Australia's merger regime to become mandatory, suspensory and administrative

What you need to know

• The Government will introduce legislation that makes significant changes to Australia's merger control system, moving to a single mandatory, suspensory, administrative regime, with the ACCC as first instance decision-maker. The changes are intended to take effect from 1 January 2026.
• Where a transaction exceeds specified filing thresholds (to be developed in consultation over the next 12 months), it will be mandatory to notify the ACCC and seek clearance. While this takes place, the transaction will be prevented from completing.
• The ACCC must permit a merger to proceed unless it reasonably believes that the merger would have the effect, or be likely to have the effect of substantially lessening competition in any market, including if the merger creates, strengthens or entrenches a position of substantial market power in any market.
• If the ACCC reasonably believes that the merger would have the effect of substantially lessening competition, the transaction may not proceed (subject to the parties seeking public benefit review from the ACCC or review by the Tribunal / Federal Court). It will not be necessary for the ACCC to go to court in order to block a transaction.
• The ACCC is not necessarily expecting more transactions to be notified, but expects these changes will help ensure the transactions that may raise competition law concerns will be the subject of review.
• These changes may mean higher costs (including application fees), less flexibility as to process and greater administrative burden on merger parties. They will also mean greater transparency (the ACCC will publish proposed transactions under review and reasons for its decisions) and possibly more certainty as to review timing.
• The ACCC will receive additional funding and resources and will be investing in upskilling its mergers branch from a capability perspective. Economic analysis will remain increasingly important to merger assessment, noting the Government announcement today recommending Dr Philip Williams as a new Commissioner from 27 June 2024.

What you need to do

• Stay abreast of the passage of the legislation through Parliament.
• In due course, consider the application of the new regime to any deals and whether notification will be required.
• Review transaction documents for conditions precedent, timing and cooperation provisions.

The Government will introduce legislation to make significant changes to Australia's merger control regime, moving to a single mandatory, suspensory, administrative regime. The changes are intended to take effect from 1 January 2026, subject to the passage of the legislation. The changes are said to bring Australia's merger control regime in line with most other OECD countries.

The announcement is just one component of the Government's Competition Review, which is ongoing.

In this article we have summarised the key changes to both the merger control process and the legal test applied.

The current position

Section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits the acquisition of shares or assets that would have, or be likely to have, the effect of substantially lessening competition (SLC) in a market. In assessing whether a merger is likely to SLC, the ACCC (or Tribunal or Federal Court) compares the likely future state of competition with the merger and without the merger. Currently Australia operates a 'voluntary' system in the sense that there is no prohibition on (and no penalty for) completing a transaction without any engagement with the ACCC. However, the ACCC has extensive powers, including the ability to take enforcement action if it believes a merger may breach section 50, to prevent the merger from completing, seek penalties and a range of other orders (including unwinding the transaction). These consequences act as a powerful incentive to engage with the regulator prior to completion of a deal. Merger parties can obtain 'clearance' for a merger through an informal merger review, a merger authorisation process or through Federal Court proceedings. Merger parties also commonly engage with the ACCC as part of the process of obtaining approval from the Foreign Investment Review Board.

For some time, the ACCC has been advocating for changes to both the process for approving mergers in Australia, as well as to the test applied by the relevant decision-maker. It has argued that the process is flawed, in that it does not consider that all relevant transactions are notified to it and parties fail to provide it with sufficient information and time to complete its review ahead of completion. As to the test, it has argued that it is skewed too heavily in favour of clearance where there is uncertainty, resulting in some anti-competitive transactions being allowed to proceed.

The Government's announcement has brought to an end the long-running debate about the merits of the ACCC's arguments and its proposals for reform. The reforms must still be passed by Parliament before they take effect and may be amended through this process, but this is the clearest indication yet of what is to come for the Australian merger regime.

Announcement

Invoking the dual goals of enhancements to productivity of the Australian economy and downward pressure on prices for consumers, the Government has announced sweeping reforms to Australia's merger control regime which are designed to create a "faster, stronger, simpler, more targeted and more transparent regime".

The reforms will move Australia to a single, mandatory, suspensory, administrative regime, with the ACCC as first-instance decision maker.

Key features of the new process and test are outlined below.

Changes to the merger control process

Key changes:

• A single process for merger clearance: The existing options of informal clearance, merger authorisation and Federal Court declaration will no longer be available. The amendments will introduce a single process for merger clearance in Australia via the ACCC.
• Mandatory notification required for transactions above thresholds: Under the proposed changes, it will be compulsory to notify the ACCC of transactions resulting in a change of control above certain thresholds. The thresholds will be determined following further consultation, but will be set by reference to typical metrics such as turnover, profitability or transaction value. Market share thresholds are also likely to be used to ensure that mergers below monetary thresholds but which otherwise may present competition risks will also be notified to the ACCC. (This may also help address the "creeping acquisitions" concern and see further below). A Treasury Minister will also be given the power to introduce additional, targeted notification obligations in response to evidence-based concerns regarding certain high-risk mergers. There is no further detail available on this aspect yet.
• Creeping acquisitions caught by thresholds: The cumulative effect of all mergers within the last three years by the acquirer or the target will be aggregated for the purposes of assessing whether a merger meets the notification thresholds, irrespective of whether those mergers themselves were individually notifiable.
• Suspension of transaction during ACCC review: The transaction will be suspended (ie, prevented from completing) while the ACCC conducts its review.
• ACCC becomes primary decision-maker, able to block transactions without going to court: Under the changes, the ACCC will become the first-instance decision-maker. If the ACCC does not approve the transaction, parties will be prevented from proceeding without the ACCC needing to go to the Federal Court (subject to notes on appeals below).
• Clear timelines for the ACCC to meet: The proposal outlines indicative timelines for the ACCC to meet in its decision-making process. These will be finalised through consultation in 2024. At this stage, the proposal is: Phase I – initial review of 30 working days; Phase II – in depth review of (a further) 90 working days, with a determination at (working) day 120. However, these timelines may be extended by the ACCC in "appropriate circumstances". Simple applications are expected to be determined within the 30 days (or less) and a fast-track option of determination after 15 days may be available if no concerns are identified.
• Public benefit application is made at the end of a Phase II determination: If the ACCC's Phase II determination is that the transaction is not allowed to proceed on competition grounds, the parties may seek approval from the ACCC on public benefit grounds. An additional 50 working days would apply for this review.
• In the absence of a decision by the ACCC in the timeframe, the merger may proceed: If the ACCC does not make a determination in relation to a merger within a certain time period, the merger may be put into effect.
• No ACCC call-in power: The ACCC will not have a call-in power for transactions below the thresholds.
• Appeals from the ACCC's decision on a merger clearance will be heard by the Competition Tribunal: Tribunal review of ACCC decisions will be on a limited merits basis (not a full review). There are a number of draw-backs to this review process, including the fact that it is (largely) limited to material that was before the ACCC (though change of circumstances can be taken into account). Parties may also seek judicial review on points of law in the Federal Court though this is also limited.
• Filing fees / notification requirements: Filing fees are not yet finalised but are expected for most transactions to be around $50,000-$100,000 per application, but will be scaled to reflect complexity and risk of the transaction. Parties will need to meet the ACCC's upfront information requirements in order to commence review. Simple, shorter notification forms will be available for mergers requiring notification according to the threshold, but that are unlikely to raise competition concerns. Applications for public benefit approval will attract a further fee, as will Tribunal review. We expect fee exemptions for small businesses.
• Public register: All mergers considered by the ACCC will be listed on an ACCC public register.
• Conditions: The ACCC will be able to determine that a merger may be put into effect subject to conditions. This includes that a person may give and comply with an undertaking under section 87B of the CCA. 87B commitments may be offered in either Phase I or Phase II. In a public benefit review, the remedies will need to address concerns relevant to that particular assessment. If remedies are offered the timelines will be extended to consult with market participants.
• Penalties for failure to file and other penalties: Penalties will apply for failure to file a notification (for a notifiable merger) or proceeding with a merger ahead of the ACCC's determination (or otherwise than in accordance with the ACCC's determination). Penalties will also apply for providing false or misleading information. Consistent with current provisions, the ACCC may apply for divestiture or the court may declare the merger void if false or misleading information was provided or there was a material omission by the merger parties.
• ACCC and FIRB: Foreign investors will not be required to notify below-the-threshold mergers to the ACCC, but the impact of these changes will depend on how the threshold that is ultimately set compares to the FIRB approval thresholds. The reforms paper implies that FIRB may have access to information provided to the ACCC for considering competition issues under the Foreign Acquisitions and Takeovers Act 1975 (Cth), but the paper does not explain how that would occur in practice. The Government has also flagged further reforms to streamline the competition assessment of mergers in sectors that are subject to national interest considerations.

Changes to the merger control test

Key changes:

• ACCC will apply SLC test focused on its "reasonable belief" and will consider whether merger creates, strengthens or extends market power: The ACCC must permit a merger to be put into effect unless the ACCC reasonably believes that the merger would have the effect, or be likely to have the effect of substantially lessening competition in any market, including (but not exclusively) if the merger creates, strengthens or entrenches a position of substantial market power in any market. While the test still encompasses the concept of SLC that is familiar, the shift to the requirement that the ACCC "reasonably believes" (as opposed to the current test which is focused on whether the merger is likely to SLC on the balance of probabilities) is a significant one. Combined with the addition of "creates, strengthens or entrenches", these changes will have a substantive impact.
• Previous creeping acquisitions rolled up in consideration of effect of merger: The cumulative effect of all mergers within the previous three years by the merger parties may be considered as part of the assessment of the notified merger, whether or not those mergers were themselves notifiable.
• Merger test to be supplemented by principles replacing "merger factors" in section 50(3) of the CCA: These are intended to assist the ACCC in its role as an administrative decision-maker and to ensure explicit emphasis is placed on economic methodology and analysis of competitive effects. They will include concepts such as barriers to entry, structure of markets and actual or potential competition. The principles will also ensure the competitive effects of related agreements by the merger parties may also be taken into account in the ACCC's assessment.
• "Substantial" public benefit required if seeking approval after Phase II decision: After a Phase II determination, merger parties may seek approval from the ACCC if the ACCC is satisfied that the merger would result, or be likely to result in a substantial benefit to the public which outweighs the anti-competitive detriment of the merger. This is a change from the current "net public benefits" test.

Key implications

• The costs and administrative burden involved in seeking merger clearance in Australia will significantly increase once the proposals pass Parliament and take effect. The process will be more formal and less flexible than the current informal one.
• In terms of time frames, the devil will be in the detail which is yet to be finalised. Further, the extent to which the ACCC relies on the power to extend timelines in "certain circumstances" will have an impact on whether the reforms deliver on the government's "faster" goal.
• Through their submissions, parties will need to ensure the ACCC does not "reasonably believe" that the merger would have the effect or be likely to have the effect of substantially lessening competition.
• In every acquisition, it will be crucial to conduct an assessment of whether mandatory filing may be triggered and, if so, to include a regulatory condition precedent. Once the amendments take effect, the option of proceeding without clearance will no longer be available for transactions that trigger the filing thresholds.