Ahead of the Deal: The new ACCC merger regime

Tony Damian:

Hello, everyone. I’m Tony Damian.

Amelia Morgan:

And I'm Amelia Morgan. And welcome to this episode of Ahead of the Deal. Today we have our competition Partner Alyssa Phillips joining us. Welcome, Alyssa.

Alyssa Phillips:

Thanks so much. Great to be here.

Tony Damian:

Thank you for coming along. Alyssa, we've had two months or thereabouts of the new regime. You're at the coalface of it. How are you finding it? What's it like? Was it what you expected?

Alyssa Phillips:

I think we can summarise this by saying we have the dubious honour of having created the most complex merger regime in the whole world. It is still early days. We, like the rest of the market, are navigating how the regime works and importantly, how the ACCC is applying it. But I think there's a few things we can say already.

You both know that the effect of the regime is if you are a company with any material operations in Australia, you are now required to notify any acquisition of a business with revenue often as little as $2 million, plus a wide range of asset acquisitions, including land, property and legal or equitable interests that are not property, whatever that might be.

Because of the very broad scope and the low monetary thresholds, there's a real risk of
over capture in the regime and we're seeing that already. The ACCC had predicted that they would have about 335 phase one notifications a year and about 100 waiver notifications. We are only two months in, they've already had 83 phase ones and 40 waiver notifications. So this is having a massive impact on deals in Australia.

Amelia Morgan:

And Alyssa, we’ve learned to expect the unexpected with some of the last minute changes to the regime. What are some aspects that people might not be aware of, but which have an important bearing on transactions?

Alyssa Phillips:

That’s a good mantra for this regime, Amelia. It's hard to narrow it down. There's a lot, but I think three key tricks to be aware of:

One is the role of minority acquisitions. So, from the 1st of April, the regime is going to be broadened and it is going to pick up a change. It’s really focused on a change in voting rights, particularly around the 20% and 50% triggers. The effect of this is going to be, for example, if you have a 15% stake in a private company and you move to a 25% interest, you're going to have to notify that even if there's no control rights.

A second point to note, sort of the converse of that, when you are dealing with asset acquisitions, there are no control right thresholds. So even something like a 5% stake can trigger a filing if the monetary thresholds are met.

And the third thing we're finding, and that is catching people out, is the application of the regime to overseas transactions. So if you are doing a deal overseas that's valued above $250 million, the target doesn't need to have any material operations here, and you can still find yourself with a filing.

Amelia Morgan:

Lots of complexity to navigate.

Alyssa Phillips:

Certainly is.

Amelia Morgan:

One interesting aspect of the regime is where a transaction needs clearance, but you don't get approval, the transaction’s actually void, which seems a really harsh consequence. What's the best approach to this and how are you seeing things on that issue?

Alyssa Phillips:

Yes, this is a really unfortunate aspect of the regime. And honestly, it's driving quite conservative interpretations because the consequence of getting it wrong is so significant. Thankfully, the government has acknowledged that. Treasury has said they are going to make some changes to the law. It has to go back to Parliament to do that. That will address this in some way. Unfortunately, they haven't told us what that looks like.

I think a good outcome would be changing from an automatic voiding mechanism to a voidable concept with a retrospective application back to the start of the regime. So let's cross our fingers for something like that.

Tony Damian:

Alyssa, we've obviously had lots of changes already. Some unexpected. Some coming down the pipe. Is there anything else we should expect when you stare into your crystal ball in terms of predictions for twists and turns throughout the rest of this year on the ACCC front?

Alyssa Phillips:

Yes, we are going to see some changes. So, as I mentioned already, from the 1st of April there will be a broadening of the regime to capture more minority acquisitions and changes in voting stakes. There's also a lowering of some of the asset acquisition thresholds that kicks in at that date.

Looking a little bit further out, there will be a review of the filing fees 12 months into the regime. That's possibly good news because the filing fees are significant. They range from $56,800 for a phase one, right up to nearly $2 million for what we call a phase three public benefit review. When you are looking at the size of some of these deals that are being captured by the regime, it is having an impact on the cost of getting deals through. So, hopefully now they realise the number of filings they're seeing, we might see a reduction in some of the filing fees.

Tony Damian:

Well, fingers crossed. And in terms of the ACCC, they've hired a lot of people. Are they handling this increased workload? Is it too early to tell? How do you see that going?

Alyssa Phillips:

Yes, the word on the street is the ACCC may have hired up to 100 people. So it's a very good time to be a competition lawyer or an economist, not so great for our clients, obviously grappling with the regime.

But, it is a bit early to say. I think, we are seeing some positive signs. So, the ACCC is processing waiver applications, in particular, quite promptly sitting around that ten business days, which is good news. Having said that, they have already put two transactions into phase two, including the acquisition of the greenfield site for a new supermarket, which we would never have seen under the old regime. So if that is a sign of things to come as more deals go into phase two, that is going to soak up a lot of resources at the ACCC and we may well see timelines slowing down.

One positive we are seeing is the commission does still seem to be quite open to receiving questions around how it's approaching issues, and it is regularly updating its FAQs to keep the market informed about developments. So, hopefully that continues.

Amelia Morgan:

And finally Alyssa, if you could wave your magic wand and change one thing about the regime, maybe there'd be a few things, but what would that one thing be?

Alyssa Phillips:

Yes, that is very difficult to choose only one. It would have to be the automatic voiding provision just because it has such a significant consequence. If we assume that Treasury is going to deal with that in some way, I think the next thing would be this concept of the regime applying to the acquisition of other legal or equitable rights that are not property. It's very difficult to know what that means and we are finding ourselves looking at a wide range of contracts and agreements, as well as, sort of, interests in land and trying to figure out if the regime applies or not.

We are seeing some divergence in the market in how that is being interpreted, and also how the ordinary course of business exception is being interpreted, which has a big role to play when we're looking at those other rights. So it seems unnecessarily complicated and it's wasting a lot of time for companies today.

Tony Damian:

Well, interesting times at the ACCC and interesting times with the new merger regime.

Amelia Morgan:

So that's it for this episode, until next time...

Tony Damian:

Stay Ahead of the Deal.