There are recent reports that the ACCC has proposed to the Federal Government that Australia's new mandatory merger notification regime should be broadly designed to catch a large number of transactions. While no decision has been made by Government, the ACCC has suggested that notification be mandatory for all transactions that either:
- involve parties with $400 million AUD turnover (or more) (regardless of transaction value); or
- have a value of at least $35 million AUD.
According to Mergermarket, of the 583 deals with an Australian target announced over the past 12 months, 295 of these deals were valued over $35 million AUD. That means approximately 295 deals with an Australian target announced over the past year would have been caught by these proposed thresholds. And that doesn't include deals with a lower value where a party exceeds the turnover threshold. The past 12 months has been relatively flat for M&A activity and when the market picks up the number of mandatory filings may well climb significantly.
The ACCC's proposed merger thresholds and factors in detail
The ACCC has proposed that all mergers in Australia above the defined thresholds must be notified to the ACCC.
If implemented, this scheme of formal merger notification in Australia will sit alongside Australia's formal notification of foreign investment and will increase the regulatory burden for merger parties. It is intended that the filing of mergers above the defined thresholds will be mandatory and suspensory in effect, as for foreign investment.
If these proposals become law, the merger review team at the ACCC may need to increase substantially. The ACCC wants to review not only all transactions above the thresholds but it also wants a "call in" power to require parties to notify other smaller transactions, below the threshold, if the ACCC decides it wants to take a closer look.
According to the ACCC the new formal merger notification regime should also include the following elements:
- filing fees to be payable by merger parties;
- suspension of timeframes whereby until the ACCC has made a decision, the parties cannot complete;
- reversal of the onus of proof so that the parties must establish that the merger does not substantially lessen competition - this is a significant change from the present system where the ACCC needs to make a decision about whether to challenge or intervene to stop a merger;
- removal or narrowing of the Federal Court jurisdiction to review the competition impacts of a merger on their merits, leaving the parties with a limited merits review only of the ACCC's decision by the Australian Competition Tribunal and, then, a further right of judicial review for errors of law but not any review on the merits for mergers that are the subject of compulsory notification. While the ACCC has apparently suggested there could still be a role for the Federal Court for parties in some cases, to apply for a declaration that a merger does not contravene merger laws, no detail has provided as to how that jurisdiction will co-exist with the ACCC's proposed new process;
- significant upfront filing and information requirements: mergers will be assessed solely on the material presented by the parties and any third party evidence obtained by the ACCC. This may mean the merger parties will have a strong incentive to lodge a detailed and comprehensive application in the first instance, as they will have little or no right to supplement their application later or on appeal (as the recent decision in the Telstra/TPG case shows); and
- limited waivers from the formal notification requirements will be available for mergers that meet the thresholds but are unlikely to raise competition concerns. How this will be policed and implemented as a practical matter is yet to be determined.
The ACCC is also advocating changes be made the statutory "merger factors" to include factors which consider:
- the loss of actual or potential competitive rivalry;
- increased access to, or control of data, technology or other significant assets;
- where the acquisition is part of a series of acquisitions (this is to address so called 'creeping acquisitions' or concerns arising from small acquisitions); and
- whether the acquisition entrenches or extends a position of substantial market power.
For digital platforms, this is in addition to proposed ex ante measures for designated digital platform in the form of service specific codes.
"Skewed towards clearance": ACCC dissatisfied with the status quo
Merger clearance reform has been on ACCC's agenda since as early as 2021, with Chair Gina Cass-Gottlieb reaffirming in April this year that merger reform was still firmly within the ACCC's sights.
It therefore comes as no surprise that the ACCC has submitted to the Government that the current regime is "skewed toward clearance where there is any uncertainty". The ACCC has also complained that currently merger parties provide information to the ACCC which is "variable, often incomplete and sometimes inaccurate".
The ACCC also expressed its concern that "increasingly, merger parties are threatening to complete their potentially anti-competitive transactions before we completed our review and made a final decision".
It is hard for outsiders to assess how many matters fall into that category as the ACCC has not published any statistics on how frequently parties have sought to ignore the ACCC or game the system.
Significantly the ACCC has never brought a post-closing challenge to a merger which it said should have been notified and which did breach the Competition and Consumer Act. The absence of any such challenge does give pause to the question of whether many parties have ignored the ACCC to the point of closing a transaction that was likely to be significantly anticompetitive.
The ACCC has only ever brought one penalty case for a merger party failing to notify the ACCC, back in 1997 when the Federal Court imposed a penalty of $4.8 million on Pioneer Concrete.
The absence of any penalty enforcement actions in the last 25 years is interesting if the problem of parties "ignoring" the ACCC or not cooperating, is as widespread as the ACCC has suggested.
In 2021, the ACCC demonstrated that the current enforcement system works well when it easily obtained an injunction and a costs order against Virtus Health and Adora Fertility who threatened to complete a merger without the ACCC's approval.
In that case, the court sided with the ACCC and the parties abandoned the transaction. If anything, the orders in that matter were a salutary reminder to merger parties that it is not prudent to ignore the ACCC process. The judge in that case commented that the ACCC merger process was well known in Australia and that:
"I infer from the evidence referred to above that the respondents were aware of the requirements of s 50 and the available processes for seeking formal or informal approval of the Adora acquisition from the ACCC, but chose not to seek approval. The evidence suggests that Healius would not have agreed to sell the Adora business subject to a condition that required ACCC approval and both parties took the risk of the ACCC opposing the acquisition and seeking injunctive relief."
If anything, the Virtus/Adora case demonstrates the current system worked.