On 20 November 2023, the Treasury’s Competition Taskforce released its consultation paper setting out potential options to reform Australia’s merger control regime (Consultation Paper) as part of its two-year Competition Review and has asked for submissions by 19 January 2024 .
The establishment of the Competition Taskforce in August 2023 and the release of this Consultation Paper follows the ACCC’s submission to the Government in March 2023 recommending that Australia needs to shift to a mandatory and suspensory notification regime, as well as changes to the current merger review and appeals processes and substantive changes to the merger control test. We’ve previously analysed the ACCC’s proposals in depth and explained our view on why the ACCC hasn’t made the case for merger shake-up .
Importantly, the Consultation Paper is seeking views on a much broader basis than the ACCC’s recommendations. In this alert, we distil the various options and issues raised by the Competition Taskforce for consultation to assist you in considering how they may impact your M&A activities. We will follow up with a deeper dive into some of the key elements in due course.
What are the options being considered by Treasury?
Australia’s current merger control regime is a voluntary “judicial enforcement” model. Although it is voluntary for parties to notify a transaction, if the ACCC has competition concerns with a transaction it may commence court action to stop the parties from proceeding or other remedies (e.g., divestitures). If a Foreign Investment Review Board approval is sought, then ACCC engagement is practically mandatory if the merger parties operate in the same industry. The ACCC has guidance as to the types of transactions that should be voluntarily notified and parties have the option to seek “informal clearance” from the ACCC (i.e., a letter of comfort from the ACCC that it will not take further action). Merger parties can also seek formal merger authorisation from the ACCC, which is a statutory process under which parties can obtain legal protection from court action. It is common practice in Australia for parties to voluntarily notify the ACCC to seek either informal clearance (or less commonly, merger authorisation) to obtain some commercial certainty that the ACCC will not interfere with a proposed transaction.
The Consultation Paper presents three ‘options’ for re-designing Australia’s merger control regime, although it states that it remains open to hearing other views or variations to these options as part of its consultation. The three options can be distilled into the following:
Out of the options canvassed in the Consultation Paper, the ACCC’s proposed shift to an administrative model (Option 3) would be the most radical departure from the current regime. The table below summarises the key features of the current regime vs. the three options proposed by the ACCC.
| Current regime | Voluntary formal clearance regime (Option 1) | Mandatory suspensory regime (Option 2) | Administrative model (Option 3) | |
|---|---|---|---|---|
| Notification | Voluntary | Voluntary | Mandatory | Mandatory |
| Suspensory? | No | Yes, for notified transactions | Yes | Yes |
| Test applied | Is the merger likely to SLC If seeking merger authorisation: Must be satisfied the merger is not likely to SLC or net public benefit | Is the merger likely to SLC For notified transactions: Must be satisfied the merger is not likely to SLC or net public benefit | Is the merger likely to SLC Note: Treasury seeking views on whether merger authorisation process should still apply | Must be satisfied the merger is not likely to SLC or net public benefit |
| Primary decision-maker | Federal Court (ACCC prosecutes case if concerned merger likely to SLC and parties decide to proceed) If seeking merger authorisation: ACCC subject to Tribunal review | ACCC (for notified transactions) subject to review by the Competition Tribunal) Federal Court (ACCC prosecutes case if concerned merger likely to SLC and parties decide to proceed) | Federal Court (ACCC prosecutes case if concerned merger likely to SLC and parties decide to proceed) | ACCC (subject to merits review by the Competition Tribunal or judicial review by the Federal Court) |
Current regime
Voluntary formal clearance regime (Option 1)
Mandatory suspensory regime (Option 2)
Administrative model (Option 3)
Notification
Voluntary
Mandatory
Suspensory?
No
Yes, for notified transactions
Yes
Test applied
Is the merger likely to SLC
If seeking merger authorisation: Must be satisfied the merger is not likely to SLC or net public benefit
For notified transactions: Must be satisfied the merger is not likely to SLC or net public benefit
Note: Treasury seeking views on whether merger authorisation process should still apply
Must be satisfied the merger is not likely to SLC or net public benefit
Primary decision-maker
Federal Court (ACCC prosecutes case if concerned merger likely to SLC and parties decide to proceed)
If seeking merger authorisation: ACCC subject to Tribunal review
ACCC (for notified transactions) subject to review by the Competition Tribunal)
ACCC (subject to merits review by the Competition Tribunal or judicial review by the Federal Court)
Why does Treasury think there’s a need to consider merger reform?
In this Consultation Paper, Treasury repeats its concerns regarding Australia’s declining productivity, increasing market concentration and significant price mark-ups across the economy, trends that suggest a weakening of competition here over the last 20-25 years. Treasury has cited recent papers linking increasing market power and changing technology to a slowdown in productivity [ link ], as well as OECD findings of increasing evidence tying excessive concentration to poor economic outcomes [ ].
The ACCC argues that part of this problem is due to the weakness of Australia’s current merger control regime. According to the ACCC, the current enforcement model is ‘skewed towards clearance’ when potential anti-competitive effects of a merger are unclear and the current voluntary notification system is ineffective because parties are failing to notify, threatening to complete prior to receiving a decision, or providing insufficient or inaccurate information to the ACCC.
The Treasury acknowledges there’s a lack of comprehensive statistical evidence demonstrating the correlation between merger control regime, industry concentration and market outcomes in Australia. However, the Consultation Paper states that the international evidence on these issues is growing including retrospective econometric studies and, ‘on balance’, they point to a large proportion of mergers resulting in anti-competitive effects, while other evaluation studies found little or no evidence of efficiency gains by newly formed firms. On this basis, Treasury considers that the evidence ‘suggests’ that too many anti-competitive mergers have been allowed to proceed in these jurisdictions and “merger enforcement has been too lax over the past 25 years ”. Although none of the cited papers focus on Australia, the Consultation Paper considers they are relevant to considering the effectiveness of Australia’s merger control regime in promoting competition that enhances the welfare of Australians.
Notably, Treasury does not consider the economic impact that some of the modifications being proposed would have on investment and innovation.
Treasury also notes that Australia isn’t alone in considering merger reforms and is grappling with similar issues to other OECD countries, such as concentrated markets, industries with one or more entrenched or dominant firms, serial or creeping acquisitions, acquisitions by digital platforms, common ownership of minority interests in competing firms and interlocking directorship.
Specific elements of merger control
The Consultation Paper is seeking views on several elements of any re-design of Australia’s merger control regime, including the following key ones. We’ve previously considered most of these elements in our analysis of the ACCC’s merger reform proposals .
Procedural elements
Decision-making
Merger test
Other issues
Other issues being considered by the Treasury as part of this consultation are:
Next steps
Treasury has asked for submissions to be provided by 19 January 2024 and we understand the Competition Taskforce will be providing advice to the Treasurer in late January or early February 2024 on the various options.
G+T will be closely monitoring this area and will keep you updated of any developments the Competition Taskforce’s merger reform consultation process.