Australia's proposed merger notification thresholds released for consultation
03 September 2024
03 September 2024
On 30 August 2024, the Federal Government opened consultation on Australia's proposed merger notification thresholds. The Consultation Paper proposes a notification regime that consists of four different thresholds – two based on monetary thresholds, and two based on market concentration. From 1 January 2026, subject to passage of the legislation, mergers that meet any of those thresholds will be required to notify and seek clearance from the ACCC. For further details about the forthcoming changes to the merger process, see our earlier article here.
The key objectives the Government is seeking to achieve with the thresholds are:
The Government has noted that the proposed thresholds are based on risk factors that indicate a merger is more likely to have an appreciable effect on competition. The thresholds will determine which mergers must be notified to the ACCC, and the ACCC will then undertake an assessment of whether the merger is likely to substantially lessen competition.
As a further filter in the new merger control regime, only acquisitions that give rise to "control" (proposed to be defined as the capacity to directly or indirectly determine the policy of the target in relation to one or more matters) would be notifiable.
The Consultation Paper indicates that the proposed thresholds are based on Treasury's analysis of historical mergers considered by the ACCC, and capture around 90% of publicly reviewed transactions that raised competition concerns since 2018. The ACCC has estimated that 80-90% of notified mergers will be cleared within 4 weeks from the date the ACCC accepts the application.
Importantly, while notification thresholds will be used to identify transactions that should be notified to the ACCC, and are not indicative of transactions that should be blocked, parties will still need to turn their mind to whether transactions which do not meet the thresholds would be likely to substantially lessen competition. The Consultation Paper makes it clear that such transactions could "still be investigated by the ACCC for breach of other provisions of the CCA".
Under the proposed thresholds, mergers will trigger mandatory notification requirements if they reach either of the two following monetary limbs and there is a material connection to Australia (Jurisdictional Nexus).
Limb 1:
OR:
Limb 2:
The Jurisdictional Nexus will be met where the target business or asset has a material connection to Australia, for example being registered or located in Australia, supplying goods or services to Australian consumers, or generating revenue in Australia. It is unclear how "materiality" will be approached – for example, whether de minimis supply of products to consumers located in Australia would be excluded, or whether any supply in Australia is intended to be capable of satisfying the jurisdictional nexus.
To address concerns regarding serial acquisitions, all acquisitions within the previous three years within the same product or service market/s (irrespective of geographic location) by the acquirer and acquirer corporate group are proposed to be aggregated for the purposes of assessing whether an acquisition meets the monetary turnover threshold, regardless of whether those acquisitions were themselves individually notifiable.
Even if a merger does not trigger the monetary thresholds, it is proposed that it would be notifiable if either of the two following market concentration limbs are met.
Limb 1
Limb 2:
Limb 1 is designed to align with the European Commission's guidelines that market shares exceeding 25% may impede effective competition. Limb 2 is designed to ensure that "key acquisitions" involving parties with substantial market power are captured, even if the size of the acquisition is smaller.
In conjunction with the above market consultation thresholds, Treasury is consulting on whether the relevant "share" should be "market share" in the affected or adjacent market, or the parties' "share of supply" of a good or service. In relation to "market share", Treasury has indicated that this would require merger parties to calculate market share based on the market definition "most likely to raise competition concerns". In the alternative, "share of supply" does not require a market definition, as it is based on the specific product or service supplied. We query whether the use of "share of supply" would in fact reduce compliance costs and uncertainty for merger parties, as it would ultimately still involve consideration of products and geographies that should be taken into account in calculating share, and require the parties to have access to robust industry data, which is (in practice, in our experience) often lacking. There are also often questions about the appropriate measure of "share" (whether it is revenue, quantity, capacity, workers employed etc).
In acknowledgement of the uncertainties that the market concentration threshold will bring, Treasury has also floated the concept of "prior registration" of mergers in certain goods or services or in specified local or regional areas – as an alternative to applying market concentration thresholds. There are scant details on how this "administrative form" would operate, but the intention is to minimise compliance costs "while allowing the ACCC to scrutinise potential mergers of concern in small product markets, or local or regional areas".
Treasury is considering establishing a process that would allow parties to seek a ‘notification waiver’ from the ACCC, including if there is uncertainty about whether the thresholds are met. If granted, a waiver would relieve parties of the obligation to notify an acquisition.
Under the proposal, the ACCC would not be able to subsequently bring proceedings for failure to notify. However, the ACCC would still be able to investigate or take action if they were to later consider the acquisition had an anti-competitive purpose or effect.
As foreshadowed previously, it is proposed that the Treasury Minister will have the ability to set targeted notification requirements in certain areas of the economy. The Consultation Paper specifically notes that additional requirements may be warranted in the sectors of groceries, fuel, liquor and oncology-radiology.
Before such a Ministerial determination can be made, evidence-based analysis and advice will need to be presented to the Minister, and stakeholder consultation undertaken. A Treasury Minister will be required to consider any reports and advice from the ACCC and to seek appropriate consultation as reasonably practicable. These additional requirements will last for a maximum of five years, after which the Minister must evaluate new advice before setting a new threshold.
Our initial thoughts on the thresholds are as follows:
Submissions on the proposed merger notification thresholds are open until 20 September 2024.
Authors: Tihana Zuk, Partner; Amanda Tesvic, Expertise Counsel and Peter Tryfonopoulos, Associate.
Key insights into Australia's draft merger reform legislation (26 July 2024)
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.