Recent merger reviews by the Australian Competition and Consumer Commission (ACCC) reveal that the ACCC is scrutinising transactions more closely, for longer, and is opposing them more frequently.
Several high profile transactions have been blocked in the last year, including:
+ National Australia Bank proposed acquisition of AXA Asia Pacific Holdings, the most recent example of the ACCC’s tougher stance. The proposed transaction was under review, including negotiations of proposed remedies, for approximately 9 months. NAB and AXA are both providers of wealth management products on investment platforms. In opposing the merger, the ACCC considered that the merger would remove a significant amount of competitive tension in “the market for retail investment platforms for investors with complex investment needs”. This market definition was significantly narrower than the market definitions adopted in previous reviews. After further market enquiries, the parties’ proposed undertakings to remedy the concerns were rejected; the ACCC did not consider that the proposed purchaser (IOOF) would be able to effectively compete, given its lack of financial products and distribution network and the uncertainty of executing given the long-term behavioural obligations involved.
+ Link Market Services proposed acquisition of Newreg, two securities registry service providers. Although the horizontal aggregation was small, the ACCC considered that Newreg was a “maverick”, aggressively marketing and discounting its services to attract new customers, and that the acquisition would “entrench the duopoly” of the two largest competitors.
+ Caltex proposed acquisition of Mobil’s retail gasoline/petrol sites. The ACCC found that there were only 46 out of 302 sites that posed concerns on the basis of local area overlaps. However, the ACCC rejected the acquisition in its entirety, on the basis that it would increase the risk of tacit coordination in the relevant markets between vertically integrated refiner-marketers and result in greater stability in the petrol price cycle.
+ GUD (Sunbeam) proposed acquisition of Breville, the two largest suppliers of small appliances in Australia. The ACCC concluded that consumers place a high value on brands, acting as a significant barrier to entry into the relevant markets. The ACCC considered that it was therefore unlikely that suppliers could replace the competition lost as a result of the proposed acquisition.
Also notable is the investigation of the proposed joint venture between BHP Billiton and Rio Tinto, which is still under review. Although the ACCC cleared a proposed merger between the parties in 2008, the ACCC has been conducting a detailed investigation of the joint venture proposal, now in stage 2, since December 2009. The ACCC’s Statement of Issues suggests that there are substantial competition concerns and it has extended the decision timeline on several occasions.
Other transactions have only been cleared by the ACCC after the parties agreed to provide substantial undertakings, including Pfizer/Wyeth, Woolworths/Danks and Agilent/Varian.
Merger reviews are increasingly comprehensive
An analysis of recent mergers illustrates that reviews are lengthier compared with previous years.
Currently, the average review period for the current mergers under consideration is 52 business days. In contrast, the average review period in 2009 and for those reviews already completed in 2010 is 34 business days.
The increased time to review mergers may be partly due to an increased use of the ACCC’s compulsory information gathering powers. Similar to other jurisdictions, the ACCC has compulsory powers to require the provision of internal company documents such as board papers and strategy documents, which may be voluminous. Increasingly, the ACCC also compels oral examinations of relevant personnel.
When to file?
In Australia, unlike many other jurisdictions, merger parties are not required to notify the ACCC of a proposed merger or acquisition under the Australian Trade Practices Act 1974 (TPA). However, the ACCC’s Merger Guidelines encourage notification where the parties’ products are complements or substitutes and, combined, their share of any relevant market would be above 20%. The ACCC pays particularly close attention to clearance applications when:
+ the merger parties operate in concentrated markets;
+ the merger parties are each other’s closest competitors;
+ the merged firm will have significantly higher share than its rivals; or
+ the merged firm is in an industry that the ACCC monitors closely (including telecommunications, petrol, energy, groceries and banking).
Increasingly, merger reviews are initiated by the ACCC based on referrals from other regulatory agencies, such as the Foreign Investment Review Board, referrals from overseas regulators, such as the US FTC, the DOJ, the European Commission; and through its own media monitoring. The ACCC will contact parties following such referrals or press speculation about a particular merger advising of its intention to review the transaction and remind parties of the prohibition against acquisitions of shares or assets that substantially lessen competition under the Australian TPA.
The ACCC also reviews a large number of completed mergers. If a consummated merger is found to breach the TPA, the ACCC may seek orders requiring divestiture, that the transaction be set aside and/or penalties.