Presumably, the Spice Girls weren’t referring to M&A activity when they penned the lyrics to their iconic late 90’s hit ‘2 become 1’, but there are some similarities that can be drawn between it and merger control in Australia.
Free your mind of doubt and danger
Be for real, don't be a stranger
We can achieve it, we can achieve it.
Many argue that regulatory intervention (through competition or anti-trust laws) is essential to the proper functioning of a competitive market economy. Without such laws, innovation would be stifled and monopolists would run rampant, charging more and giving less. But Australia’s competition law regulator, the Australian Competition and Consumer Commission (ACCC), says the current merger control regime (which encompasses a voluntary informal regime and a scarcely used formal authorisation process) is no longer fit for purpose and needs to change.
The regulator thinks these changes will result in fewer anti-competitive merger proceedings (perhaps removing the ‘doubt and danger’ inherent in the current informal regime), but the jury (well, technically – the competition law community) is still out. Some commentators including from Allens and Corrs say reforms aren’t warranted; but the ACCC insists they’re vital to the future of Australia’s economy by driving investment and innovation, seeking to keep prices low and quality and choice high.
So, what are the ACCC’s concerns and its proposed reforms and what is next?
ACCC concerns with Australia’s current merger control regime
On 12 April 2023 in an address to the National Press Club, ACCC Chair Ms Gina Cass-Gottlieb renewed the ACCC’s push for legislative changes to the merger control regime, set out in the Competition and Consumer Act 2010 (Cth) (CCA).
Ms Cass-Gottlieb expressed concerns that Australia’s current voluntary merger regime is “not fit for purpose” citing that merger parties are “pushing the boundaries of the informal regime” by providing late, incomplete or incorrect information for review and increasingly engaging or threatening to engage in “gun-jumping” (completing before the ACCC has finalised its review).
One might have some sympathy for the ACCC’s apparent lack of ability to retain (or perhaps regain) control of merger activity and increasing industry concentration levels in Australia when viewed in the context of its recent track record on mergers:
- Significant industry participants are failing to notify the ACCC of their proposed mergers: Because merger notification in Australia is currently voluntary, the ACCC says it is often not notified of potentially problematic mergers, particularly in highly contentious and concentrated industries (digital platforms being one of them, which is also the subject of an ongoing ACCC market inquiry – see Digital Platforms Services Inquiry (DSPI). Cue the ACCC’s frustration. Two recent examples of this include:
- In 2020, digital platform Meta (Facebook) didn’t notify the ACCC of its proposed acquisition of Giphy, despite doing so in other jurisdictions where notification is mandatory.
- In 2021 Google pre-emptively completed its acquisition of Fitbit before obtaining ACCC approval, prompting the regulator to investigate.
In both circumstances, the ACCC would have had to commence Federal Court enforcement action to unwind the transaction on the basis that the transaction was likely to substantially lessen competition (SLC) in a relevant market, and the ACCC’s track record on that front isn’t strong (see below). It remains to be seen whether the ACCC will, in due course, pursue digital platform-specific merger reforms.
- The ACCC has generally been unsuccessful in winding back mergers in Court proceedings: The ACCC has a poor track record in trying to unwind mergers in the Federal Court and in the Australian Competition Tribunal (ACT) including its failed attempts to prove an SLC was likely in relation to the AGL/ Macquarie Generation, Pacific National/Aurizon and TPG Telecom/Vodafone mergers. This track record has no doubt been affected by the very significant evidential challenges faced by the ACCC in proving an SLC in the relevant contexts.
- ACCC rarely invokes its powers to halt mergers: In 2021 the ACCC sought an interlocutory injunction to stop the proposed completion of Virtus’s acquisition of Adora Fertility from Healius. The Federal Court granted the injunction, demonstrating that the ACCC can successfully curtail contentious mergers - albeit through a very time and resource intensive, expensive and (by necessity) rushed mechanism. In this case, the parties withdrew their proposal following the ACCC’s stated concerns however it does suggest that regulatory avenues already exist to address problematic mergers.
A new vision for merger control – ACCC’s proposed reforms to merger laws and processes
Like her predecessor, Rod Sims, who called for merger reform in 2021 near the end of his tenure as ACCC Chair, Ms Cass Gottlieb has bemoaned the lengthy and litigious process required to unwind a contentious transaction that has already been completed, asking for better tools in the ACCC’s kit to remedy merger control issues. Ms Cass-Gottlieb also argues that it is imperative for Australia’s merger control regime to be brought closer in line with other OECD jurisdictions where mandatory suspensory merger notification regimes are prevalent.
While she’s still new to her role as ACCC Chair, Ms Cass-Gottlieb has already echoed Sims’ concerns about Australia’s merger control regime while putting her own spin on the proposed reforms, demonstrating she’s not shy to champion for change. In fact, in less than a year she’s already campaigned for regulation of digital platforms as part of the ACCC’s broader DPSI.
ACCC’s proposed merger reforms
The ACCC’s proposed merger reforms seek to address both merger clearance processes and substantive law:
- Processes: The ACCC is calling for a shift from the current voluntary informal clearance model to a formal mandatory and suspensory clearance model. All proposed mergers above set materiality thresholds would need to be notified to the ACCC although it would have a call-in power in certain circumstances. The ACCC has stated in communications with Treasury that the thresholds require “careful consideration”, but its initial proposal is that deals involving companies with a turnover threshold of $400 million or a global transaction value threshold of $35 million would be appropriate triggers of the mandatory notification requirements. Importantly, merger parties will bear the onus of satisfying the ACCC that their proposed acquisition is not likely to have the effect of SLC and there would be certain appeal rights to the ACT and Federal Court.
- Substantive law: The ACCC wants the SLC test expanded to include entrenching, materially increasing or materially extending a position of substantial market power. It is also advocating for a range of new merger factors to be considered in any assessment of SLC such as the loss of potential competitive rivalry as well as increased access to, or control of, data, technology or other significant assets. Given the SLC test is long-standing and well-understood in Australia, frenetic debate will likely ensue regarding if (and if so, how) the SLC test should be expanded.
What’s next?
The government will consider the ACCC’s proposed reforms, with public consultation likely in the coming months.
More information
For a full summary of the ACCC’s key proposed reforms to both the substantive law and merger control processes, together with an analysis of the potential implications of these changes and next steps.
For a more detailed analysis of merger laws and processes (and all other aspects of competition law in Australia), visit Practical Guidance Competition.
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