Getting out in front by reviewing strategy and other relevant internal documents at an early stage is likely to be key for obtaining complex merger control approvals in Australia, following important changes highlighted by the ACCC.
More extensive information requests, more compulsory information requests and longer review times are on the way for complex mergers that may affect competition in Australia, following an announcement of important changes by ACCC Chairperson, Rod Sims, in a recent speech.
The key points on what this means for obtaining merger control approvals in Australia are:
- there should be no change for simple deals that don’t raise difficult competition issues;
- in the more complex cases, timeframes will be longer and costs will increase;
- parties will need to produce a greater volume of their business records and expect substantial scrutiny of the deal; and
- parties may be well advised to pre-empt some of these requirements and offer up internal board and strategy documents at the same time as submitting their clearance application. This could get merger parties out in front of any issues raised by their internal documents and avoid procedural roadblocks at later stages of the review.
What's prompted the ACCC's changing attitude to evidence in merger clearances?
Rod Sims acknowledged that the ACCC's recent track record on opposing mergers in the Australian Competition Tribunal has "not been good" but also that, significantly, there have been no mergers blocked by the Tribunal or the Federal Court for at least the last 20 years.
In particular, the ACCC has been stung by recent criticisms that its decisions to oppose proposed transactions were "theoretical and lacking in commercial reality".
The ACCC indicated that while claimed commercial views presented by the merger parties' executives at the time of hearings have been persuasive in the recent merger cases, "quantitative analysis or even corporate strategy documents supporting these claims need to be reviewed to verify that evidence".
Following comments in some recent merger cases in the United States, the ACCC now has a stated preference for analysing internal strategy documents prepared well before a merger is considered rather than the arguments presented when clearance is sought.
Of course, the ACCC has been asking for and reviewing this type of internal business record using its informal and formal information gathering powers for many years. The ACCC is not averse to issuing wide-ranging document production requests and stopping the clock on a merger review until it gets what it has asked for and had the opportunity to review it.
How this will affect merger clearance approvals in Australia
This change suggests merger parties involved in complex transactions should steel themselves for more rigorous substantive reviews before the ACCC. The ACCC appears to be moving towards an approach where it will gather substantially more evidence so that, if required, it can be better prepared in merger litigation, while also improving its decision-making.
The ACCC will do this in a number of ways, in particular by issuing more formal information requests, requiring more interviews of company executives on oath and requiring production of primary documents rather than submissions.
This will increase the burden on the merger parties and the ACCC, although the ACCC did say that it will consult with merger parties prior to issuing notices to produce, in order to avoid overreach. However, the Chair was also clear that this will not lead to production requests as significant as so-called "second requests" in the United States.
All of this is likely to increase the costs of engagement with the ACCC and lengthen review processes where there are material concerns to be addressed. It will require further resources to prepare company executives.
The most significant impact is on timing, in particular consulting on notices, reviewing and responding, and waiting for the ACCC to digest the material. Though merger timing is likely to remain similar to the review periods before other major overseas regulators.
Dealing with the new attitude
The best way to navigate these new waters could be by:
- reviewing strategy and other relevant documents at an early stage to get out in front of any problematic evidence;
- (potentially) proactively offering any such material to give the ACCC enough time to assess the parties' internal views of the market at an earlier stage;
- concentrating early efforts on narrowing the scope of the ACCC review and the number of markets or issues which raise material concerns;
- negotiating confined scopes for formal production requests or witness interviews; and/or
- earlier submission of remedies proposals once issues have crystallised.