ACCC Chair provides important new details on proposed shake up of Australias merger control laws

What you need to know

• On 12 April 2023, the ACCC Chair, Gina Cass-Gottlieb, provided important new details about the ACCC's push for reforms to Australia's merger regime in a speech to the National Press Club.
• The speech built on an earlier speech from the current Chair's predecessor, Rod Sims, who sought to open the debate on merger reforms in late 2021, and reflects the ACCC's continued insistence that the current merger regime is no longer "fit for purpose".
• The proposed reforms are consistent with the broad direction of the proposal announced in 2021, but factor in stakeholder feedback and the ACCC's recent experiences with merger authorisations.
• Consistently with the earlier proposal, the ACCC is pushing to change Australia's voluntary merger review regime to a formal clearance model comprising a "mandatory and suspensory" regime which would require merger parties to notify the ACCC of mergers when specified thresholds are met, to suspend transactions from completing until ACCC approval is obtained, and to comply with upfront information requirements.
• Changes to the ACCC's earlier proposal include: for the new regime to include a public benefits test; for the substantial lessening of competition test to expressly capture “entrenching, materially increasing or materially extending a position of substantial market power”; and the introduction of new merger factors.

What you need to do

• Stay tuned. The announcement expands on and clarifies the earlier merger reform announcement, and confirms that the ACCC is moving full steam ahead in its push for reforms.  It remains to be seen to what extent the current Government will adopt the ACCC's proposals, what any draft bill may look like, and the timeframe for the enactment of the reforms.  In the meantime it will be important to reflect on the proposed reforms and prepare for the possibility of a major shake-up to Australia's merger laws.

New details on merger reform proposal

Formal merger review model

The ACCC Chair has reaffirmed the ACCC's push for the introduction of a mandatory and suspensory merger regime, and provided new details on its proposed formal model:

1. The proposed reforms will include changing Australia's "voluntary" merger review regime to a "formal clearance model" comprising of a "mandatory" regime which would require merger parties to notify the ACCC of mergers when specified thresholds are met.

2. The ACCC has confirmed that threshold considerations are likely to 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.

3. The merger system would become "suspensory" meaning merger parties would be prohibited from completing a transaction until the merger is cleared by the ACCC (currently, there is no rule preventing merger parties from completing a transaction pending ACCC clearance).

4. The ACCC would have a "call in" power to review mergers that do not meet the specified notification thresholds but which the ACCC considers could give rise to competition concerns.

5. Merger parties would need to provide a range of specified information upfront to support their notification (currently, under the informal review process, merger parties can decide for themselves how much information to provide upfront, and then respond to any information requests from the ACCC as and when they arise).

6. A simplified process for non-contentious mergers under which merger parties could apply for a notification waiver to ensure that mergers that are unlikely to have anti-competitive effects can be dealt with in an expeditious manner.

Changes to earlier details on proposed reforms

The ACCC has backed away from its earlier suggestion that the Federal Court should not have a role in the merger review system.  The current proposal is that the ACCC, or Australian Competition Tribunal on review, would not clear a merger unless it is positively satisfied that the transaction is not likely to substantially lessen competition.  The Federal Court could, however, continue to consider applications for declaration of non-contravention and judicial review.  The role of the Federal Court in considering merger enforcement matters would also continue for transactions that do not trigger the notification thresholds.

The ACCC has proposed that the new regime should incorporate a public benefits test, as the current merger authorisation process does (but not the informal merger clearance process).  However, it appears that consideration of the public benefits test would not occur concurrently with the assessment of the competitive effects of a merger.  Rather, the ACCC proposes that merger parties would have the option of subsequently being able to apply for clearance on public benefits grounds if the applicants are not able to first satisfy the ACCC or Tribunal that a transaction can be cleared on competition grounds.

The ACCC has also proposed changes to the substantial lessening of competition test to include wording to confirm that “entrenching, materially increasing or materially extending a position of substantial market power” satisfies the test.  This would assist with addressing the ACCC's concerns with 'creeping acquisitions' – the accretion of market power through a strategy of small serial acquisitions that may not amount to a substantial lessening of competition on their own, a particular concern in digital platforms markets.

The ACCC has also proposed new merger factors to be taken into account when assessing mergers including:

1. the loss of actual or potential competitive rivalry;

2. increased access to, or control of data, technology or other significant assets;

3. whether the acquisition is part of a series of relevant acquisitions; and

4. whether the acquisition entrenches or extends a position of substantial market power.

These factors reflect the position consistently adopted by the ACCC in recent years that greater focus on market structure issues is needed in merger control.

What are the key implications?

The reforms, if enacted, will represent a fundamental shake-up to Australia's merger control regime with impacts on deal viability, timing and review options.  The reforms will mean that:

• More transactions are likely to need to be notified to the ACCC.
• More transactions are likely to be blocked by the ACCC as a result of the substantive test being enlarged to prohibit mergers that entrench, materially increase or materially extend market power.
• Merger parties will confront a more substantial upfront information burden when engaging with the ACCC – with implications for deal planning and timelines.
• The option to close a deal pending an ACCC review will be removed for those transactions which exceed the merger notification thresholds.
• The onus of proof will be changed under the ACCC clearance regime from that which applies in Federal Court proceedings.   The ACCC (or Tribunal on review) will need to be satisfied that a merger is not likely to substantially lessen competition.   Parties will need to satisfy this test in order to obtain ACCC clearance.
• Mergers that do not reach notification thresholds could still be "called in", creating residual risk of regulatory intervention. 

Where to from here?

The ACCC is particularly concerned for consumers and the Australian economy in the current environment of uncertainty and vulnerability from supply chain pressures, geopolitical issues and the climate change transition.

ACCC Chair, Gina Cass-Gottlieb has emphasised that the reforms to Australia's merger laws are important to protect competition in Australia’s economy during a critical period of economic transition.  It remains to be seen to what extent the current Government will adopt the ACCC's proposals, what any draft bill may look like, and the timeframe for the enactment of reforms.  In the meantime it will be important to reflect on the proposed reforms and prepare for the possibility of a major shake-up to Australia's merger laws.

For now, the current merger control regime lives on, and businesses contemplating mergers in the near future should keep this update in mind but need not panic.

Authors: Alyssa Phillips, Partner; Peter Armitage, Partner; John McKellar, Senior Associate; and Zoe Huang, Graduate.