On 1 July 2016, the Australian Competition Tribunal granted authorisation to Sea Swift's proposed acquisition of certain shares and assets relating to Toll Marine Logistics' (TML) business in the Northern Territory and Far North Queensland. Sea Swift and Toll (through TML) provide scheduled marine freight services and marine freight charter services in these regions.
Applying for merger authorisation from the Tribunal is a rarely used process for obtaining clearance for a merger under the Australian Competition and Consumer Act 2010 (Cth) (CCA). This is only the third such application since the process became available nearly a decade ago. It is also only one of two applications that have proceeded to a determination (with the other being an application by AGL to acquire Macquarie Generation). Both resulted in authorisation being granted.
MinterEllison acted on behalf of Toll Holdings Ltd.
On 28 July 2016, the Tribunal released reasons for its determination. Our analysis is available in our alert, Fact trumps theory - Australian Competition Tribunal releases reasons for authorising Sea Swift's proposed acquisition of Toll marine freight business.
The proposed transaction and application
Sea Swift and Toll entered into an asset and share sale agreement in respect of the proposed transaction in November 2014, and sought ACCC clearance. The parties renegotiated the agreement when it was apparent that the ACCC may not reach a decision by the sunset date at the end of May 2015. In July 2015, the ACCC announced it opposed the proposed transaction.
In September 2015, Sea Swift (with support from Toll, as intervenor) filed an application for authorisation with the Tribunal under section 95AT(1) of the CCA. This application was withdrawn in November 2015, and a new application filed on 4 April 2016.
In the application, Sea Swift sought authorisation to acquire shares in, and assets from, entities who were subsidiaries of Perkins Industries Pty Ltd, which is wholly owned by Perkins Group Holdings Pty Ltd, which in turn is wholly owned by Toll, the ultimate Australian parent company for the Toll Group. The Toll entities trade as Toll Marine Logistics Australia.
Toll was granted leave to intervene in the process. The Maritime Union of Australia (MUA) was also granted limited leave to intervene.
Section 50 of the CCA prohibits mergers or acquisitions which have the effect or likely effect of substantially lessening competition.
Merger authorisation is an alternative process to the ACCC's informal clearance process and, if granted, provides in effect statutory immunity to the relevant transaction.
To grant authorisation, the Australian Competition Tribunal must be satisfied that the proposed transaction involves such a benefit to the public that it should be allowed to proceed. In practice, this involves assessing whether there are public benefits which outweigh any competitive or public detriment arising from the proposed transaction, based on a consideration of what would transpire 'with or without' the transaction.
Overview of submissions
The Tribunal register contains public versions of the application, evidence filed and the closing submissions of Sea Swift, Toll, the ACCC and the MUA.
As noted above, in applying the net public benefits test, the Tribunal applies a 'future with and without test'. A critical feature of this Application was that, in the future without the proposed transaction, Toll intended to wind up the TML business in the NT and FNQ and exit the relevant markets.
Both Sea Swift and Toll contended that, having regard to this, the proposed transaction would not result in any competitive detriment and would result in significant public benefits. Sea Swift and Toll submitted that barriers to entry were low, and would not be heightened by the proposed transaction. Against this, Sea Swift and Toll submitted authorisation would (among other things) provide clear and substantial public benefits by:
- providing certainty of regular supply to remote communities in the NT and FNQ, who rely on regular shipping services for essentials such as groceries, fuel and pharmaceuticals;
- preserving contracted customers, large and small, the benefits of their current contract terms and conditions; and
- improving conditions for entry, relative to the situation that would prevail absent the proposed transaction, by reason of the condition applying to the customer contracts to be transferred.
The ACCC contended that, absent authorisation, Toll would wind up the TML business in a way which provided a 'unique opportunity' for an alternative service provider to establish itself by gaining access to TML's customer contracts (and/or vessels), and that the proposed acquisition would heighten barriers to entry (including reputational barriers).
As noted by the Tribunal, the process involved hearing evidence from more than 40 lay witnesses, as well as interested parties, representing customers, communities and competitors. It also involved evidence from 7 experts.
Grant of authorisation
The Tribunal granted authorisation on 1 July 2016, releasing a determination (including certain conditions of authorisation) and a document containing background to that determination. Reasons have not yet been published.
The Tribunal handed down its determination within the statutory 3 month time limit. While the CCA allows the Tribunal to extend the period in which it may make the determination, the Tribunal explained that:
'commercial exigencies call for it to make and publish its determination relatively quickly. A speedy resolution of the application also gives remote communities certainty in respect of the provision of essential supplies by way of regular scheduled services as Toll exits the market.'
We will provide a further update once reasons are published by the Tribunal.
The MinterEllison team advising Toll comprised Geoff Carter (Partner), Miranda Noble (Special Counsel), Jessica Heyes (Senior Associate), Katherine France (Lawyer) and Ben Fisher (Graduate).
The Tribunal's determination, and background to the determination, as well as material filed in relation to the application, can be accessed on the Tribunal's website.