In November 2017, the long-awaited reforms in the Competition and Consumer Act 2010 (Cth) ("CCA") went into effect to significantly alter several aspects of Australia's competition laws. One such change is to Australia's merger or acquisition clearance procedures, which have given the Australian Competition and Consumer Commission ("ACCC") broader jurisdiction to control the passage of mergers or acquisitions in Australia. The amendments have essentially consolidated the Australian Competition Tribunal's ("Tribunal") merger or acquisition authorisation jurisdiction (which in the past had only been used a handful of times) and the ACCC's merger or acquisition clearance jurisdiction (which had never been used) into a single process (authorisation by the ACCC).
Under the CCA, acquisitions are prohibited if they would have the effect, or be likely to have the effect, of substantially lessening competition in any market. The CCA also contains a (nonexhaustive) list of factors that must be considered in determining whether a merger or acquisition may be prohibited:
- Actual and potential level of import competition in the market.
- The height of barriers to entry to the market.
- Concentration in the market.
- The degree of countervailing power in the market.
- The likelihood that the merger or acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins.
- The extent to which substitutes are available in the market or are likely to be available in the market.
- The dynamic characteristics of the market, including growth, innovation, and product differentiation.
- The likelihood that the merger or acquisition would result in the removal from the market of a vigorous and effective competitor.
- The nature and extent of vertical integration in the market.
Previously, parties to a merger or acquisition had three options available to obtain "clearance": (i) informal review by the ACCC, (ii) formal clearance by the ACCC; or (iii) authorisation by the Tribunal. Following the implementation of reforms, there are now two processes: (i) informal review by the ACCC, and (ii) formal authorisation by the ACCC.
The ACCC's informal review process is not set out in the CCA. Rather, it is a mechanism under which the ACCC can provide its view on whether it would seek an injunction before the court to prevent a merger or acquisition from proceeding on the basis that it will or is likely to have the effect of substantially lessening competition in any market. The ACCC has issued detailed Informal Merger Review Process Guidelines to assist parties with the process.
Although the process is dictated by the ACCC, the following steps will typically be involved in an informal (and nonconfidential) review:
- Pre-assessment, following the ACCC being notified or becoming aware of a merger or acquisition. The ACCC will decide to either conduct a public review, or to "pre-assess" the merger or acquisition without conducting market inquiries (if it forms the view that the risk of a substantial lessening of competition is low and further review is unnecessary). This process will typically take approximately two to four weeks.
- If the ACCC decides to publicly review a merger or acquisition, it will commence market inquiries and allow the parties the opportunity to respond to any issues or areas of concern. It will then publish a proposed decision date. This period typically takes between six and 12 weeks between pre-assessment and the decision date.
- On the proposed decision date, the ACCC will then either announce its final decision, or release a Statement of Issues ("SOI"). If a SOI is published, the ACCC will commence public consultation in relation to the issues identified in the SOI, and will also allow the parties a further opportunity to respond to any concerns. After receiving this information, it will publish a new proposed decision date on which it will announce its final decision, which is typically between six and 12 weeks after publication of the SOI.
The ACCC can also conduct a confidential review for mergers or acquisitions that have not been publicly announced, which will take approximately two to four weeks. Because the ACCC will not receive information from the public during a confidential review, it commonly qualifies any view that a merger or acquisition will not substantially lessen competition that such a view is based only on the information available to it. It may alternatively conclude either that the merger or acquisition will or is likely to substantially lessen competition, or that it cannot determine whether the merger or acquisition will substantially lessen competition. If the ACCC reaches either of these views, it will conduct a public review once the proposed merger or acquisition is publicly announced.
Although the ACCC has advised of the likely time period for each of the above stages, it should be noted that it is not required to adhere to its own timeline and may alter the timeline at any point in an assessment. Parties should be aware that there will be some uncertainty as to the exact length of time that any informal review by the ACCC will take.
If the ACCC forms the view that a merger or acquisition is anticompetitive, the parties still are entitled to proceed with the merger or acquisition. However, they must be prepared for an ACCC court action seeking various remedies including an injunction, divestiture, or penalties. Alternatively, the parties can apply for a formal ACCC authorisation of the merger or acquisition, or provide an undertaking to address the ACCC's issues with the merger or acquisition.
Authorisation. Before the reforms were implemented in the CCA, the two separate statutory processes for clearances were:
- Clearance, in which the ACCC would assess whether the merger or acquisition was likely to have the effect of substantially lessening competition; and
- Authorisation, in which the Tribunal would grant merger or acquisition authorisation if it was satisfied that the likely public benefit from the merger or acquisition would outweigh the likely public detriment (referred to as the "net public benefits test").
The ACCC's formal clearance process was never used, and the jurisdiction of the Tribunal to authorise a merger or acquisition has been used rarely. However, the amendments to the CCA have, by consolidating these two processes, arguably introduced a new process that is more attractive to merging parties. This is because under the ACCC's new jurisdiction to authorise mergers or acquisitions, the ACCC may grant authorisation if either of the above tests are made out; that is, if it is satisfied that either:
- The proposed merger or acquisition would not be likely to substantially lessen competition; or
- The likely public benefit from the proposed merger or acquisition outweighs the likely public detriment.
Under the CCA, the ACCC has a broad discretion as to the process involved in an application for authorisation. Specifically, it may:
- Invite submissions from interested persons;
- Request additional information from the applicant or other persons; and
- Consult with such persons as it considers reasonable and appropriate.
Unlike the ACCC's informal review process, the authorisation process offers parties a greater degree of certainty as to timing by requiring a strict 90-day statutory deadline (or 30 days for overseas mergers or acquisitions) by which the ACCC must determine an application. If the ACCC fails to make a determination within this period it is taken to have refused to grant the application. The ACCC may also, with the agreement of the applicant, extend the deadline for it to make its determination.
The outcome of the assessment will be that the ACCC may grant the authorisation, grant the authorisation but impose conditions on the parties, or refuse to grant the authorisation. If a person is dissatisfied with the ACCC's decision (either the parties or a third party with a "sufficient interest" in the ACCC's decision), that person can apply to the Tribunal for a merits review of the determination. In reviewing the ACCC's decision, the Tribunal may only consider:
- New information, documents, or evidence if the material was not in existence at the time of the ACCC's decision;
- The information that was referred to in the ACCC's reasons for making the determination;
- The ACCC's report, if required by the Tribunal; and
- Any information furnished, documents produced, or evidence given to the ACCC in relation to the making of its decision.
The Federal Court of Australia retains its jurisdiction to hear an appeal on a question of law.
It is likely that the ACCC's informal merger review process will continue to be utilised for the vast majority of mergers or acquisitions, due to its relative flexibility and speed. However, the jurisdiction of the ACCC to authorise mergers or acquisitions is likely to be utilised more than its predecessors (ACCC clearance/Tribunal authorisation). This is because the ACCC now will be required to accept arguments that relate to the public benefits of a merger or acquisition, whereas previously it could only consider the likely impact on competition to arise from the merger or acquisition. Additionally, it may be attractive to parties to consider using the formal authorisation process due to the strict 90-day period imposed by the legislation, in which the ACCC must make its decision. It will be interesting to see whether parties utilise the ACCC's new jurisdiction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.