08 Apr 2009
Failing firms in the global credit crisis: Is the ACCC's attitude any different?
The ACCC has recently allowed a merger between two close competitors on the basis that it was satisfied that the target manufacturer would otherwise be shut down immediately if the merger did not take place.
In cases such as this, the ACCC will want clear evidence that there are no other feasible buyers for the business or assets of the failing firm.
As a result of the current economic conditions arising from the global financial crisis, there is renewed interest in whether the ACCC might approve mergers between close competitors on the basis that one of those competitors is otherwise in danger of ceasing to carry on business.
The ACCC has recently set out its current approach to these issues in its March 2009 decision not to oppose the acquisition of Hans Continental Smallgoods (Hans) by P & M Quality Smallgoods (Primo).
The ACCC cleared this acquisition, even though Hans and Primo are two of the three largest manufacturers of smallgoods in Australia, because it was satisfied that Hans would otherwise be shut down immediately. Hans had been in administration since late 2008.
In coming to this conclusion, the ACCC was satisfied that:
- Hans was in imminent danger of failure
- it was unlikely that Hans could otherwise be successfully restructured
- there were no other parties who would be willing to acquire the business or assets of Hans; and
- it was therefore likely that Hans' assets would otherwise leave the market, and would thus cease to represent an actual or potential source of competition in the market.
Importantly, the ACCC conducted a rigorous analysis of the information provided by Hans' administrators, and other market participants in relation to these issues. In particular, it made extensive inquiries to determine whether anyone else would be willing to purchase Hans' assets as a going concern (in order to continue to compete against Primo).
The ACCC's decision shows that, while it is willing to entertain "failing firm" arguments in an appropriate case, all other possibilities will need to have been exhausted before it will clear an acquisition on this basis.
Even where a firm is not in imminent danger of failing, it may nevertheless still be possible to argue that the changed financial circumstances of the target firm mean that it is likely to be a less vigorous competitor in the future than it has been in the past.
Again, the ACCC is open to such arguments (as shown by its decision in late 2008 to clear the acquisition of Bankwest by the Commonwealth Bank), but will require clear evidence that this is in fact the case.