On 24 July 2024, the Australian Government released the exposure draft of the Treasury Laws Amendment Bill 2024: Acquisitions (Bill). We shared our initial insights here on the significant changes and implications for advising on competition clearances of deals in Australia.
The merger reforms are substantial and complex, and will have significant ramifications for dealmakers in Australia. Some elements of the reforms were expected (for example, the transition to a limited merits review), while others have somewhat come as a surprise, including the broader substantial lessening of competition (SLC) concept proposed to be applied to all SLC prohibitions under Part IV of the Competition and Consumer Act 2010 (Cth) (CCA).
Here, we provide additional insights on the practical implications and frequently asked questions in relation to the proposed changes, including:
What acquisitions must be notified to the ACCC? All “acquisitions ” that meet a threshold are required to be notified to the ACCC, and the proposed amendments very broadly focus on acquisitions that “provide control or the ability to materially influence the acquired business or are capable of affecting the competitive structure of a market ”. The proposed notification thresholds include a combination of size of the parties and size of the transaction tests, with a fallback test based on market share thresholds.
What are the new penalty provisions and exactly when are they triggered? Significant penalties apply for “putting into effect ” an acquisition that meets the notification thresholds, which we discuss in more detail below. However, the exposure draft legislation and explanatory materials do not define what “putting into effect” means and when merger parties can be said to be “putting into effect” an acquisition.
What is the new test for considering competition impacts and how broadly will this apply? The SLC test will be expanded to include “creating, strengthening or entrenching a substantial degree of power ” in a particular market or any market. Significantly, this new test will apply not just to mergers but to other conduct that is prohibited if there is a purpose, effect or likely effect of SLC, such as the prohibitions on misuse of market power, concerted practices and/or anticompetitive contracts, arrangements or understandings (CAUs ).
How can parties seek review of ACCC determinations? What information will need to be provided and when? The draft legislation provides for limited merits review of the ACCC’s determinations by the Tribunal. The Tribunal can substitute the ACCC’s decision for a correct or preferable decision. However, the Tribunal can only consider the information that was before the ACCC during its determination, information the Tribunal requests from the ACCC, new information not in existence during the ACCC’s determination, and information for clarification of those other sources of information.
What acquisitions must be notified to the ACCC? All “acquisitions ” that meet a threshold are required to be notified to the ACCC, and the proposed amendments very broadly focus on acquisitions that “provide control or the ability to materially influence the acquired business or are capable of affecting the competitive structure of a market ”. The proposed notification thresholds include a combination of size of the parties and size of the transaction tests, with a fallback test based on market share thresholds.
What are the new penalty provisions and exactly when are they triggered? Significant penalties apply for “putting into effect ” an acquisition that meets the notification thresholds, which we discuss in more detail below. However, the exposure draft legislation and explanatory materials do not define what “putting into effect” means and when merger parties can be said to be “putting into effect” an acquisition.
What is the new test for considering competition impacts and how broadly will this apply? The SLC test will be expanded to include “creating, strengthening or entrenching a substantial degree of power ” in a particular market or any market. Significantly, this new test will apply not just to mergers but to other conduct that is prohibited if there is a purpose, effect or likely effect of SLC, such as the prohibitions on misuse of market power, concerted practices and/or anticompetitive contracts, arrangements or understandings (CAUs).
How can parties seek review of ACCC determinations? What information will need to be provided and when? The draft legislation provides for limited merits review of the ACCC’s determinations by the Tribunal. The Tribunal can substitute the ACCC’s decision for a correct or preferable decision. However, the Tribunal can only consider the information that was before the ACCC during its determination, information the Tribunal requests from the ACCC, new information not in existence during the ACCC’s determination, and information for clarification of those other sources of information.
Which acquisitions are required to be notified to the ACCC?
Notification thresholds
It is proposed that all acquisitions that meet a threshold prescribed by regulations or are determined by the Minister by legislative instrument are required to be notified to the ACCC. On 30 August 2024, the government released the thresholds for consultation . Under the proposal, acquisitions are required to be notified where:
At least one of the monetary or market concentration threshold limbs are met and there is a material connection to Australia (eg, being registered or located in Australia, supplying goods/services to Australian customers, generating revenue in Australia);
| Threshold | Limb 1 | OR Limb 2 | Approach |
|---|---|---|---|
| Monetary (indexed over time) | a. Parties’ combined Australian turnover $200 million; andb. one of the following criteria is met:i. Australian turnover is $40 million for each of at least two of the merger parties; orii. global transaction value $200 million. | a. Acquirer group Australian turnover $500 million; andb. one of the following criteria is met:i. Australian turnover $10 million for at least two of the merger parties;ii. Global transaction value $50 million. | Indexed over time.All acquisitions by acquirer within previous three years in the same product/service market(s) are proposed to be aggregated (irrespective of geographic location and whether those previous acquisitions were notifiable).“Substance, rather than form” - looking at holding or shell companies. |
| OR | |||
| Market concentration | a. Combined share of the merger parties is 25%; andb. Australian turnover (including acquirer group) is $20 million for each of at least two of the merger parties. | a. Combined share of the merger parties is 50%; andb. Australian turnover (including acquirer group) is $10 million for each of at least two of the merger parties. | Treasury is considering two options - market share and share of supply.Market share will be familiar, as a feature of the current merger review process.Share of supply (of goods or services) will be calculated based on the activities of the parties in the areas where they are active, similar to the approach of the Competition and Markets Authority (CMA) in the United Kingdom. |
a. Parties’ combined Australian turnover $200 million; and
b. one of the following criteria is met:
i. Australian turnover is $40 million for each of at least two of the merger parties; or
ii. global transaction value $200 million.
a. Acquirer group Australian turnover $500 million; and
b. one of the following criteria is met:
i. Australian turnover $10 million for at least two of the merger parties;
ii. Global transaction value $50 million.
Indexed over time.
All acquisitions by acquirer within previous three years in the same product/service market(s) are proposed to be aggregated (irrespective of geographic location and whether those previous acquisitions were notifiable).
“Substance, rather than form” - looking at holding or shell companies.
a. Combined share of the merger parties is 25%; and
b. Australian turnover (including acquirer group) is $20 million for each of at least two of the merger parties.
a. Combined share of the merger parties is 50%; and
b. Australian turnover (including acquirer group) is $10 million for each of at least two of the merger parties.
Treasury is considering two options - market share and share of supply.
Market share will be familiar, as a feature of the current merger review process.
Share of supply (of goods or services) will be calculated based on the activities of the parties in the areas where they are active, similar to the approach of the Competition and Markets Authority (CMA) in the United Kingdom.
In determining the monetary thresholds, Treasury considered thresholds in other jurisdictions. However, the monetary thresholds proposed are substantially lower than those of countries with similar GDP to Australia:
in Spain transactions are notifiable where the parties combined turnover exceeds 240 million (~AUD$390.6 million) and the aggregate turnover of at least two participants exceeds 60 million (~AUD$107.6 million);
in South Korea transactions are notifiable where the value exceeds KRW 600 billion (~AUD$691.6 million).
Alternatively, the transaction meets targeted notification requirements set by the Treasury Minister in response to evidence-based concerns.
These requirements are intended to capture transactions that do not meet the monetary or market concentration thresholds but occur in a market where there are enduring competition risks. Internationally, mechanisms such as these have supported industry and business specific thresholds eg, in the United Kingdom designated grocery retailers are required to notify acquisitions of grocery stores with 1,000m2 of retail space to the CMA.
To impose these requirements, the Treasury Minister would be required to consider reports and evidence from the ACCC, conduct stakeholder consultation. Any instrument set by the Minister would require an explanatory statement and be disallowable in Parliament.
Treasury estimates that the proposed thresholds would capture approximately 90% of all acquisitions that were publicly reviewed and considered by the ACCC as potentially raising competition concerns since 2018, with the monetary thresholds alone capturing 75%. Treasury estimates that between 300 to 500 acquisitions would be notifiable each year, applying the thresholds to historical data.
A statutory review will occur every three years from the commencement of the new regime, which is designed to evaluate the functioning of the system, including the notification thresholds. This will be an important function as the competitive landscape in Australia continues to evolve under this new regime.
Notification waiver
The government is considering establishing a notification waiver process, whereby parties to a transaction can seek a waiver from the ACCC from the process, including if there is uncertainty as to whether the notification thresholds are met. Parties seeking this waiver would need to provide the ACCC with sufficient information to allow it to establish a view as to whether the criteria to grant a waiver has been met. The criteria includes whether the matter warrants (or does not warrant) notification based on potential competition concerns, taking into account whether the notification thresholds have been met.
The waiver would prevent the ACCC from being able to bring subsequent proceedings for failure to notify or for failure to adhere to the suspensory obligation, so long as it was not granted based on false or misleading information. The only downside to this is that parties would not get the benefit of notification, including the protections of the anti-overlap provisions it is were later found that the acquisition had an anti-competitive purpose or effect resulting in an investigation and action by the ACCC.
The ACCC would have to provide the notification waiver within 30 business days of receipt of a completed application. It is intended that these applications would be listed on the ACCC’s public register and any notification waiver decision would be published alongside an explanation of the reasons for the waiver. This is a departure from the approach adopted in the analogous process under the ACCC’s current informal merger review process, where mergers cleared in pre-assessment are not included in the ACCC’s public register.
If the ACCC refuses or fails to grant a notification waiver, the parties can seek a review by the Australian Competition Tribunal.
Broader definition of ‘acquisition’
The proposed amendments focus on acquisitions that “provide control or the ability to materially influence the acquired business or are capable of affecting the competitive structure of a market ” (paragraph 2.5 of the Explanatory Materials). For acquisitions of shares, if the acquiring person’s voting power is 20% or more , the person is presumed to control the body corporate and is subject to the acquisitions provisions. This presumption is rebuttable if it can be proved that the person does not have control of the body corporate. Conversely a person who acquires less than 20% of the voting power can nonetheless be taken to control of the body corporate if so proven (new subsection 51ABC(2)).
An acquisition of shares is excluded from the acquisitions provisions if (pursuant to proposed new subsections 51ABC(1) and (2)(a)):
immediately before the acquisition, the acquiring person (either alone or jointly with a related bodies corporate) controlled the body corporate; or
immediately after the acquisition, does not control the target.
Control of a body corporate means the capacity to directly or indirectly determine the policy of the body corporate in relation to one or more matters. In determining whether a person has such capacity, the ACCC can take into account the practical influence exerted by the person and any practice or pattern of behaviour affecting the policies of the body corporate (proposed new subsections 51ABC(3) and (4)).
Exclusions included acquisitions of shares that are not also acquisitions of assets (section 51ABD), internal restructures and reorganisations (proposed new section 51ABE) and acquisitions as an administrator or receiver or pursuant to a testamentary disposition (proposed new section 51ABF).
Serial or creeping acquisitions
The merger reforms will also have significant implications for merger parties that acquire multiple businesses. To respond to the ACCC’s concerns about ‘serial’ or ‘creeping’ acquisitions. the combined effect of all acquisitions within the previous three years by the acquisition parties in the same industry may be considered as part of the review of the notifiable acquisition and aggregated for determining if the notification thresholds are met.
Under the proposed new section 51ABZ, the current acquisition is taken to have the effect or likely effect of SLC in any market if the cumulative effect of the current acquisition and any acquisitions of shares or assets that are put into effect during the 3 years ending on the effective notification date of the current acquisition that involve the same industry as the current acquisition would be, or be likely to be, to SLC in any market.
However, subsection 51ABZ(1)(b)(ii) states that in considering the prior acquisitions, the parties to which include any party to the current acquisition or, if a party to the current acquisition is a body corporate, include a related body corporate. Although subsection 51ABZ(1)(b)(iii) seeks to limit this to acquisitions that “involve the same industry as the current acquisition ”, the requirement to consider all transactions in the same industry by all related bodies corporate of the merger parties is very extensive.
According to paragraph 4.38 of the Explanatory Materials, three years is considered an appropriate reference period to capture strategic business behaviour and take account of dynamic conditions of competition in markets.
Significant new penalties apply for not notifying the ACCC of notifiable acquisitions
The exposure draft introduces significant penalties of the greater of: (i) $50 million; (ii) three times the value of the benefit obtained and that is reasonably attributable to the breach, if that can be determined; and (iii) if the value of the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (i.e., over the period the breach occurred, with a minimum of 12 months), for:
Not notifying the ACCC of an acquisition that is required to be notified. A person contravenes proposed new section 45AW if:
a. the person is a principal party to an acquisition; and
b. the acquisition is required to be notified (under proposed new section 51ABH, the requirements for notifications are to be determined by regulation or under section 51ABH); and
c. the acquisition is put into effect; and
d. when the acquisition is put into effect:
i. the acquisition is not a notified acquisition; or
ii. no notification of the acquisition has an effective notification date; or
iii. the latest notification of the acquisition that has an effective notification date is stale.
Not notifying the ACCC of material changes of fact in relation to notified acquisitions (proposed new section 45AX). Material changes of fact must be reported to the Commission as soon as practicable after the person becomes aware of the change (subsection 45AX(4)). Specifically, the additional obligation to notify the ACCC arises when:a. the notifying party becomes aware of a material change in fact either on or after the acquisition is required to be notified, at the time of notifying or the commencement of the effective notification date; orb. where the ACCC is actively considering a substantial public benefit application made by the notifying party and the notifying party becomes aware of a relevant substantial change of fact that is material to the ACCC’s determination.
Notifying the ACCC but putting into effect the acquisition where the ACCC has not determined that it can be put into effect (proposed new section 45AY).
Not complying with conditions where the ACCC has determined that the acquisition may be put into effect subject to conditions (proposed new section 45AZ).
Not notifying the ACCC of material changes of fact in relation to notified acquisitions (proposed new section 45AX). Material changes of fact must be reported to the Commission as soon as practicable after the person becomes aware of the change (subsection 45AX(4)). Specifically, the additional obligation to notify the ACCC arises when:
a. the notifying party becomes aware of a material change in fact either on or after the acquisition is required to be notified, at the time of notifying or the commencement of the effective notification date; or
b. where the ACCC is actively considering a substantial public benefit application made by the notifying party and the notifying party becomes aware of a relevant substantial change of fact that is material to the ACCC’s determination.
Unhelpfully, despite the significant penalties that apply for “putting into effect ” an acquisition in certain circumstances, the draft legislation and explanatory materials do not precisely articulate or define what “put into effect ” means and when a party can be said to be “putting into effect” an acquisition such as to trigger the penalty provisions. It is unclear the extent to which “put into effect” is akin to the term “give effect” in the existing provisions regarding cartel conduct and CAUs that restrict dealings or affect competition. Adding further uncertainty, proposed new section 45AV(2) specifies that a person “purportedly puts into effect” an acquisition if the person “engages in conduct that, apart from this Division, would constitute putting the acquisition into effect.”
Further, significant penalties apply for not notifying the ACCC of material changes of fact in relation to notified acquisitions, but what actually constitutes a “material change of fact ” is left to the ACCC’s discretion. As stated at paragraph 3.69 of the Explanatory Materials, the government intends that the ACCC have regard to market developments or other competitively significant events when considering whether there has been a material change of fact. For a change of fact to be material, it must be of meaningful significance to the ACCC’s determination of the notified acquisition.
The new test to be applied for considering competition impacts and its broad application affecting all SLC provisions, not just the merger provisions
The new test for assessing SLC
The draft legislation makes significant amendments to section 4G of the CCA, which is a general definition provision (for the purpose of interpreting the “lessening of competition ”) that applies to references to SLC widely across the CCA, not just the merger provisions. The draft legislation proposes to expand the meaning of SLC in section 4G such that it “includes a reference to substantially lessening competition by creating, strengthening or entrenching a substantial degree of power” in a particular market or any market. Consequently, this new test will apply not just to mergers but to other conduct that is prohibited if there is a purpose, effect or likely effect of SLC, such as misuse of market power, concerted practices and/or contracts, arrangements or understandings.
As explained in paragraph 4.8 of the Explanatory Materials, the amendments to section 4G are:
intended to increase the focus on the market power of the parties to the acquisition and clarify that even an incremental change in market power, may still amount to a substantial lessening of competition if the acquisition (or other act, for provisions other than the acquisitions provisions) strengthens the acquirer’s market power (that is, their ability to act with a degree of freedom from competitive constraints) or protects their market power in an enduring way.
In making its determination, the ACCC:
must have regard to the object of the CCA and all relevant matters, including the interests of consumers (as broadly outlined in proposed draft subsections 51ABX(1) and (2)); and
may have regard to any relevant documentation or information, including the contract, arrangement or understanding or proposed contract, arrangement or understanding to which the acquisition relates and any included restriction that is directly related to, and necessary for putting the acquisition into effect; and
as set out in paragraph 4.25 of the Explanatory Materials, may also have regard to the need to maintain and develop effective competition in markets, the effect of the acquisition on conditions for competition, the parties’ market positions, economic and financial power and commercial relationships, technical innovations, economic developments and productivity gains that could result from the acquisition, and the following matters relating to any market that could be affected by the acquisition:
the alternatives to the goods or services offered by the parties to the acquisition that are available to suppliers, consumers and users of goods and services;
the access of suppliers, users or consumers of goods or services to supplies, input (including data) or markets;
barriers to entry; and
supply and demand trends for goods and services.
Context to the new “
creating, strengthening or entrenching a substantial degree of power ” test
Although this expansion of the SLC concept for merger control was foreshadowed under the government’s Treasury paper (which we summarised here), it was not previously anticipated to apply to other conduct under the CCA, and has likely been influenced by other jurisdictions.
By way of context, the ACCC first lobbied for inclusion of the phrase “creating, strengthening or entrenching a substantial degree of power in a particular market or any market ” in the merger test in its submission to Treasury of March 2023 , where the ACCC said:
A greater focus on the effect of mergers on the structural conditions for competition could be achieved by expressly stating in section 50 that a substantial lessening of competition includes entrenching, materially increasing or materially extending a position of substantial market power. This would be similar to the European Commission’s merger test which expressly states that mergers are prohibited if they significantly impede effective competition in particular as a result of the creation or strengthening of a dominant position.
The ACCC also referred to the “entrenchment ” concept in the ACCC’s January 2024 submission to the Treasury Review , where it noted:
The Court [in TPG / Vodafone] placed little weight on how a merger causing a critical industry to shrink from 4 players to 3 players would entrench an oligopoly structure in the market, leading to higher prices.
The term “entrench ” appears once in the TPG / Vodafone Federal Court decision , where Middleton J noted at [476]:
Telstra would be another potential purchaser of TPG’s spectrum. Telstra was not permitted to participate in the 2017 auction for the 700 MHz spectrum as a result of government allocation limits. However, there are no equivalent rules that would necessarily prevent Telstra from acquiring the 700 MHz spectrum from TPG as a commercial arrangement. If the merger does not proceed, there is a very real possibility that Telstra’s dominance would be further entrenched through the acquisition of this spectrum.
Substantial public benefits test
If the ACCC determines that the acquisition must not be put into effect, or may only be put into effect with specified conditions, the notifying party may then make a substantial public benefit application (pursuant to the proposed section 51ABZG). The bifurcation of the SLC test and substantial public benefits test means this process is not available in Phase 1 or before the ACCC makes an unfavourable decision. The ACCC can then make a determination that the acquisition would be of substantial public benefit (with or without conditions) if it is satisfied on reasonable grounds (pursuant to section 51ABZL(2) that):
the acquisition would result, or be likely to result, in a benefit to the public; and
the benefit would substantially outweigh any detriment to the public that would result, or be likely to result, from the acquisition.
As contemplated by the Explanatory Materials (paragraph 5.29), the ACCC has:
broad discretion to consider what constitutes a public benefit, providing it with the flexibility to enhance the welfare of Australians by approving acquisitions that have a net desirable effect on the economy provided that the public benefit must substantially outweigh any detriment to the public that would result, or be likely to result, from the acquisition to satisfy the test.
In making a determination, the ACCC must have regard to the object of the CCA and, broadly, “all relevant matters, including the interests of consumers ” (subsection 51ABZM(2)).
Review of ACCC determination
Part IX of the CCA has been amended to include Divisions 1A and 1B to provide for limited merits review by the Tribunal.
As previously foreshadowed, the Tribunal will be empowered to conduct a limited merits review of the ACCC’s determinations. The Tribunal can substitute the ACCC’s decision for a correct or preferable decision. However, it can only consider the information that was before the ACCC during its determination, information the Tribunal requests from the ACCC, new information not in existence during the ACCC’s determination, and information for clarification of those other sources of information.
There will be an option of fast track or standard procedure for Tribunal review. A review becomes a ‘fast track review’ is if the application for review was made within 7 days of the determination, and all relevant parties have consented to a fast track review. The Explanatory Memorandum notes that this mechanism allows for a faster review where only a specific element of the determination is being challenged.
Separately, the ACCC, the Minister, transaction parties, or third parties can seek orders from the Federal Court where they have concerns that an acquisition may contravene the law. Such orders can include an application for injunction by the ACCC to restrain the acquisition prior to completion, or an order that the completed acquisition is void, with divestiture and substantial penalties, post-completion. Another such order is an application by the Commission to disqualify a person from managing corporations under certain circumstances, and if such an order is justified.
Timeframe for implementation and next steps
The timeframes for transition and implementation are as follows:
| Date | Event |
|---|---|
| 13 August 2024 | Responses to the exposure draft were due — approximately three weeks from the date the exposure legislation was published. |
| August - September 2024 | Treasury will consult on merger notification thresholds. Closing date for submissions, 20 September 2024. |
| 2024 | Treasury will consult on merger review timelines, fees, procedural safeguards, penalties. |
| 2025 | The ACCC will consult on the form of notification. |
| 30 June 2025 | The final date by which merger authorisation applications must be made. This amendment is intended to close off the current merger authorisation process to new applications from 1 July 2025, in preparation for the commencement of the new system on 1 January 2026. |
| 1 December 2025 | Commencement of majority of the amendments. This allows parties to voluntarily notify acquisitions to the ACCC under the new system before the mandatory notification requirements and other remaining aspects of the system commence on 1 January 2026. The ACCC can then undertake initial assessments and make timely determinations once its determination powers commence on 1 January 2026 (though the ACCC cannot make final determinations before 1 January 2026). |
| Before 1 January 2026 | Existing prohibitions will continue to apply to acquisitions that were entered into before 1 January 2026, even if they have not yet been completed as at that date. This means the ACCC can still take enforcement action under sections 50 and 50A in relation to such acquisitions on and after 1 January 2026. |
| 1 January 2026 | New system formally commences. Acquisitions will be subject to the new system set out in Part IVA. The prohibitions in sections 50 and 50A will be repealed from 1 January 2026. |