When considering merger approvals, parties to a merger should have an eye to the potential wider public benefits and detriments that may occur beyond any loss of competition in the market in which they operate.
Recent changes to Australian competition laws and new ACCC Guidelines raise questions about the scope of the public benefits and detriments that the ACCC may take into account when considering merger authorisation, and whether this includes non-competition factors.
The New Zealand courts have recently found that "share of voice" and media plurality are relevant considerations where approval for a media merger is sought on "public benefit" grounds.
The changing route to merger authorisation
Typically, parties seek an informal clearance from the ACCC on the basis that the proposed transaction will not substantially lessen competition in any market in Australia.
The ACCC may now authorise mergers and acquisitions that it considers result in a net public benefit or which do not substantially lessen competition, and the ACCC is now the first instance decision-maker for these applications. Parties can no longer apply directly to the Tribunal for merger authorisation.
New Zealand - media plurality a competition issue?
The hurdles that may need to be overcome in meeting the "public benefit" test are illustrated by a recent New Zealand High Court decision on a media merger, NZME Limited v Fairfax Media Limited [2017] NSHC 3186.
Both parties to the proposed merger were major media and news outlets in New Zealand involved in the production and dissemination of news, including through competing Sunday newspapers, community newspapers and online news.
In their appeal to the High Court from the New Zealand Commerce Commission's decision to reject both clearance and authorisation of the proposed merger, the appellants argued that the had considered public detriments beyond the permissible scope and jurisdiction.
This issue was raised because the Commerce Commission gave weight to the fact that the proposed merger would reduce media plurality, considering that would potentially significantly impact democracy in New Zealand, and therefore New Zealand consumers generally.
The Commerce Commission argued that, although unable to be quantified, the merger would result in a level of media concentration unprecedented in a well-established liberal democracy.
The appellants sought to establish that such plurality and differences of opinion and reporting would be maintained internally within the merged business. In any case, it was argued by the appellants that the scope of anti-competitive detriments should be limited to economic factors arising only in the markets where there has been a finding of the likelihood of a loss of competition .
Supporting the appellants' position, the Commerce Commission Authorisation Guidelines stated:
The appellants also argued that the scope of the NZ Act, meant that the scope of detriments relevant to an authorisation assessment were confined to economic detriments. It was argued that matters of media plurality were therefore beyond scope and the Commerce Commission did not have jurisdiction to take this into account in assessing the net public benefit.
However, the Court agreed with the Commerce Commission declaring that the statutory purpose of the Act to promote competition in markets for the long-term benefit of consumers would be frustrated if matters likely to be to the long-term benefit of consumers could only include effects in the markets in which anti-competitive conduct was an issue. The Court stated:
The Court construed the relevant provisions of the Act to confer upon the Commerce Commission a broad discretion as to the matters it could take into account in determining whether there was a net public benefit. A similar approach may be taken in Australia, for the below reasons.
The position in Australia
In November 2017, the ACCC released an updated edition of its Media Merger Guidelines supplementing the ACCC's role in the informal clearance process. While the Guidelines generally leave the issue of preserving "media diversity" to the provisions of the Broadcasting Act 1992, it does take into account the competition aspects with respect to media diversity. The Guidelines state that diversity of media voices is interlinked with a number of issues the ACCC considers in its competition assessment under s 50 of the Act.
This suggests that at least under the informal clearance process, the ACCC's scope of issues to be considered will be limited to competition aspects of the merger.
The ACCC will likely approach the public benefits test in an application for merger authorisation in the same way as the recent NZ decision. The ACCC's interim Merger Authorisation Guidelines, released in late 2017, provide that the ACCC will take into account "any benefits that would result from the proposed acquisition, regardless of the market in which that benefit occurs". Consistent with the above case, it goes on to say that "it may be appropriate for the ACCC to assess detriments that occur outside of the market or markets in which a lessening of competition has been identified".
While encouraging applicants to quantify the size of claimed benefits and detriments, the ACCC recognises that this will not always be possible, and claims of this nature will usually be qualitatively assessed leaving the door open for the ACCC to consider non-competition issues. In Fairfax, this process was described by the Court as "intuitive".
The public benefit test was recently considered, albeit not in a media merger context, by the Full Federal Court in ACCC v Australian Competition Tribunal [2017] FCAFC 150 (Tabcorp) where the Court applied a broad concept of public benefit consistent with the Fairfax decision in New Zealand:
and
"The inquiry thrown up by s 95AZH is concerned with all benefits and detriments resulting from the acquisition including, no doubt, competitive ones. But so far as the competitive factors are concerned, the focus is much broader than it is under s 50; it is not limited only to detriment in a market nor, even where markets are concerned, with competitive lessenings to which s 50 might otherwise apply."
Such a broad approach to the language and application of the authorisation provisions reflects the position taken by the High Court in New Zealand.
What does this mean for future mergers in Australia?
The result is that the ACCC may take into consideration factors that benefit the public that are beyond the scope of the economic and competition factors originally taken into consideration in determining whether the transaction is likely to substantially lessen competition in a market.
Parties to a merger should therefore have an eye to the potential public benefits and detriments that may occur beyond the market that the parties operate in.
Where there is a risk of the transaction lessening competition in a market, but identifiable benefits to the public that may stem indirectly from the transaction, authorisation may be an attractive avenue for parties. Those benefits (or detriments) do not necessarily need to be restricted to the markets in which the transaction relates or in which the parties operate. Accordingly, such a broad scope of potentially relevant factors may see a change in the strategy that parties apply when seeking merger approval in Australia.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
