New Dawn – transitional period for the new Australian merger regime commences

An acquisition is notifiable if:

• the combined Australian revenue of the acquirer (including its connected entities) and the target is at least $200 million, noting that this can be satisfied by one party only; and
• either:
  • the target's Australian revenue (if a share acquisition), or the Australian revenue attributable to the target asset (if an asset acquisition), is at least $50 million; or
  • the global transaction value is at least $250 million.

An acquisition is notifiable if:

• the acquirer's Australian revenue (including connected entities) is at least $500 million; and
• the target's Australian revenue (if a share acquisition), or the Australian revenue attributable to the target asset (if an asset acquisition), is at least $10 million.

When calculating the target's Australian revenue, the calculation must include:

• the Australian revenue from the current acquisition, plus
• the cumulative Australian revenue from any other acquisitions over the previous 3 years that predominantly involves supplying or acquiring the same, substitutable or otherwise competitive goods or services (disregarding geographic factors or limitations) except for previous acquisitions with less than $2 million in Australian revenue and acquisitions that were previously notified

Related entities and controllers. The associated entity test has been replaced with a more limited test: now the following entities are "connected entities":

• related bodies corporate of the parties; and
• entities controlled by, controlling, or which have a controller in common with, the parties.

Control is consistently interpreted to include joint control by associates; control exercised by special purpose vehicles; and control exercised by subsidiaries.

Fallback attribution - 20% of the market value of the asset. While no general rules for attributing revenue to assets are stated, a fallback rule is provided: to the extent that it is not reasonably practicable to attribute the Australian revenue of a target to an acquisition of an asset, the amount to be included is instead 20% of the market value of the asset.

This rule is not one that merger parties can choose to apply or disregard at their discretion – it is only applicable where the "not reasonably practicable" requirement is met. The explanatory statement for the final instrument suggests the acquisition of a lease may meet this requirement.

This results in the unusual outcome that the acquisition of a leasehold interest over premises, or potentially a freehold interest in vacant land, may or may not be notifiable depending on the rental amount and term negotiated between landlord and tenant, or the price agreed to be paid for the vacant land.

Land acquisitions for a purpose other than operating a commercial business on the land. The draft instrument proposed that the following acquisitions would be exempt from notification:

• land acquisitions made for the purpose of developing residential premises; and
• acquisitions by businesses primarily engaged in buying, selling or leasing land, where the acquisition is for a purpose other than operating a commercial business on the land.

Land acquisitions for a purpose other than operating a commercial business on the land that is not ancillary or incidental to the primary purpose. The final instrument clarifies that the exemptions extend to operating a land development or management business, including operating a commercial business ancillary or incidental to the primary purpose of buying, selling, leasing or developing land.

The scope of what is "ancillary" or "incidental" remains to be worked out in practice.

New exemption for subsequent acquisitions of the same interests in land. A new exemption covers acquisitions of legal or further equitable interests in land where the same acquirer has previously notified the ACCC of an acquisition of an equitable interest in the same land. This is an important exception which will prevent parties who enter into agreements for lease (AFL) having to re-notify the subsequent entry into the lease itself, and will avoid the uncertainty that could otherwise arise in the event of any changes to the market in the period between the AFL and the final lease.

However, the exception only applies where the entry into the AFL or other previous acquisition was notified to the ACCC, which means that protection does not extend to any AFLs entered into prior to the introduction of the merger regime. Companies who have existing AFLs but are not likely to enter the final lease by 31 December 2025 will need to consider whether the entry into the lease will trigger a mandatory notification at that time.

New exemption for sale and leaseback arrangements. Sale and leaseback arrangements relating to land (typically used for financing or capital management purposes) are exempt from notification.

New exemption for land development rights. Acquisitions of land development rights (including a right to develop or redevelop land, and rights to construct, refurbish, expand or subdivide existing land buildings) are also exempt if the acquisition of an interest in the underlying land would be exempt from notification.

Clearing and settlement facility activity and acquisitions under close out, set off, or account combination rights. The final instrument provides that acquisitions in the ordinary course of clearing and settlement activities will not be notifiable.

There are also exemptions to notification for acquisitions that occur as a result of the exercise of a contractual right to close out a transaction, or the exercise of a right of set off or combination of accounts under the contract. However, these exemptions do not apply if the acquisition provides the acquirer control of an entity or have the effect that the acquirer will acquire all or substantially all of the assets of a business.

Tiered phase 2 fees. The notification fees set out in the instrument for waivers, phase 1 assessment and public benefits applications remain unchanged.

However, there are now tiered fees for phase 2 reviews based on the greater of either the market values of the shares and assets being acquired, or the consideration received:

• $50 million or less – $475,000 fee;
• more than $50 million, but not more than $1 billion – $855,000 fee; and
• more than $1 billion – $1,595,000 fee.

Changes to the short form and long form. In both forms the instruments adds requirements to describe any vertical relationships or other overlaps between the parties, describe the main industries in which the parties supply relevant goods and services, provide any supply or other ancillary agreements that are conditional on the acquisition, and provide an organisation chart or diagram that shows the structure of ownership and control of the parties involved in the supply of relevant goods or services both before and after the acquisition. The forms also clarify that the requirement to provide contact details for competitors and customers apply to each party to the acquisition.

Changes to the long form. The requirements to provide details of the sales process undertaken in relation to the target and details of alternative proposals have been removed. The requirement to describe factors influencing entry into the market for the supply of the relevant goods or services now extends to descriptions of the importance of economies of scale and scope, and of network effects, for production or distribution. The timing of board documents required to be provided has also been updated to documents within two years (previously three years) before the date of notification.