Australian Competition and Consumer Commission (ACCC) chair Gina Cass-Gottlieb has called for reform of Australia’s merger laws and procedures, arguing that they allow potentially anti-competitive mergers to proceed without the regulator’s full vetting.
Speaking at the National Press Club in Canberra today, Cass-Gottlieb described Australia’s current merger control model as “voluntary and enforcement-based”, with the competition regulator lacking enforcement powers itself to prohibit mergers that may negatively impact competition in a given market.
Whilst acknowledging that current laws do have the power to prohibit mergers that may result in a substantial lessening of competition within a market, they do not require parties to notify the ACCC of a planned merger nor for these parties to wait for clearance from the competition regulator before completing a merger.
As a result, for the ACCC to halt or unwind what it deems an ‘anti-competitive’ merger, it must take action through the Federal Court.
Businesses can voluntarily seek the ACCC’s view on a merger either through an informal pre-assessment process, the most popular route, or a voluntary formal authorisation process; however, Cass-Gottlieb noted that businesses often “[push] the boundaries of the informal regime – giving the regulator “late, incomplete, or incorrect information” or “[threatening] to complete their transaction” before the ACCC can finalise its review.
She argued that the ACCC “needs to have the tools necessary to be able to properly scrutinise and, if necessary, prevent mergers that are likely to substantially lessen competition”.
“Without these tools, some markets are particularly vulnerable to being adversely affected by further consolidation. In particular, markets that already have large incumbents with positions of market power and markets where it is difficult for new rivals to enter.
Australia’s merger laws also need to be reviewed, Cass-Gottlieb argued, with current laws based overwhelmingly on hypothetical, and unpredictable, future scenarios within a particular market – which are increasingly difficult to predict in an environment of rapid technological change and increasing domiance of digital platforms, as well as growing supply chain pressures and geopolitical concerns.
“The merger law is forward-looking,” she said. “In the enforcement model, to prove a breach in court, we must establish in court that the merger is likely to have the effect of substantially lessening competition in the future, in breach of section 50 of the Competition and Consumer Act.”
“The future is inherently uncertain and is particularly so where markets are dynamic and there are complex commercial considerations. This uncertainty can be the driving factor behind the difficulties of positively proving a breach of section 50 [of the Competition and Consumer Act, which refers to the prohibition of mergers that would have the effect, or be likely to have the effect, of substantially lessening competition in a market].”
Cass-Gottlieb’s speech comes just a week after the ACCC released its preliminary view on ANZ’s proposed takeover of the tier two Suncorp Bank.
The ACCC took a view that ANZ’s substantiation of its takeover was “insufficient” with regards to the “nature, likelihood and extent of the claimed public benefits”.
The competition regulator further stressed the “essential role” that smaller banks like Suncorp play as a “competitive constraint” on the big four.
ANZ opted for the ACCC’s more formal ‘merger authorisation’ process in its acquisition bid.
The merger authorisation is a formal process, and once passed successfully, enables businesses to proceed with a merger or acquisition “without the risk of legal action to stop the proposal” due to competition concerns.
Cass-Gottlieb put forward several proposed changes to Australia’s merger regime, bringing it “into line with many OECD countries”.
She argued that Australia’s merger regime must “move away from a voluntary enforcement model to a formal clearance model, where merger parties must demonstrate to the satisfaction of the ACCC that their transaction is not likely to substantially lessen competition before they can proceed”.
Among these changes include:
1) a mandatory requirement for the ACCC to be notified of mergers above specified materiality thresholds;
2) a requirement for transactions to be suspended from completion without ACCC clearance;
3) upfront information requirements;
4) and the addition of an Australian Competition Tribunal that would also be able to review ACCC decisions.
“Determining the thresholds will require careful consideration but, as with international merger regimes, these could be based on the size of the proposed transaction, the size of the business being acquired globally and/or within Australia, or a combination of these factors.”
“For situations where a transaction doesn’t meet the notification threshold, but nonetheless raises competition concerns, the ACCC should be able to ‘call-in’ the transaction and assess it in the formal system,” she said.
Legally, Cass-Gottlieb said the ACCC has proposed a model that would put into legislation clear language that defines the substantially lessening of competition (the SLC ‘test’) as ‘entrenching, materially increasing or materially extending a position of substantial market power’.
“This would be similar to how the European Commission’s merger test is framed.
“We consider that this change would ensure that the focus is not just on the incremental change arising from a merger but also the overall enhancement of dominant positions by large firms in the market.”