Treasury consults on potential reforms to Australia's merger regime
21 November 2023
21 November 2023
Here is our initial take on the proposed reforms.
The Treasury's Merger Reform consultation paper, released on 20 November, proposes three options for reforming the current merger regime, rather than simply adopting the ACCC's proposals. The key features of these options are summarised below. Our table also includes a snapshot of the current regime (although the consultation paper does not explicitly treat the status quo as a realistic option).
Option 3 (ACCC's proposal)
Voluntary, with the option of informal clearance to the ACCC, merger authorisation (to the ACCC), or Federal Court application
Voluntary suspensory clearance:
Mandatory suspensory notification:
Mandatory formal clearance:
ACCC (for informal clearance and merger authorisation)
Australian Competition Tribunal (review of ACCC merger authorisation)
Federal Court – application for declaration or injunction under section 50
ACCC. If clearance is not granted by the ACCC and the parties do not voluntarily withdraw, the parties could seek a review by the Australian Competition Tribunal.
The ACCC would be required to commence proceedings in the Federal Court if the parties do not notify or decide to proceed.
ACCC. If 'clearance' is not granted by the ACCC and the parties do not voluntarily withdraw, the ACCC would need to commence Federal Court proceedings.
ACCC. If clearance is not granted by the ACCC and the parties do not voluntarily withdraw, the parties could seek a (limited merits) review by the Australian Competition Tribunal.
The role of the Federal Court appears to be limited to judicial review.
Informal clearance –Whether the merger is likely to SLC
Merger Authorisation – ACCC must be satisfied the merger is not likely to SLC or that it will result in a net public benefit
Federal Court – Whether the merger is likely to SLC
Must be satisfied the merger is not likely to SLC
Whether the merger is likely to SLC
Must be satisfied that the merger is not likely to SLC (or that it will result in a net public benefit)
Standard of proof before the court: The ACCC is required to prove that on the balance of probabilities the proposed merger is likely to substantially lessen competition under section 50.
The consultation paper also invites stakeholders to suggest alternative options or variations of the options.
The paper proposes the following options for the merger control test, largely reflecting the ACCC's proposals.
Modernise the list of matters that the ACCC may, and the Court must, consider when assessing the impact of mergers on competition (known as the ‘merger factors’ in section 50(3)). Alternatively, the test could be simplified by removing the merger factors from the legislation.
Possible changes include:
Existing prohibition against mergers that would have the effect, or be likely to have the effect, of SLC could be expanded to include mergers that ‘entrench, materially increase or materially extend a position of substantial market power'.
Related agreements between merger parties, such as non-compete agreements or agreements concerning supply of goods or services post-merger, could also be considered as part of the consideration of the effect of the merger on competition.
The three options for reforming the merger test could be implemented alone, together or with changes to the merger process.
The long-awaited opening of the consultation follows the ACCC's public advocacy over recent years about the need to reform Australia's merger laws. The consultation paper raises, as one of the reform options, the reforms previously propounded by the ACCC, but also considers additional options.
Currently, section 50 of the Competition and Consumer Act 2010 (Cth) prohibits the acquisition of shares or assets that would have, or be likely to have, the effect of substantially lessening competition (SLC) in a market. In assessing whether a merger is likely to SLC, the ACCC (or Tribunal or Federal Court) compares the likely future state of competition with the merger and without the merger. Australia operates a 'voluntary' system in the sense that there is no penalty for not notifying a merger to the ACCC, but the ACCC has extensive powers, including the ability to take enforcement action if it believes a merger may breach section 50, to prevent the merger from completing, seek penalties and a range of other orders. These act as a powerful incentive to engage with the regulator. Merger parties can obtain 'clearance' for a merger through an informal merger review, a merger authorisation process or through Federal Court proceedings. They also commonly engage with the ACCC as part of the process of obtaining approval from the Foreign Investment Review Board.
The consultation paper discusses many of the ACCC's concerns with the current system. These include:
The need for reform is not clear-cut, in our view, as there is a lack of comprehensive evidence demonstrating the link between Australia's merger control regime, industry concentration and market outcomes in Australia. The international evidence cited may not be directly applicable to the Australian context, given the differences in market structures, regulatory frameworks and institutional settings. The proposed options for reform have trade-offs and may have unintended consequences, such as imposing unnecessary costs and delays on merger parties and the ACCC, reducing incentives for innovation and investment, undermining the role of the courts and the rule of law, and creating uncertainty and complexity for businesses.
It is imperative that any changes to Australia's merger control regime follow careful and thorough analysis of alleged problems with the current regime, identification of the outcomes sought to be achieved, the effectiveness of the proposed policy response, and the costs and benefits of changes. Given the potentially far-reaching implications for Australia's economy, these are not changes that should be rushed.
We have previously discussed the key implications of the ACCC's proposed reforms (see client alert of 17 April 2023), which are now reflected in option 3 of the merger control process options and each of the merger control test options which are being considered by Treasury. If these reforms are enacted:
Options 1 and 2 would retain the current 'judicial enforcement' model relying on litigation to stop an anti-competitive merger if parties nevertheless decide to proceed.
Option 1 may be challenging for the ACCC, as it would have to grapple with two different tests. In the initial decision, the ACCC would have to be satisfied that the merger will not SLC, in order to approve it. This is akin to the test currently applied in merger authorisations. However, if the ACCC has to bring proceedings (eg if the parties decide to proceed with the merger anyway), the ACCC would need to prove that the merger is likely to SLC.
Option 2 appears closest to the current regime, except that it replaces the existing informal process with mandatory notification. A critical feature of this option would be the notification thresholds – these would need to be carefully calibrated to avoid an excessive number of notifications of transactions, including those that are competitively benign. Unlike for Options 1 and 3, merger parties would not obtain formal immunity from action under section 50 through this process.
It is not clear whether under these options an anti-competitive transaction could nonetheless be cleared on the basis that public benefits from the transaction exceed public detriments (such as the recent Brookfield/Origin and Armaguard/Prosegur transactions). The consultation paper seeks views on whether the existing merger authorisation process (which applies the public benefits test) should be retained but does not discuss how this process would interact with the options proposed.
Options 1 and 2 would have other implications such as potentially significant information burdens and delay to deal timing (depending on the length of the suspensory period).
Authors: Tihana Zuk, Partner; John McKellar, Counsel; Sofia Skobeleva, Lawyer.