ACCC proposes sweeping changes to Australia's merger control regime

3 minute read 27.08.2021 Alice Waterston, Miranda Noble

The ACCC has announced long-awaited proposals for sweeping reform of Australia's merger control regime. These include mandatory notification and standstill obligations that it says are needed in order to restore and maintain effective competition in Australia.

Our recent report, Australian Merger Control: Change in Uncertain Times foreshadowed ACCC proposals for reform of merger control landscape in Australia. Today, the ACCC Chair Rod Sims, announced those long awaited proposals to reform Australia's merger control regime, which the ACCC says are needed in order to restore and maintain effective competition.

The ACCC's proposals are significant and would result in sweeping changes to the processes and operation of Australia's merger control regime. They will have significant implications for the M&A landscape in Australia. In announcing the proposals, Mr Sims highlighted that this was intended to start a 'debate' about reforms. However, he said that the Government's focus should rightly remain on the COVID-19 pandemic until early 2022, when the ACCC would start consultation with stakeholders on these issues.

Key issues that the ACCC's proposed reforms address

Some of the key issues the ACCC's proposed reforms seek to address are:

The ACCC having to go to the Federal Court to prove that the anti-competitive effects of a merger were 'likely'. In Mr Sims' view, in many cases this is 'simply impossible' given the forward looking nature of the test;
Concerns that there is an insufficient focus by Courts on the structural conditions for competition. In addition, the ACCC is concerned that there is excess weight placed on market forces. (For example, there is undue 'optimism' that new entry will occur or a small number of large players will compete rather than simply accommodate each other to make money);
Concerns that the merger control regime skewed towards clearance. Mr Sims noted a concerning increase in companies completing acquisitions before the ACCC had finalised its review; and
Perceived gaps in the current law in respect of regulating acquisitions made by large digital platforms. This is particularly in relation to acquisitions of nascent competitors.

Three categories of the ACCC's reforms

The ACCC reform proposals span three categories:

1. New single 'formal' merger review process

In a significant change to current practice and process, the ACCC has proposed consolidating the current multiple methods for seeking clearance into a single formal merger regime. This would include mandatory notification for transactions over specified thresholds, and standstill provisions that would preclude parties closing a transaction while a review was being undertaken. This approach would bring Australia's presently 'unique' approach (as Mr Sims described it) into alignment with many overseas jurisdictions with mandatory regimes.

While the specifics of such thresholds were not announced, Mr Sims noted that:

For non-controversial matters which were over thresholds, parties would be able to seek a notification waiver to allow parties to proceed without a public review, recognising that they wanted to limit the regulatory burden for the vast majority of transactions that would not raise concerns
For transactions under the threshold but which the ACCC considered might raise competition issues warranting a public review, the ACCC would have a 'call in' power, which would bring the transaction into the new clearance process.

Under this new process, consistent with the approach in many overseas jurisdictions, merger parties would have to provide much more information up front. In addition, the ACCC would publish detailed reasons for its decisions (to approve or not approve the transaction). Its decisions would be subject to a limited merits review in the Australian Competition Tribunal (but not the Federal Court). The Tribunal would only be able to have regard to material that was before the ACCC.

2. Changes to the merger test

The ACCC has proposed that changes be made to the 'factors' in section 50 that (under the new process) the ACCC and Tribunal would need to have regard to. It has also pushed for inclusion of a specific definition of 'likely'.

These seek to ensure that the ACCC can more readily find that a proposed transaction would substantially lessen competition in breach of section 50. The revised merger factors would be focused on the structural conditions for competition that are changed by the acquisition to the detriment of competition. The new definition of 'likely' would be defined as 'a possibility that is not remote', which would mean the ACCC would no longer need to convince a court or the Tribunal on the balance of probabilities that there is 'real commercial likelihood' of a substantial lessening of competition.

The ACCC has also proposed a deeming provision for acquisitions by firms with substantial market power. Transactions involving a firm with such power would be deemed to substantially lessen competition if they entrench, material increase or materially extend that substantial market power. Finally, the ACCC has called for reforms to allow them to consider the competitive effect of related agreements as part of their overall assessment of the transaction, to address issues with merger parties changing the counterfactual through such agreements.

3. A dedicated regime for large digital platforms

While details of specific reform proposals were not outlined, Mr Sims noted the ACCC was working closely with competition regulators in international jurisdictions to consider new, tailored merger laws that would be applicable to certain large digital platforms. These would see those platforms subject to a lower test (as to whether competitive harm would likely flow from the proposed transaction). These reforms would seek to address the ACCC's concerns that even its reformed regime would not deal sufficiently with acquisitions by large digital platforms, and that a tailored approach is indeed. In particular, this would prevent the acquisition of nascent competitors, in relation to which the future competitive effects are difficult to establish.

These proposals will kickstart a heated debate around the future of Australia's merger regime. While implementation of any changes is some way off, the reforms would (if implemented) see a fundamental and significant change to the M&A landscape in Australia.

Merger parties, dealmakers, and their advisors will need to stay abreast of these reforms, and may wish to be part of the consultation with Government once that commences.

Please contact a member of our competition team if you would like to discuss these proposed reforms.