In the recent MacGen case, the intending acquirer successfully applied to the Australian Competition Tribunal for authorisation after the ACCC announced it would oppose the merger. Subsequently, the ACCC submitted to the Competition Policy Review that the Tribunal should not have jurisdiction unless and until the ACCC has made a determination under the formal authorisation process (which has not to date been used). Partner, George Raitt discusses the Review Panel’s draft report, which adopts the ACCC recommendations, and the practical implications of differences of opinion that have emerged between the ACCC and the Tribunal on key principles.
The majority of merger cases are considered under the informal clearance process promulgated by the ACCC. These are, in the first instance, confidential and relatively speedy. Should the ACCC not be convinced by a confidential merger proposal, it may conduct a public inquiry before deciding to oppose or not oppose. Under current law, an intending acquirer then may choose to apply formally to the ACCC for a determination that the merger would not be likely to substantially lessen competition. Due to the inherent improbability of the ACCC changing its mind, this process has not to date been used. The intending acquirer may alternatively elect either to apply to the court for a declaration that the merger is not anti-competitive or to appeal to the Tribunal for a merits review. However, under current law neither the ACCC nor the court has power to undertake a policy consideration whether on balance there are net benefits to the public of the merger proceeding. Only the Tribunal can do that.
Two recent Tribunal decisions reveal a fundamental difference of opinion between the ACCC and the Tribunal as to the principles to be applied in determining public benefits and weighing up any net benefit that may justify the merger. The ACCC is not bound by the Tribunal’s approach (unless endorsed by a court as a matter of law) and remains opposed to it. This suggests the likely outcome will differ if the legal process is changed, as recommended by the Review, to require that only the ACCC may make the first instance decision (and that it be permitted to weigh up public benefits). The Review’s draft proposal imposes relatively short timeframes on the formal authorisation process, however, as the ACCC would be unlikely to change its mind following any informal review, the process in reality is always headed for appeal to the Tribunal for an independent determination. While there is the prospect of the Tribunal overturning the ACCC on appeal, due to time factors in the context of contested takeovers, it is likely that the first instance decision will finally dispose of the matter. In fact, contested acquisitions are time-sensitive and an announcement of opposition by the ACCC following informal review is often enough to dispose of the matter.
It seems inappropriate for the ACCC to be both advocate and decision-maker under a formal process since, on general principles, any person or body having both roles lacks the independence of mind necessary to critically question its own views.
AGL is the second intending acquirer in recent years to be attracted by the possibility of obtaining authorisation from the Tribunal. The Tribunal’s power to authorise an acquisition is stated in the negative, i.e. it must not authorise the acquisition unless it is satisfied that the acquisition would be likely to result in such a benefit to the public that it should be allowed. It is implicit, however, in the ‘public benefit’ test that the acquisition would fail the ‘competition test’ and so the Tribunal weighs up anti-competitive detriment against public benefits. AGL argued that the acquisition would not have the likely result of substantially lessening competition. In theory this could have been validated by declaration of the court, however, the Tribunal has the advantage of weighing up public benefits and detriments rather than simply considering the narrow legal question.
The difference of opinion between the ACCC and the Tribunal concerns the weight to be given to merger efficiencies to neutralise perceived anti-competitive detriment. The ACCC Merger Guidelines acknowledge that efficiencies may be ‘taken into account’, but the ACCC in the MacGen case argued that benefits would not be passed on to consumers but would be ‘private benefits’ enjoyed by AGL in the form of, e.g. lower costs and higher profits. It is unclear whether an Australian court would take these effects into account when determining whether a merger would contravene the competition test, i.e. would be likely to substantially lessen competition in a relevant market. The Tribunal, on the other hand, has power to take such considerations into account. The Tribunal in Qantas Airways (2004) was of the view that efficiency gains realised by the merger parties could constitute a public benefit without necessarily being passed on to consumers.
The ACCC disagreed in that case, and still disagreed in MacGen (2014), submitting in its report to the Tribunal that efficiency gains that may be made by AGL are not a public benefit but a private benefit. The contrary reasoning accepted by the Tribunal in Qantas is that efficiency gains contribute to GDP and should be given ‘appropriate weight’ in the Tribunal’s deliberations. Until ruled on by a court, the ACCC may be unlikely to accept this reasoning, which is fundamental to the purpose and effect of competition laws. The Tribunal in MacGen found it unnecessary to decide the issue, given its view of the over-riding public benefits. The Tribunal did, however, stand by the view it had expressed in Qantas and commented favourably on efficiency gains which it accepted would be generated by AGL. The Tribunal suggests that these efficiency gains would create a public benefit through ‘more vigorous competition’, i.e. the logical consequence of this finding, in other contexts, is that efficiency gains counteract alleged anti-competitive effects.
The ACCC’s public statements shortly before the Tribunal delivered its decision in the MacGen case, and the ACCC’srecommendation to the Competition Policy Review that the Tribunal’s role in merger authorisations be limited, suggests that the ACCC’s position is unchanged. It seems reasonable to predict, therefore, that the change in process recommended by the Review is likely to change the outcome of merger applications.