News and developments
SUBMISSION ON AUSTRALIA’S MERGER RULES AND PROCESSES
Our partners have significant experience in regulation from a private sector as well as Government perspective in Australia, as well as experience in international regulatory regimes from senior roles in International Bar Association committees and other international fora.
Thank you for the opportunity to make a submission to Treasury in a highly important area of Australian commerce. This submission focuses on the proposed areas of change to Australian merger control processes as well as the substantive merger control test in section 50 of the Competition and Consumer Act 2010 (Cth) (CCA), having regard to Treasury’s discussion paper and the public submissions to Treasury from the Australian Competition and Consumer Commission (ACCC).
A. OVERVIEW
Footnotes [1] ACCC Media Release. [2] Available here: OECD Discussion Paper. [3] The shortage of Adblue (an essential additive to diesel fuel) in Australia during the recent COVID pandemic is an example that highlights Australia’s supply-chain issues. [4] ACCC Media Release Petstock/Woolworths [5] ACCC statement on informal merger review register. [6] Media article outlining ACCC opposition to Fitbit acquisition. [7] Qantas Airways Limited [2004] ACompT 9 at paragraph 199 onwards. [8] FTC Media Release. The previous threshold was US$111.4 million.
- Key points
- ) Merger reforms should not be looked at in isolation from other competition reforms: the proposed merger process and merger test changes are unlikely to be the panacea that is suggested, with more direct regulatory intervention under mandatory codes in different sectors, such as the digital platform or grocery sectors likely to provide better outcomes.
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- Providing certainty of application of merger laws (i.e. that the process and law is clear). There are aspects of what the ACCC has proposed that raise questions of certainty of application such as the “call in” power and the vague concepts of “entrenching a dominant market position”. While these concepts are used under European law, it is an open question whether they are not problematic because of uncertainty and that uncertainty in turn leads to unnecessary litigation.
- Predictability of outcomes based on similar facts and scenarios. Important ACCC merger decisions should be published so that they provide guidance to business and their advisers prompting compliance with the law and an understanding of the ACCC’s approach in particular factual positions.
- Transparency of process so that merger parties and the public have confidence in the process. If merger parties will obtain a clearance and immunity from challenge to their merger, the proposed new law will require public filings and a process to review and challenge decisions. The merger authorisation process is highly public because it immunises a transaction from third party challenge but creates lengthy time periods far exceeding the 90 day statutory period.
- Accountability in terms of robust, public decisions that can be challenged in the courts if considered to be incorrect by merger parties and people affected by the merger in a genuine manner. This will mean that the ACCC will need to publish fulsome decisions as it does in merger authorisations.
- Commercial timeliness. Processes, review periods and appeal processes should be conducted in a commercially timely manner so that a merger subject to review is not as a practical matter stymied through the effluxion of time and bureaucratic processes. As a practical matter the Government needs to understand the considerable cost for merger parties in making merger filings and the time involved in getting the forms right. From our own past experience, merger filings in Europe cost well over €100,000 to prepare and, typically, over a month is taken in consultation with the European Commission in “pre-filing” discussions.
- Merger control needs to be fit for the Australian context and economy.
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- Australia is a democracy and, as with the United States, has generally adopted a political position which is mindful of government and bureaucratic intervention in the operation of free markets and the rights of its citizens.
- The US merger control regime is a mandatory merger notification regime based on turnover or deal size with a filing fee and merger suspensory waiting periods that requires US antitrust agencies to allow the waiting period to expire or litigate by going to court to oppose a merger based on a merger test and concepts that are broadly consistent with those in the CCA rather than merger control regimes in Europe. This means that care needs to be taken in moving from well understood concepts under Australian law to the adoption of European rules, which do not form the basis of the existing merger test in the CCA, as discussed in further detail below.
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- As already mentioned, a mandatory threshold level will be required and setting the right threshold to deal with national mergers, but also potentially those that affect regional and rural Australia, will not be easy. Equally, mandatory merger notification thresholds in other jurisdictions are often based on deal value or turnover of one or more merger parties. Moving away from focusing on overlapping market positions/market shares to a turnover test as an initial filter will likely broaden the number of mergers the subject of review by the ACCC, without any corresponding evidence that high turnover of itself creates a competition issue. The ACCC has also indicated it wishes to have a call-in power for mergers that it views as contentious that fall below the mandatory threshold. While these call in powers exist in the United States and Europe, the growing use of these powers by the European Commission (and the UK’s Competition & Markets Authority) is creating unease because it undermines the certainty sought to be provided by merger turnover thresholds as a basis for merger notifications, which should act to provide certainty to parties in knowing whether a transaction is subject to regulatory review and the resulting impact that this will have on merger timelines.
- With a mandatory merger notification threshold there will inevitably be requirements for mergers to be assessed within set timeframes. Mandatory merger regimes are also suspensory, meaning a notified merger cannot be implemented during the statutory assessment period. This usually creates issues for regulators who then build in considerable pre-merger notification assessment thresholds and consultations to give themselves more time to analyse a transaction. In Europe for example, the merger notification process typically involves numerous drafts being provided to the regulator before the required “Form CO” is accepted, and antitrust lawyers in the United States have suggested the recently proposed changes to the HSR Form discussed above will add months to the pre-filing process, not the 100 hours that have been suggested by regulators. It is already that case that complex merger authorisations under the current merger regime process in Australia quite often take considerably longer than one month and, even with a short assessment time frame in new legislation, it would be expected that assessment time frames in a practical sense, will increase.
- It is inevitable that mandatory merger notification requirements will also see the imposition of a merger filing fee, with other jurisdictions imposing such fees based on transaction size in monetary terms, not necessarily the level of competition complexity.
- If the ACCC does oppose a merger, appeals appear likely to be to the Tribunal. Under the current process for authorisations, merger parties appealing to the Tribunal are largely restricted to the evidence that was originally before the ACCC. If this is also to apply under the proposed new regime, it will mean that the costs of merger filings and evidence as well as supporting submissions for the more complex mergers will need to be very substantial, adding cost and review time for both merger parties and the ACCC. To address this issue and the cost and time issues in general that arise from the proposals, the ACCC has proposed a waiver mechanism for non-contentious mergers, where the merger parties can seek confirmation in advance that the merger does not require an extended review. However, such waivers will likely need to be non-binding so as not to affect third party rights when a matter has not been publicly tested and reviewed.
- A look at some of the cases cited by the ACCC as warranting the push for merger reform
- Reflections on these merger issues and the informal merger clearance process as put in place in 2003 by former ACCC Chair Graeme Samuel
- Changes to the merger control process
Footnotes [1] ACCC Media Release. [2] Available here: OECD Discussion Paper. [3] The shortage of Adblue (an essential additive to diesel fuel) in Australia during the recent COVID pandemic is an example that highlights Australia’s supply-chain issues. [4] ACCC Media Release Petstock/Woolworths [5] ACCC statement on informal merger review register. [6] Media article outlining ACCC opposition to Fitbit acquisition. [7] Qantas Airways Limited [2004] ACompT 9 at paragraph 199 onwards. [8] FTC Media Release. The previous threshold was US$111.4 million.