The Federal Court has granted the Australian Competition and Consumer Commission (ACCC) an interlocutory injunction preventing the completion of a proposed merger of IVF service providers. The regulator sought the injunction after the merger parties indicated that they would complete the transaction regardless of whether the ACCC had completed its review of the matter for any competition concerns.
The decision is an important reminder of the powers of the ACCC and the Courts in mergers and acquisitions, and the gamble that parties face under Australia's voluntary merger control regime.
Refresher: Merger control in Australia
Section 50 of the Competition and Consumer Act 2010 (Cth) prohibits acquisitions that have the effect or likely effect of substantially lessening competition in any market in Australia.
Unlike the mandatory, suspensory regimes in other jurisdictions (including the European Union and United States), merger control in Australia is a voluntary process. In practice, parties generally can apply to the ACCC to have their merger considered and assessed informally, either under the pre-assessment system, by a confidential clearance, or public review and market inquiries (Phase I) and, if preliminary concerns arise, publication of a Statement of Issues (Phase II).
The informal review process does not confer immunity on the parties from enforcement (or private) action under section 50. However, a decision by the ACCC not to oppose a merger provides comfort to parties regarding the ACCC's position (which is reserved subject to any new or further information which might arise after completion of the ACCC's review).
The ACCC is also commonly consulted by the Foreign Investment Review Board as to the competitive effects of a transaction under Australia's suspensory foreign investment review process.
High stakes with section 50
Companies in breach of section 50 risk substantial and wide-ranging adverse Court orders under Australia's competition law, including:
- injunctions restraining completion of the merger (or requiring the parties to perform an act to cure the infringement);
- divestiture orders if the merger has already been consummated; and/or
- maximum pecuniary penalties of $10 million, three times the gain derived from the contravention or, where the gain cannot be quantified, 10% of the acquirer's total turnover in Australia.
Remedies for alleged breaches of section 50 can only be granted by the Court (rather than the ACCC), either on the application of the ACCC or third parties with a sufficient interest in the matter.
Virtus/Adora Fertility: the ACCC takes action
On 30 August 2021, Virtus notified the ACCC of its intention to acquire Adora under the informal merger review process. Virtus and Adora provide assisted productive technology treatments, including IVF, through a national network of fertility clinics. The parties informed the ACCC that they proposed to complete the transaction on 15 October 2021, irrespective of whether the ACCC had concluded its review by that time.
On 13 October, two days before the merger was due to complete, the ACCC applied for an urgent interim injunction restraining the transaction. That application was heard, and granted, by the Federal Court (Justice Moshinsky) pending the hearing of the ACCC's substantive application for an interlocutory injunction. The interlocutory injunction was granted on 25 October 2021.
The parties' intention to complete the merger regardless of the status of the ACCC's review did not go unnoticed by the Court. During the hearing of the ACCC's application, Virtus submitted that the preferred course would be for the merger to complete before any substantive enquiry as to whether a substantial lessening of competition is likely in breach of section 50.
In response, Justice O'Bryan noted the absence of any conditions precedent in the transaction documents relating to merger control clearance as evidence of the parties' decision to "accept the risks". His Honour remarked that "every business in Australia knows about section 50" – and consequently, the spectre of breaching the competition law without consulting the competition regulator.
Virtus also argued that the Court ought to have regard to a temporary ‘hold separate’ undertaking offered by the parties to the ACCC, under which Virtus would acquire Adora but would commit to take some steps to keep the Adora business separate from the Virtus business. The proposed undertaking was not sufficient to dissuade the ACCC from pursuing the injunction (and nor, it would seem, to convince the Court not the grant the relief sought).
Before granting an interlocutory injunction, the Court must be satisfied that there is a prima facie case (in this case, that the merger would contravene section 50), and that the balance of convenience favours the grant of the injunction. The substantive case will now be heard on an expedited basis, either later this year or early 2022.
Key takeaway: Expect a more bullish approach from the ACCC
Merger parties need to carefully consider the risks of sidestepping review by the ACCC, and subsequently being found to breach the competition law (and/or subject to Court processes to block the transaction in the meantime). We expect that the Virtus/Adora case will embolden the ACCC to pursue more merger matters in the courts – especially where the ACCC does not feel it has had adequate time to scrutinise the transaction.