The ACCC's recommended merger reforms: A deeper dive

Key takeaways:

The ACCC's recommended reforms have several significant implications for merging parties:

• Regulatory conditions precedent will be required, on introduction of mandatory and suspensory ACCC notification : Above thresholds or on call-in, a merger would be required to be notified and could not be completed until ACCC approval received. At the same time, a mandatory, suspensory regime could potentially offer a more certain and efficient review process, if regime parameters are set appropriately. 

• Higher process and evidentiary burden on merging parties : The proposed upfront information requirements and a reverse onus of proof could make the clearance process significantly more burdensome on merging parties. Longer lead time prior to ACCC notification will be required to prepare the filing.

• Restrictions on the review avenues and process available will make challenges to the ACCC’s decisions more onerous : Under the proposed regime, if the ACCC does not approve a proposed transaction, then parties may appeal to the Australian Competition Tribunal. Recently disclosed ACCC comments suggest this would be a merits review, with a narrower appeal right to the Full Federal Court on judicial review grounds only. Alternatively, parties will continue to be able to apply to the Federal Court for a declaration that the proposed transaction is not unlawful. Merging parties will in all cases bear the onus of proving that the transaction is unlikely to substantially lessen competition before they are able to complete it. Whether the proposed review processes will serve as a sufficient check on ACCC decision-making will depend on the detail of the review rights.

In a speech to the National Press Club on 12 April 2023, ACCC Chair Gina Cass-Gottlieb affirmed her support for significant reforms to Australia’s current merger control regime under the Competition and Consumer Act 2010 (Cth) (CCA), observing and concluding that “changes are needed” to Australia’s current merger control regime.

Any revamp to Australia’s merger control laws must be implemented through legislative change. There is evidence of strong support by the Australian Government.In this article, we provide an in-depth review of what is known about the ACCC’s proposed reforms so far, analysing what the proposals might look like and the potential implications for businesses.

Mandatory and suspensory notification

Mandatory notification and suspension of transactions above certain thresholds would likely mean many more mergers will be notified to the ACCC

Currently, Australian merger control laws prohibit acquisitions that have the effect or likely effect of substantially lessening competition (SLC) under section 50 of the CCA. There is no legislative requirement to notify, but the ACCC can apply to obtain an injunction from the Federal Court to prevent an acquisition that would breach the prohibition, in addition to other remedies. To manage transaction execution risk, there is a well-developed practice of voluntarily notifying certain transactions to the ACCC, to obtain comfort, or at least an advance view, on whether the ACCC would oppose the transaction and seek to block it in Court. The ACCC therefore ‘encourages’ notification where the parties supply substitutable and/or complementary products, and combined would have a share of 20% or more in any relevant market. The ACCC has the ability to initiate reviews of transactions even if they are not notified to assess any likely breach. 

The ACCC is proposing a new formal merger notification and assessment process, under which:

• transactions over prescribed thresholds would require ACCC notification;

• transactions that fall below these thresholds but still “raise competition concerns” would be subject to a “call-in” power; and

• merging parties would not be allowed to complete the transaction before the ACCC’s competition assessment has concluded.

In a recent interview, an ACCC spokesperson indicated that the proposal to Treasury contains two potential thresholds for determining whether a merger meets the threshold for review, being a combined turnover threshold of A$400 million or a global transaction value threshold of A$35 million. According to the ACCC spokesperson, these potential threshold metrics were informed by the ACCC’s analysis of previous transactions that raised questions worthy of public consultation.

The ACCC has also proposed:

• A notification waiver , which parties could seek if they have a non-contentious merger that is nevertheless above the thresholds. This would allow the merger to be assessed in a streamlined manner that reduces unnecessary costs and delay, similar to the ACCC’s current pre-assessment process. For inspiration, the ACCC may look to the European Commission’s (EC ) recently introduced 'Short Form CO', where parties can use a straightforward multiple-choice questionnaire to notify transactions with limited horizontal overlaps or vertical relationships. Clearance decisions are made within 25 working days (see Table 1 for details).

• A “call-in” power for mergers falling below the thresholds that “nonetheless raise competition concerns”. The call-in power would allow the ACCC to intervene to assess the merger.

A mandatory and suspensory regime could offer a more certain and efficient process, if the regime’s details are set appropriately.

A mandatory, suspensory merger system would align Australia with various other key jurisdictions (see Table 1), as well as address some concerns with the ACCC’s informal process. Under Australia’s informal process, the ACCC is not subject to fixed deadlines, and it is not required to publish its reasoning. A formal regime could introduce statutory timelines, mandate detailed published reasons, and increase transparency regarding third-party information provided to the ACCC.

To ensure that timing certainty is improved, it would be important to have statutorily fixed timeframes (eg.an initial timeframe of 90 days, with extension/s by consent of no more than an additional 60 days). Timing certainty and regime efficiency would also be enhanced if the new regime deemed approval to have been granted if the ACCC did not reach a decision during the statutory timeframe as extended by consent. Together with the notification waiver, this would limit the risk of uncertainty and increased transaction costs that could otherwise arise for many merging parties needing to submit “technical filings” (ie., filings that meet the notification threshold despite not posing competition concerns).

The call-in power would incentivise merging parties to voluntarily notify the ACCC, in order to avoid a surprise “call-in”. However, it could also introduce more uncertainty for parties if the transaction would be suspended until the ACCC completed its review. Further, the certainty of a mandatory, suspensory regime could be undermined if the ACCC did not provide clear guidelines as to when the call-in power would be used.

The notification thresholds could also result in uncertainty if they are not carefully defined and set at appropriate levels. The International Competition Network’s Recommended Practices for Merger Notification and Review Procedures suggests basing merger notification thresholds on objectively quantifiable criteria (eg. assets, sales and turnover, rather than market share and potential transaction-related effects). As noted above, we understand the ACCC’s proposal currently suggests two potential limbs to trigger notification based on parties’ turnover and size of transaction, but it is possible the ACCC may also be proposing a qualitative threshold.   

The below table summarises merger assessment processes in comparable jurisdictions. It shows:

• Mandatory notification would bring Australia closer to the EU and the US regimes, in contrast to the UK’s voluntary process.

• A suspensory process would reflect the approach that exists in the EU, the US and, practically, also in the UK.

• All the compared jurisdictions have a streamlined process option, highlighting the importance of this option in any new regime in Australia also.

• There is notable variety between jurisdictions on their approach to a power analogous to the ACCC’s “call-in” proposal. This illustrates that any such power would need to be structured carefully, in a way that complements the rest of the regime, as well as Australia’s particular economic characteristics. 

Feature

Australia - current

Australia - proposed

United States

European Union

United Kingdom

Mandatory notification?

No, however the ACCC encourages parties to notify where:

• the parties’ products are substitutes or complements; and

• the merged firm will have a market share of 20%.

Yes, if the merger meets "specified thresholds”.

We understand the ACCC’s proposal to the Treasury contains two potential metrics for determining whether a merger meets the threshold for review, being a turnover threshold of $400 million or a global transaction value threshold of $35 million.
 

Yes, if a transaction meets the minimum value and size of parties thresholds, adjusted annually.

Yes, if a transaction results in a change in control and has an EU dimension, ie.:

• where parties’ combined global turnover is over 5b and at least two parties with an EU turnover over 250m; or

• parties have a combined global turnover over 250m, a combined turnover over 100m in each of at least three Member States, two parties with turnover over 25m in those three Member States and EU-wide turnover over 100m.

No, however the CMA can investigate a merger (and therefore parties typically notify) if the following are met:

• target’s UK turnover exceeds 70m, or;

• the merging firms would jointly have at least 25% share of supply in the supply or acquisition of goods/services (which is interpreted widely).

The UK Digital Markets, Competition and Consumers Bill introduced to Parliament will further expand these thresholds.

Suspensory?

No.

Yes. The ACCC has not yet indicated any proposed statutory timeframe for its decision.

Suspensory “waiting period” of 30 days after filing unless the parties pull and refile, or the reviewing agency (DOJ or FTC) issues a “second request” for additional information. Upon the parties’ substantial compliance with the second request, a second 30 day waiting period commences. If the DOJ or FTC does not initiate proceedings by the end of that second period, the deal can complete. 

Yes. A merger cannot complete until it has been cleared. Phase 1 review period is 25 working days (or 35 if the parties offer remedies). Phase 2 review period is 90 working days which can be extended by up to 20 working days. 

No, however, the CMA can impose an interim ‘hold separate’ order prohibiting integration of a completed merger to prevent any action that would prejudice the CMA's ability to investigate the merger or remedy competition concerns

Streamlined process available for simple cases?

Yes. under the current pre-assessment process.

Yes, under the proposed ‘notification waiver’.

Yes, under the ‘early termination’ process’, where parties can apply for a shortened decision 15 day period if the merger is unlikely to harm competition. If the transaction qualifies for ‘early termination’ the parties can complete after 15 days.

Yes, for transactions that raise limited horizontal overlaps or vertical relationships, parties can use the ‘Short Form CO’ process which requires limited information. Phase 1 decisions are typically made before the 25 working day deadline. A new Short Form CO template will come into effect on 1 September 2023 where parties can notify the EC using a multiple-choice questionnaire.

Yes. Given the CMA’s merger regime is voluntary, a notification is not mandatory even if the jurisdictional thresholds are met. It is possible for parties to submit a short ‘briefing paper’ to obtain informal comfort from the CMA in no-issues cases. 

Call-in power?

No.

Yes.

The FTC and DOJ may issue ‘civil investigative demands’ to obtain documents and information necessary to review transactions falling below the notification threshold. Parties subject to a civil investigative demand are not prevented from completing the transaction.  

Yes - most significantly, a Member State may request the EC to review a transaction (not meeting EU or national merger control thresholds) that affects trade between Member States; and threatens to significantly affect competition (established on a prima facie basis). In March 2021, the EC issued guidance to Member States encouraging them to refer transactions, particularly targeting the so-called ‘killer acquisitions’.

Yes. To the extent the CMA has jurisdiction, the CMA can call in transactions that are not voluntarily notified. 

Higher process and evidentiary burden on merging parties

The ACCC’s proposed changes to its initial clearance process include both:

• Proposals that could make the process and substantive execution risk more burdensome on parties - such as the upfront information requirements and reversed onus of proof; and

• Proposals that, as they stand, would be less likely to have a substantial impact - such as the expansion of both the legislative prohibition, and the s 50 decision-making criteria.

Upfront information requirements

The ACCC has remarked that merging parties often provide the ACCC with late, incomplete or incorrect information, which impedes its ability to efficiently conduct its review within the parties’ desired transaction timing (for detail see G+T insight on the Chair’s 2022 ICN speech). To remedy this, the ACCC proposes a mandatory upfront information requirement. The ACCC has not yet specified what the minimum upfront requirements would be.

A great advantage of the current process is the ability to flexibly tailor the amount of information provided to the ACCC upfront, depending on the issues anticipated, and then supplementing the information depending on feedback from the ACCC and the market, which may not be able to be anticipated. This allows the ACCC to target its review to the most likely areas of concern, ensuring a more efficient process, rather than a “kitchen sink” approach whereby parties have to provide all information upfront on every potential issue, which risks drowning the ACCC in irrelevant information and makes for a very costly process for the parties.

Upfront information requirements could significantly increase transaction costs and time if parties are forced to adopt a “kitchen sink” approach. It is therefore critical that any upfront information requirements are proportional to the potential for competition concerns, and that there is ability to supplement the filing in response to feedback or issues as they arise.

As the international comparison of information requirements in Table 2 highlights, merger submissions to the ACCC already typically include much of the information that other jurisdictions’ regimes require upfront. However to require the entirety of potential evidence relied on to be filed up front could impose unnecessary burden on the parties and also the ACCC.

No. The ACCC has a ‘scaled’ approach, with voluntary information requests during the review depending on which issues are raised. Its Informal Merger Review Process Guidelines state the following as information the ACCC would initially require:

• transaction details eg. acquired shares, timing, value, rationale;

• parties’ Australian aspects , eg. business activities, site locations, revenues, significant contracts;

• For markets with horizontal overlap or vertical relationships: shares, imports, evidence of new entry/expansion; and

• Where ACCC would publicly review,  key customer, supplier contacts.

NB the current merger authorisation process requires a significant amount of information to be provided upfront.

Yes, parties must provide the ACCC the required information (yet to be specified).

Yes, a US merger filing is not valid unless the parties provide information on:

• transaction structure;

• US revenues for the most recent year;

• areas of overlap;

• internal documents analysing transaction’s competition aspects (eg. market shares, potential for growth, expansion in markets); and

• parties’ controlled entities and shareholders. 

In June 2023, the FTC proposed revising the HSR filing requirements, which if accepted would significantly increase the amount of information that must be provided with an initial pre-merger notification.

Yes. Unless using the ‘Short Form’ process, the information required under a ‘Form CO’ includes details about the parties, the transaction and rationale (including internal documents relating to the transaction), information relating to the overlaps / vertical links, including relevant data and internal documents.

No formal requirements - however, CMA provides guidance on what information it typically requires to assess a merger and the CMA will not ‘start the clock’ before it receives the required information.

Reversing the onus of proof

One of the more controversial items of the ACCC’s proposed reforms is its recommendation to reverse the onus of proof, requiring merging parties to demonstrate, on the balance of probabilities that a merger is unlikely to SLC. This is consistent with the onus of proof applied in the current merger authorisation process. In contrast, under the current informal clearance regime, the ACCC must apply to the Federal Court to block a merger. There, the ACCC must prove that a transaction would be likely to SLC, to obtain an injunction to prevent the merger.

The ACCC’s proposal that parties need to positively show that a transaction is unlikely to SLC would effectively presume that any notifiable merger will likely SLC unless it can be positively shown otherwise. 

In the enforcement context, burden shifting and rebuttable presumptions are common if the type of conduct is likely to impose a material social harm. For example, the Australian Consumer Law has a rebuttable presumption that a person does not have reasonable grounds for making future representations, since these representations are not capable of being proven true or false when being made. Therefore, entities making the representations should bear the burden and cost of showing they had reasonable grounds to make them. 

However, such a rebuttable presumption seems incongruous in the context of mergers. Mergers rarely cause competitive harm. As Rod Sims has previously observed , only 1-2% of acquisitions considered by the ACCC are likely to be contentious. In her pioneering essay The Trade Practices Bill: Legislation in Search of an Objective , Australian economist Professor Maureen Brunt similarly said “most mergers and takeovers are beneficial, or at least harmless.” There is no basis for presuming that notified mergers will harm competition. Rather, there are strong policy rationales against shifting the onus for all mergers in this way, including the potential for it to stifle legitimate and beneficial merger activity.

Having to prove a negative is an onerous forensic task, resulting in significant evidentiary challenges, particularly because merging parties lack the ACCC's ability to gather information from other market participants. Such an approach is out of step with all comparable jurisdictions where, at all times, the burden of proving competition concerns lies with the regulator. Even under US antitrust law, the burden only shifts to the parties if the Department of Justice (DOJ) or the Federal Trade Commission (FTC) establishes a prima facie case that competitive harm is likely to occur (see Table 3). The FTC’s and DOJ’s Horizontal Merger Guidelines 2010 do contain certain presumptions based on certain threshold metrics for measuring market concentration, which the US agencies propose to lower in their draft merger guidelines published on 19 July 2023 (FTC/DOJ draft merger guidelines).  However, these presumptions reflect a starting point for the agencies’ practice when reviewing mergers and are not legally binding on a Court.

The burden lies with the ACCC to establish in court the merger is likely to SLC.

The burden would lie with the parties to demonstrate to the ACCC’s positive satisfaction that their transaction is not likely to SLC.

The burden lies initially on the FTC/DOJ to prove a prima facie case, then shifts to the parties to rebut the case. If the parties’ rebuttal involves showing the merger is justified as a result of its pro-competitive efficiencies or synergies, then they also bear the burden to prove:

• those efficiencies outweigh competitive harm

• any efficiency gains ultimately would benefit competition

The burden lies with the EC, who must clear any transaction that does not give rise to a “significant impediment to effective competition”, in particular as a result of the creation or strengthening of a dominant position.

The burden lies with the CMA. At Phase I, the CMA applies a ‘realistic prospect of SLC’ as the threshold. If this threshold is satisfied, the investigation progresses to Phase II where, to block a merger, the CMA must prove the transaction would, on the balance of probabilities, SLC.

Expansion of the prohibition on mergers

The ACCC has proposed that the CCA’s SLC test include “entrenching, materially increasing or materially extending a position of substantial market power”. The ACCC states this inclusion would be framed similarly to the EU test that prohibits concentrations resulting from “the creation or strengthening of a dominant position” The ACCC has said it would assist in “addressing concerns about creeping acquisitions”, where firms gain market power through a small series of acquisitions that do not amount to an SLC on their own. The ACCC noted creeping acquisitions were particularly an issue in digital platform markets.

This “creeping acquisition” focus reflects aspects of current antitrust thinking in the US. FTC Chair Lina Khan has focused significantly on what she called “moat-building or data-aggregation strategies by digital platforms” in her 2022 launch of the US’ merger guidelines review . This focus has been reflected in the recently released FTC/DOJ draft merger guidelines, which state that if a transaction is part of a series of multiple acquisitions, the agencies will consider the cumulative effect of the pattern or strategy (although as noted above, guidelines are policy documents only and are not law).

Despite this global regulatory desire to capture smaller transactions, there may be little practical impact from this recommended change to the legislative test. As stated in the ACCC’s Merger Guidelines , it is already the case that a firm with substantial market power, who further entrenches its market position by acquiring more share in that market may amount to an SLC.

Updating the merger factors

The ACCC is also proposing to expand the merger factors to which the decisionmaker must have regard, as listed in s 50(3), to also include:

• the loss of actual or potential competitive rivalry;

• increased access to, or control of data, technology or other significant assets;

• whether the acquisition is part of a series of relevant acquisitions; and

• whether the acquisition entrenches or extends a position of substantial market power.

Again, it is unclear whether these additional factors would change the way mergers are substantively assessed. The ACCC already has discretion to consider any factors it considers relevant when assessing a transaction’s competitive impact. The ACCC may argue that legislatively including these factors may prompt the Court to place more weight on them, or otherwise interpret the CCA in a different manner. It has similarly argued this with the use of “unfair” rather than “unconscionable” in Australia’s consumer laws (for more, see our insight on the proposed unfair trading practices prohibition).  

Even if this legislative change does not substantively alter the assessment, the ACCC’s proposal to expressly include the loss of potential competitors, access to data or technology, and whether the acquisition forms part of a relevant series, highlights its desire to further regulate competition in digital industries. Policymakers in recent years have had to grapple with many challenges in designing regulation to address perceived competition issues in digital industries. One example is the controversial stricter merger rules that the Digital Markets Act imposes on gatekeeper online platforms (for more on Australia’s DMA equivalent, see our insight on the ACCC’s proposed digital platform regulatory reforms).

Restrictions on the review avenues and process available

The role of public benefits

Under the proposed regime, if merger parties were unable to satisfy the ACCC (or the Tribunal) that the transaction could be cleared on competition grounds, merger parties could seek approval on public benefit grounds.

Currently, the potential for a merger to result in public benefits is not relevant in the informal clearance process. However, under the current law, parties can apply for merger authorisation either on the basis that there is no SLC, or even if there is, that public benefits outweigh the detriment resulting from any lessening of competition.

This Australian “public benefits” test is wider than efficiency considerations in many jurisdictions, including the US, EU and UK. Public benefits may include economic efficiencies, achieving environmental and other public policy goals. For example, Chair Cass-Gottlieb has observed that consolidation in emerging green industries could lead to pro-competitive efficiencies that make these nascent industries viable.   

Second stage public benefits clearance option

Under the ACCC’s proposal, there would be only one approval process. Public benefits would be considered by the ACCC only in the second stage of its review. Only if the ACCC refused to approve a transaction on competition grounds, would the ACCC examine public benefits.

Although the vast majority of transactions will not need to rely on public benefit arguments, for parties with mergers that do need to rely on significant public benefits, it is important to have an opportunity to provide those public benefit submissions at the outset. This allows for a more wholistic consideration of the transaction, rather than an inefficient bifurcation of issues and decision-making.

Tribunal and limited merits review

Under the proposed changes, merging parties could appeal to the Tribunal if dissatisfied with the outcome at the end of the second public benefits phase. The proposal for the Tribunal to review ACCC decisions potentially raises concerns about procedural fairness in light of recent developments.

Under Australia’s current limited merits review process for merger authorisations, the Tribunal can only consider information provided to the ACCC during its initial review, with few exceptions. In the first matter to be heard under this process, Applications by Telstra Corporation Limited and TPG Telecom Limited [2023] ACompT 1, O'Bryan J rejected the proposition that the Tribunal's review of ACCC determination is intended to afford the applicant merger party an opportunity to test and challenge evidence that the ACCC received.

The primary policy rationale for the limited merits review process was to prevent abuse by parties seeking to delay time-sensitive transactions by introducing new information deliberately withheld from the ACCC. However, limiting the abilities of merging parties to test and challenge adverse evidence has the potential to significantly compromise procedural fairness. If the Tribunal process became the primary review body, it is vital that the current procedures are recalibrated and full merits review is available to afford merging parties more procedural fairness. 

Recourse to the Federal Court

The ACCC has stated that the Federal Court would continue to consider applications for declaration and judicial review. In particular, an ACCC spokesperson has recently clarified that its proposal envisages the following Federal Court processes would be available:

• Merging parties could still apply to the Federal Court for a declaration that the transaction would not breach the relevant statutory test (e.g., Vodafone v ACCC ).

• Where the ACCC and the Tribunal have refused formal clearance, parties could seek judicial review in the Federal Court of the Tribunal’s decision. This would be heard by a Full Court of the Federal Court, which would consider review grounds in accordance with the Administrative Decisions (Judicial Review) Act 1977 .

The ACCC may bring proceedings in the Federal Court seeking divestiture, penalties and other orders in respect of completed transactions which were not notified (either because they were below the applicable thresholds and not called in by the ACCC, or because the merging parties failed to notify a notifiable transaction).

In conclusion 

Recent statements by the Australian Government suggest it is no longer a matter of ‘if’ Australia’s merger regime will be reformed, but ‘when’.  

Chair Cass-Gottlieb’s speech introducing the ACCC’s proposed reforms has already raised important issues to be considered by lawmakers. Our analysis highlights that the merits and effectiveness of the ACCC’s merger reform package will also depend on getting the details right. While the ACCC’s advocacy on the issue of merger reform is likely to be influential, the legislative design and drafting process of any new merger laws is ultimately a matter for the Treasury, the Office of Impact Analysis, the Office of Parliamentary Counsel, and Parliament. A full consultation process on the details of the proposals will be vital to ensuring good regulatory design.