunal) including TPG/ Vodafone (2020), AGL/ Macquarie Generation (2014) and Sea Swift/ Toll Marine (2016). The report flags the possibility of conducting an ex post review of these matters in future.
Core findings from the ex post review
Despite the very small sample size, the ACCC seeks to draw some broad conclusions. Its core findings include that:
- There is a need to look beyond market shares (which may underplay competitive effects) and closely examine other market conditions. In particular, the ACCC found that the removal of a vigorous and effective competitor can have a significant impact on competition, even where market shares are low and other vigorous and effective competitors remain. The ACCC based this finding on the Caltex/Milemaker case, where the parties' combined share post-merger was only 11% and a number of other competitors remained in the market. However, a detailed ex post review of pricing data revealed a quantifiable reduction in price competition post-merger attributable to the removal of Milemaker.
- The benefit of competitive constraints on a particular segment or class of customers will not necessarily carry over to other segments. The ACCC found that some mergers have resulted in significant price increases for particular segments of customers, and this can be a particular issue where some classes of customers have less available alternative suppliers and/or are unable to self-supply. The ACCC appears to base this finding on the Oxford/Emergent case, having found that, following the merger, large customers were able to prevent price rises due to effective countervailing buyer power but mid-sized customers faced more significant price increases.
- Claims about the likelihood of new entry and expansion, and the ability of third parties to exercise countervailing power, need to be scrutinised closely as these are routinely exaggerated by both merger parties and third parties. While numerous claims about new entry were made by both merger parties and industry participants in original review processes, the ACCC found that in almost none of these cases had any entry actually transpired since the merger. Similarly, the ex post review identified several instances where market participants were overly confident about their ability to prevent the merged entity from raising prices and may have underestimated the capital and labour commitment required.
- Both merger parties and third parties have distorted or omitted critical information relevant to the ACCC’s analysis. Examples included the ACCC receiving directly contradictory information about the viability of a competitor in separate review processes, weeks apart; sanitised internal documents downplaying forecasted post-merger price increases; definitive submissions on post-merger expansion plans that never eventuated; and the failure to disclose a subsequent and imminent transaction which impacted the ACCC's assessment of market dynamics.
The ACCC has also stated that it continues to review other past cases and will publish any further findings of interest – watch this space.
What can we expect for future ACCC merger reviews?
Closer scrutiny of post-merger predictions
Merging parties can expect increased scepticism and scrutiny by the ACCC of arguments put forward in support of clearance. In line with the findings above, we can expect that the ACCC will view market share data with increasing caution, may more closely scrutinise the effects of transactions on narrow customer segments, and will be more sceptical of general assertions relating to entry and expansion as well as buyer power.
In light of the broader concerns raised about the accuracy of information provided to the ACCC, we can expect that the ACCC's scepticism will not be limited to these issues alone. Merging parties should be prepared to provide detailed evidence supporting assertions about future plans and competitive dynamics.
Continued petition for reform of informal regime
The findings of the report have already been leveraged in support of the introduction of a new mandatory and suspensory regime. In announcing the report, outgoing ACCC Chair Rod Sims expressed concerns about the current informal and non-suspensory regime, highlighting that the ACCC often has to negotiate with parties over the information they will provide, frequently under time constraints and, in some cases, threats to complete.
The ACCC has flagged the possibility of conducting an ex post review of certain mergers that were originally opposed by the ACCC but subsequently approved by the Court/ Tribunal. Part of the ACCC's petition for reform is a proposal to lower the threshold for deals to be blocked, on the basis that current forward looking test – and the requirement to satisfy the civil standard of proof – is too high of a bar for the ACCC to effectively prevent anti-competitive deals in court proceedings. An ex post review of these cases could test this argument.