What’s happened?
Today, on 10 April 2024, the Government has released its proposed reforms for merger control in Australia, following the ACCC’s year-long lobbying for reforms ( as we analysed here ) and the release of the Treasury Competition Taskforce’s consultation paper setting out potential options to reform Australia’s merger control regime on 20 November 2023 ( as we reported on here).
The Treasury published a paper titled ‘ Merger Reform: A Faster, Stronger and Simpler System for a More Competitive Economy ’ and Treasurer Jim Chalmers announced the reforms at the annual Bannerman competition lecture, noting he anticipates the reforms will make the regime “faster, stronger and simpler, more targeted and more transparent ” and “a central and more defining feature of our economy ”. The ACCC has “welcomed” the Government’s announcement .
Exposure draft legislation is slated to follow later in the year. It is proposed that the new merger control process will be in place and apply from 1 January 2026 .
Key aspects of the Government’s merger reforms are:
Mandatory notification regime and prohibition on mergers above a threshold cannot proceed without approval: As expected and perhaps the least surprising or controversial legal development, the reforms convert Australia’s merger process from a voluntary regime to a mandatory and suspensory process. Merger parties will be prevented from completing a transaction unless they have notified the ACCC and the deal has been cleared. To address ACCC concerns regarding creeping acquisitions, all mergers within the previous three years by the acquirer or the target will be aggregated for the purposes of assessing whether a merger meets the notification thresholds.
Decision maker and timeframes: The ACCC will be the first instance, administrative decision maker. If the ACCC does not raise competition concerns or does not make a decision within 30 working days, the merger will be permitted to proceed, with the option of ‘fast-track’ determination if no concerns are identified after 15 working days. Where competition concerns are raised, the ACCC will undertake an in-depth “Phase II” assessment to be completed within a 4-and-a-half-month period.
Clearance as an administrative decision and removal of the Federal Court: Critically, Treasury intends for the process to have a greater focus on economic analysis and consideration of market structure, with less emphasis on evidentiary issues. A merger may proceed unless the ACCC “reasonably believes” it would have the effect or likely effect of substantially lessening competition (SLC ). Parties will no longer have any ability to challenge the merits of an ACCC decision before the Federal Court. Instead, parties will be entitled to apply for limited merits review before the Competition Tribunal. This will restrict parties to a review that is substantially “on the papers” limited to the material that had been put before the ACCC.
Transparency: Treasury has indicated that the ACCC will be required to publish reasons for its decisions, together with any findings of fact. The ACCC does not look likely to be required to disclose the underlying evidence or data on which its decisions were based, or to expose this material to challenge. In that sense, the process appears to provide incrementally more transparency than the current informal clearance process, but significantly less than currently exists before the Federal Court or in the Competition Tribunal.
Merger notification thresholds: The thresholds are still to be developed but will involve both monetary values (e.g. revenue and turnover) as well as market share measures. The thresholds will be set with an objective that the ACCC will continue to assess approximately ~300 mergers each year, consistent with the current process.
Role of market power and other structural factors in the competition test and merger factors: The competition test would be expanded to expressly include consideration of “market position”, that is, a business’ economic and financial power, and whether a merger is likely to strengthen or entrench a position of substantial market power. This is consistent with a general move under the reforms towards emphasis on market structure in the analysis of mergers. The merger factors would also be expanded to include a number of structural considerations.
Mandatory and suspensory regime with up-front information process
Under the proposed changes, merger parties must notify the ACCC if a transaction meets certain thresholds. Details are still to be developed, but considerations include:
Monetary and concentration thresholds: the new system will introduce notification thresholds which will be based on both monetary metrics (such as turnover and transaction value) and market concentration metrics (such as share of supply, or market share).
Aggregated shares of three years: to respond to concerns regarding creeping acquisitions, all mergers undertaken by either party within the previous three years will be aggregated for the purposes of assessing whether a merger meets the notification thresholds.
Dynamic threshold changes: a Treasury Minister will be given the power to introduce additional targeted notification obligations in response to evidence-based concerns regarding certain high-risk mergers. The merger notification thresholds will be subject to periodic review.
Threshold consultations: the ACCC will provide guidance to parties as to whether their combined market shares would trigger a relevant threshold.
Penalties will apply for failing to notify the ACCC of a notifiable merger.
The Treasury paper proposed calibrated up-front information requirements commensurate to the competition risk of a transaction, with parties being required to submit a ‘simple’ short notification form for ‘unproblematic’ mergers, while other may require more detailed information requirements. The ACCC will consult on these formal requirements in 2025.
Once notified, a merger must not proceed until the ACCC has completed its review or the statutory period for Phase I or II review has passed and no decision has been made. Any contract, arrangement or understanding related to the merger, which purports to be put into effect otherwise than in accordance with the ACCC’s determination, or the time period has otherwise elapsed, will be void.
Merger parties can continue to voluntarily notify the ACCC of mergers below the threshold, and such mergers would be subject to the same administrative system as above-the-threshold mergers. However, the ACCC will not have the ability to ‘call-in’ mergers below the thresholds that are not notified.
Amendments to the relevant competition test
Under the current regime, the ACCC must apply to the Federal Court to block a merger and prove that the transaction would have the effect or likely effect of SLC.
Under the proposed regime the ACCC must allow a merger to proceed unless the ACCC reasonably believes that the merger would have the effect or likely effect of SLC. This is a variant of the ‘satisfaction’ test which had been proposed by the ACCC and which was criticised by many business groups as introducing significantly greater discretion for the ACCC. Certainly, the intention remains to lessen the need for the ACCC to establish future competitive harm with admissible evidence.
The proposals do not accept an original ACCC proposal to reverse the current legal onus. In effect, the ACCC had sought to establish a presumption that required merger parties to bear the burden of proving their deals were not anticompetitive. Stakeholders objected to this on that basis that it would effectively introduce a presumptive ‘ban’ on mergers.
The SLC test itself looks likely to be modified to include an express reference to considering whether a transaction “strengthens or entrenches a position of substantial market power ”. This reflects a shift towards a more structural approach.
The operation of the test will also be altered by changes to the current ‘merger factors’ in section 50(3) of the CCA. While the new merger factors have not been provided, the Treasury paper notes the ACCC will, in making its decision, be required to consider:
the need to maintain and develop effective competition within markets in light of the structure of all relevant markets under review, and the conditions for competition; and
the market position of the businesses concerned, and their economic and financial power, including factors such as substitutes, barriers to entry and the development of technological developments.
The changes will also confirm that the ACCC can have regard to any related commercial agreements that are associated with a transaction, when assessing its likely competitive effects.
Treasury also proposes to impose a fee for all merger notifications and expects this to be around $50,000-100,000 for most mergers. An exemption from fees will be available for small business so that the fees are not a disproportionate burden for those businesses. Treasury will consult on these fees in 2024.
Proposed time frames
Treasury has provided the following indicative timeline for the ACCC merger review process, which will be subject to consultation in 2024.
ACCC as the first instance decision maker and review of the ACCC determination
The ACCC will be the first instance administrative decision maker. As discussed above, the ACCC must clear a transaction unless it reasonably believes that the merger would have the effect or likely effect of SLC.
Some limited information about mergers considered by the ACCC will be published on a public register. The Treasury’s proposal states that ACCC will set out any findings on material facts, with reference to the evidence or other material on which those findings were based, and the reasons for all decisions commensurate with the substantive review undertaken.
The ACCC does not appear to be required to publish the evidence or data itself or expose this material to testing by stakeholders. In that sense, the proposal is an incremental improvement on the very limited transparency offered in the current informal process but falls considerably short of the level of transparency parties enjoy before the Federal Court or the Tribunal.
Merger parties or third parties (subject to having standing) may apply for limited merits review of ACCC determinations by the Tribunal and may apply for judicial review of the Tribunal’s decision (but not the ACCC’s determination) in the Federal Court. During limited merits review, the Tribunal may make a determination affirming, setting aside or varying the ACCC’s determination and, for the purposes of the review, may perform all the functions and exercise all the powers of the ACCC.
The Tribunal’s review will be limited to the material before the ACCC. While the Tribunal may seek “clarifying information”, this is limited and reviews will generally be conducted “on the papers”. There will not be scope for parties to cross examine or lead new or additional material that challenges or tests ACCC findings or evidence, even where that evidence was not made available to merger parties or other stakeholders during the process.
Alternatively, a fast-track review by the Tribunal may be sought, based only on the material before the ACCC. In these circumstances, the Tribunal would be bound by the findings of fact made by the ACCC.
Next steps
Treasury will consult on the following later this year with exposure draft legislation to implement the reforms expected toward the end of 2024.
In parallel, the ACCC will consult on a range of issues raised by the changes including merger notification thresholds, procedural safeguards, specific fees and exemptions. In 2025, the ACCC will consult on the form of notification.