Legislation and jurisdictionRelevant legislation and regulators
What is the relevant legislation and who enforces it?
The Competition and Consumer Act 2010 (CCA) regulates mergers affecting Australia from a competition law perspective. The CCA is a federal law aimed at restricting anticompetitive business conduct and protecting consumers.
The merger provisions of the CCA are enforced by the Australian Competition and Consumer Commission (ACCC). Section 50 is the main merger provision in the CCA. Only the ACCC has standing to seek a Federal Court injunction under section 50 to prevent a merger from proceeding. Other persons, including competitors, can take action against anticompetitive mergers following completion, and may seek damages, declarations or divestiture. The ACCC may also seek these remedies following an acquisition and, in addition, may seek pecuniary penalties and an order declaring the transaction void.
In relation to transactions that occur wholly outside Australia but that affect Australia, section 50A of the CCA provides that the Commonwealth Treasurer, the ACCC or any other person may apply to the Australian Competition Tribunal (the Tribunal) for a declaration if the acquisition of a controlling interest in a corporation that carries on business in Australia would have the effect or likely effect of substantially lessening competition in a market in Australia, and the acquisition would not result in a public benefit that offsets the lessening of competition.
There are a number of other important laws in Australia that relate to other aspects of merger control, in particular the Foreign Acquisitions and Takeovers Act 1975 (FATA), which is administered by the Foreign Investment Review Board (FIRB). The FATA provides for mandatory notification and application for prior approval of transactions exceeding specified thresholds. The Commonwealth Treasurer has power to prohibit such transactions if they are considered contrary to the national interest. In addition, there are other industry-specific or entity-specific laws and regulations dealing with acquisitions in certain sectors, including the financial services, media, civil aviation, shipping and telecommunications industries.Scope of legislation
What kinds of mergers are caught?
Section 50 of the CCA applies to acquisitions of shares or assets that have the effect or are likely to have the effect of substantially lessening competition in any market in Australia. The definition of ‘market’ includes a market for goods or services in Australia or in a region, territory or state of Australia. The market does not need to be ‘substantial’ and can include local markets. In addition, while section 50 refers to a market in Australia, the ACCC recognises the existence of markets that are global or regional in nature, and in such cases will examine the effect on competition in terms of the section of the global or regional market that exists within Australia.
There are no minimum turnover or other thresholds for sections 50 or 50A to apply, and acquisitions of any size (including of minority interests) could potentially be captured by the provisions.
What types of joint ventures are caught?
Joint ventures will be caught under the merger provisions of the CCA if they involve the acquisition of shares or assets. Other provisions of the CCA may also need to be considered in relation to joint ventures, including the provisions dealing with anticompetitive arrangements and the civil and criminal cartel offences. There are exceptions to the civil and criminal cartel offences for joint ventures for the production, supply or acquisition of goods or services; however, strict criteria must be satisfied for the defences to apply.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
There is no definition of ‘control’ in relation to section 50. Section 50 applies to all acquisitions of shares or assets, regardless of whether they deliver ‘control’ of the target firm, if the acquisition leads to a substantial lessening of competition.
It will generally be assumed that a corporation controls its subsidiaries. The CCA defines an entity as a ‘subsidiary’ if the parent:
- controls the composition of the entity’s board of directors;
- is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the entity’s shareholders; or
- holds more than half of the allotted share capital in the entity.
Where an acquisition does not result in the target becoming a subsidiary, the acquisition of a minority shareholding may nonetheless be found to give rise to effective control. Factors that will be taken into account by the ACCC when considering whether the acquisition of a minority shareholding is sufficient to deliver control of a company or raise competition issues include:
- the ownership distribution of the remaining shares and securities;
- the likely exchange of competitively sensitive information;
- whether other shareholders are active or passive participants at company meetings;
- any other contracts or arrangements between the parties;
- the composition of the board of directors; and
- the company’s constitution, including veto rights under majority or special majority matters.
Further, the ACCC may raise issues under section 50 even where no control is achieved, if it regards the transaction as leading to a substantial lessening of competition by reducing competitive tension between parties in the market or increasing the potential for coordinated conduct.
In relation to transactions that occur wholly outside Australia and are captured by section 50A, there is a requirement that a controlling interest is obtained in order for the transaction to be reviewable under section 50A. A controlling interest will be obtained if a company becomes a subsidiary (as defined above) of the acquirer.Thresholds, triggers and approvals
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
Section 50 applies to the following transactions if they have the effect or likely effect of substantially lessening competition in any market in Australia:
- any acquisition by an Australian company anywhere in the world;
- any acquisition that occurs within Australia (eg, where the purchaser acquires direct ownership of shares in an Australian company or assets in Australia are acquired, regardless of the location of the purchaser); and
- any acquisition outside Australia by bodies corporate incorporated or carrying on business within Australia, or by Australian citizens or persons ordinarily resident within Australia.
In relation to transactions that occur wholly outside Australia but that result in an indirect ownership interest being obtained in a company carrying on business in Australia, section 50A provides that the Commonwealth Treasurer, the ACCC or any other person may apply to the Tribunal for a declaration if the acquisition of a controlling interest in the Australian corporation would have the effect or likely effect of substantially lessening competition in a market in Australia, and the acquisition would not result in a public benefit that offsets the lessening of competition.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
The notification of mergers and acquisitions in Australia is voluntary and there is no minimum turnover or other monetary threshold for notifying mergers to the ACCC. However, the ACCC’s Merger Guidelines indicate that the ACCC expects to be notified of mergers in advance where the products of the merger parties are either substitutes or complements, and the merged firm will have a post-merger market share greater than 20 per cent in the relevant market.
If a decision to file is made, there are two options for obtaining merger clearance:
- An informal clearance system under which parties approach the ACCC on an informal (and sometimes confidential) basis for clearance on the grounds that the transaction is unlikely to result in a substantial lessening of competition. There is no statutory basis for this clearance, and it does not prevent third parties from subsequently challenging the transaction. The process followed by the ACCC in an informal review is set out in the ACCC’s Informal Merger Review Process Guidelines. It is the main method of obtaining clearance in Australia.
- A merger authorisation process that came into effect (in its current form) on 6 November 2017. The ACCC can grant merger authorisation if it is satisfied that either the proposed acquisition would be unlikely to substantially lessen competition or the likely public benefit from the proposed acquisition outweighs the likely public detriment. Where authorisation is granted and any conditions attached to the authorisation are complied with, an action cannot be brought by the ACCC or third parties on the basis that the acquisition contravenes section 50 of the CCA. The ACCC’s Merger Authorisation Guidelines outline the legislative requirements and procedural steps for parties wishing to apply to the ACCC for authorisation of proposed mergers and acquisitions.
Although filing is voluntary, the ACCC will expect parties to seek clearance where a merger raises competition issues or is above the notification threshold specified by the ACCC. The ACCC also encourages parties to approach the ACCC where the ACCC has indicated to a firm or industry that notification of transactions by that firm or in that industry would be advisable. The ACCC will investigate and review all acquisitions it becomes aware of that have the potential to raise issues under section 50, regardless of whether or not clearance is sought. The ACCC will become aware of certain transactions that are notified to FIRB, which can trigger an ACCC examination of a transaction if it has not previously been notified to the ACCC. FIRB will often withhold its approval until the ACCC advises FIRB that it has no objections.
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
Foreign-to-foreign mergers can be captured under section 50 or section 50A. Section 50 will apply to acquisitions that occur outside Australia if they involve bodies corporate incorporated in or carrying on business within Australia, or Australian citizens or persons ordinarily resident within Australia. It may be sufficient if the acquirer ‘carries on a business in Australia’ through a subsidiary or other representative, even though the acquirer itself has no direct operations in Australia. Section 50A will apply if a foreign-to-foreign merger results in a controlling interest being acquired in a corporation that carries on business in Australia.
In both cases, there is a local effects or nexus test, which is whether the acquisition will have the effect or likely effect of substantially lessening competition in a market in Australia. In the case of section 50A, public benefits are considered in mitigation of any anticompetitive effects.
Also see comments below in relation to rules on foreign investment.
Are there also rules on foreign investment, special sectors or other relevant approvals?
There are a number of important laws in Australia that relate to other aspects of merger control, in particular the FATA, which is administered by FIRB. The FATA provides for mandatory notification and application for prior approval of foreign investment transactions exceeding specified thresholds. Other legislation imposes additional requirements and limits on certain foreign investments, including in the financial services, media, civil aviation, shipping and telecommunications industries.
Among other things, the Australian government may consider both domestic and global competition issues when assessing an application for foreign investment approval.
Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
As there is no mandatory requirement under the CCA for the parties to a proposed transaction to notify the ACCC, there are no sanctions for not filing. However, if a transaction proceeds without notification and the ACCC successfully establishes that it has the likely effect of substantially lessening competition in any market, then penalties and remedies for a contravention of the merger provisions will apply (see question 24).
In terms of deadlines for filing, there is no deadline as filing is voluntary. However, if a decision is made to file then the timetable will depend on which of the available clearance options is chosen:
- informal clearance: there is no set deadline for filing; however, parties will normally approach the ACCC on a confidential basis prior to the public announcement of a transaction; or
- authorisation: there is no set deadline other than the parties must lodge a filing prior to completion of the transaction. As an undertaking that the transaction will not complete until after the ACCC’s decision is required to be provided, any filing should occur well in advance of completion to allow for the statutory time periods (see question 11).
Which parties are responsible for filing and are filing fees required?
The acquirer is usually responsible for notifying a transaction to the ACCC under the informal process, and is the party required to file under the merger authorisation process. There are no fees for informal clearances by the ACCC. There is a filing fee of A$25,000 for authorisation applications lodged with the ACCC. Fees are generally payable in respect of filings required to be made to FIRB under the FATA.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
In relation to an informal clearance decision, there is no set time frame for an ACCC decision. Seeking informal clearance does not require the transaction to be suspended prior to clearance, but in some cases where the ACCC identifies competition concerns, the ACCC will request the acquirer provide it with a written undertaking not to complete the acquisition during the informal merger review process, or alternatively to provide a minimum period of notice before completing the transaction. If an undertaking is not provided, the ACCC may seek a court injunction to stop the transaction completing until it has completed its review.
In general, an initial assessment of a merger will be conducted to determine whether a public review will be required. Where the ACCC is satisfied, based on that initial assessment of the information provided that there is a low risk of a merger substantially lessening competition, the ACCC may decide that it is not necessary to conduct a public review - these mergers are described as being ‘pre-assessed’. An initial assessment can be conducted for both confidential and non-confidential mergers. A significant proportion of the mergers notified to the ACCC are able to be pre-assessed expeditiously, often within two to four weeks, some of which involve targeted market inquiries conducted by the ACCC, subject to whether the transaction is confidential. If the ACCC decides that a public review is necessary to assess a merger in the public domain, the review will typically take a further six to 12 weeks. Complex mergers that result in the publication of a statement of issues are likely to take an additional six to 12 weeks after the statement of issues is published, but this can vary depending on factors such as the responsiveness of the merger parties to information requests and whether remedies are proposed.
In relation to merger authorisations, the ACCC must reach a determination on an application for authorisation of a merger within 90 days of receiving a valid application. This period may be extended with the consent of the applicant. If no decision is made within this period, the ACCC is taken to have refused to grant the authorisation. An application for authorisation must include an undertaking that the applicant will not complete the acquisition while the application is being considered by the ACCC.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
If an application for authorisation is chosen as the method for seeking merger clearance, then it is not possible to close before authorisation as this would be in violation of the undertaking given to the ACCC. A breach of the undertaking not to complete the transaction could result in a range of court orders, including an order directing the person to comply with the terms of the undertaking or any other order that the court considers appropriate.
Where informal clearance is sought from the ACCC, it is usual to wait until the ACCC has concluded its review before completing the merger. There are no sanctions for closing a transaction before informal clearance is obtained; however, the ACCC is able to seek an injunction to prevent this from occurring. Alternatively, the ACCC might let the transaction proceed and instead seek remedies including pecuniary penalties (see question 24), divestiture of the shares or assets acquired, or an order that the transaction is void and that monies should be refunded to the vendor. The ACCC has rarely sought these remedies in relation to mergers. More commonly, if the ACCC is concerned that the transaction raises serious competition issues, it will seek an undertaking from the parties not to complete the transaction until completion of the ACCC’s review. Often this undertaking will be provided if the transaction is one in which there are complex competition issues, given the potential for the ACCC to obtain an injunction if the undertaking is refused.
If a filing has been made to FIRB under the FATA, it is a criminal offence to close without FIRB approval.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
As there is no mandatory requirement under the CCA for the parties to a proposed transaction to notify the ACCC, there are no sanctions for closing prior to clearance. However, if the ACCC subsequently establishes that the transaction has the likely effect of substantially lessening competition in any market, then the court can impose penalties and other remedies for a contravention of the merger provisions (see question 24).
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
The ACCC strongly recommends that merger parties obtain clearance for a merger that may potentially raise competition concerns, including a foreign-to-foreign merger, prior to closing.
In limited circumstances, the ACCC may accept the following:
- if it is possible, a carveout of the acquisition of shares or assets that relate to Australia out of the global transaction, so that completion in relation to the Australian aspects does not occur until after the rest of the transaction; or
- if a carve-out is not possible, provision of an undertaking to the ACCC that the Australian assets will be preserved as separate and independently viable businesses via a ‘hold-separate’ arrangement while the parties await informal clearance from the ACCC. If the ACCC is prepared to agree to such a remedy, it is likely to require that an ACCC-approved independent manager manage the business, the subject of the hold-separate arrangement, while it completes its merger review. This option only exists for informal clearance as authorisation cannot be granted for acquisitions that have been completed.
Are there any special merger control rules applicable to public takeover bids?
Chapter 6 of the Corporations Act 2001 (Cth) governs takeovers of listed Australian companies or other Australian companies with more than 50 members. The CCA does not contain any specific provisions dealing with public takeover bids. The ACCC’s usual processes apply.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
Under the informal clearance system, the ACCC’s Informal Merger Review Process Guidelines recommend that the party lodge an initial written submission that includes:
- information about the parties to the transaction (including any relevant related bodies corporate) including trading names and ownership details;
- details of the proposed transaction, including the underlying rationale;
- details of the Australian business operations, interests and assets of the acquirer and target;
- where the target and acquirer supply goods or services in the same market or have a customer-supplier relationship with one another, market shares of the suppliers for each market, the extent of imports, and evidence of future new entry or expansion; and
- for mergers that the ACCC considers require public review, a list of key customer and supplier names and contact details.
The Informal Merger Review Process Guidelines and the Merger Guidelines contain an outline of the information the ACCC may require to reach a view on how competition will be affected by the proposed transaction. The level of information required will depend on the complexity of the merger and potential competition issues raised. In an informal merger review, the parties do not need to provide a complete information package at the outset of the merger application. In simple transactions, a notification may comprise a brief courtesy letter setting out the information described above. In other transactions, a detailed submission will be required and the ACCC may request additional information throughout the review, depending on the issues raised.
Authorisation applications to the ACCC must be in the prescribed form approved by the ACCC (available on its website). The application must be accompanied by particulars of the proposed acquisition, the prescribed fee, an undertaking not to complete the acquisition until the ACCC has completed its review, and a declaration that the application is true, correct and complete. The application should also be accompanied by a comprehensive submission, containing an analysis of any other anticompetitive effects or other detriments resulting from the acquisition and specifying any public benefits. Applications for authorisation that do not substantially comply with the requirements of the approved form may be invalid.
There are serious consequences for providing false or misleading information to the ACCC when applying for informal clearance or authorisation.
Section 92 of the CCA prohibits a person from giving information to the ACCC in connection with an application for merger authorisation if the person knows or is reckless or otherwise negligent as to whether the information given is false or misleading. Breaches of this provision may attract pecuniary penalties. Knowingly giving the ACCC false or misleading information, or omitting any matter or thing without which the information is misleading, may also give rise to criminal penalties.
The ACCC may revisit its informal clearance decision if it determines that information provided to it was false or misleading. Similarly, the ACCC may take steps to revoke authorisation granted on the basis of false or misleading information. The ACCC may also seek orders from the Federal Court to stop the proposed acquisition from proceeding, or divesture if the acquisition has already been completed.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
The steps for clearance and the phases depend on which of the two clearance options is chosen.
Where a party seeks informal clearance:
- For each merger, the ACCC will make an initial assessment based on the information available to determine whether a public review will be required. Where the ACCC is satisfied, based on the information provided and other information the ACCC has before it, that there is a low risk of a merger substantially lessening competition, the ACCC may decide that it is not necessary to conduct a public review of that merger. These mergers are described as being pre-assessed. The notifying parties will be informed that the ACCC does not intend to conduct a public review.
- For mergers that the ACCC decides require a public review, it will commence a public review of the transaction once a notified transaction is publicly announced or if details of the transaction become public prior to any announcement. The ACCC will publish the merger proposal on its website, together with an indicative timeline. During the period of initial market inquiries, the ACCC will liaise with interested third parties, and will generally provide the merger parties with written details of the relevant issues or concerns arising from the consultation. If the ACCC decides that no competition concerns have been identified at the end of its initial public review, the ACCC will notify the parties by way of a letter that it does not propose to oppose the merger. This decision will be posted on the ACCC’s website.
- If the ACCC comes to a preliminary view that a proposed merger raises competition concerns that require further investigation, the ACCC will generally release a statement of issues that is published on its website, and a secondary timeline will be established. The parties will usually provide further information to address concerns raised in the statement of issues, or may in some cases discuss potential remedies. Following consultation on a statement of issues, the ACCC will generally provide the merger parties with written details of the relevant issues or concerns arising from the consultation. Once a final decision is made, the ACCC will notify the parties of its decision in writing and post the decision on its website. A public competition assessment or media release may be issued for certain decisions.
Where a party seeks merger authorisation, it must lodge an application with the ACCC in the prescribed form approved by the ACCC. Before lodgement of the application, the ACCC encourages applicants to contact it for informal discussions and guidance. The ACCC recommends that applicants provide a draft application before the pre-lodgement meeting so that the ACCC can provide specific guidance about the issues the applicants should address in their application.
The application must be accompanied by a lodgement fee of A$25,000, an undertaking that the parties will not complete the merger before a decision is reached, a declaration that the application is true, correct and complete, and an electronic copy of any relevant information or other documents (eg, transaction documents). The ACCC will then follow the timeline set out in question 18.
Once an application is received, the ACCC will publish it on its merger authorisation public register and conduct market enquiries. The ACCC will consult a range of parties likely to be affected by the proposed acquisition and invite interested parties to comment or lodge submissions about the proposed acquisition. The applicant will then be invited to provide a response to the issues raised in submissions lodged by interested parties. Once a final decision has been made, the ACCC will send a copy of its final determination to the applicant and place a copy on the public register.
What is the statutory timetable for clearance? Can it be speeded up?
The timetable for clearance depends on which of the two clearance options is chosen.Informal clearance
Where informal clearance of the merger is sought, there is no statutory timetable for clearance and the speed of the ACCC’s response will vary depending on the circumstances. An initial assessment is conducted for both public and confidential mergers, during which time the ACCC decides whether the proposed transaction can be ‘pre-assessed’, that is, cleared without a public review. A significant proportion of the mergers notified to the ACCC are able to be pre-assessed expeditiously, often within two to four weeks. If a merger cannot be pre-assessed as a result of the initial assessment, the ACCC will advise the parties that it needs to conduct a public review and begin discussions with the parties about the process.
Phase I of a public review consists of three parts, which vary in duration:
- initial market enquiries, which take approximately two to five weeks from commencement of the public review;
- assessment of the information provided during market enquiries, which will be completed approximately two to four weeks after the close of market enquiries; and
- announcement by the ACCC of its findings, upon completion of the assessment of information. This will take the form of a final decision (either opposing or not opposing the transaction) or a statement of issues.
Phase I of the public review will generally be completed within six to 12 weeks (excluding time periods where information is outstanding).
Publication of a statement of issues indicates the commencement of Phase II of a public review. The ACCC will issue a statement of issues where it considers that competition concerns may arise if the transaction proceeds. A statement of issues is a public document issued by the ACCC that outlines the basis upon which the ACCC has come to a preliminary view that the transaction may raise competition concerns that require further investigation. Publication of a statement of issues is likely to extend the timeline by six to 12 weeks (excluding time periods where information is outstanding), but this will vary on a case-by-case basis. This allows the ACCC to conduct additional consultation with the merger parties and other relevant parties (generally taking two to three weeks) followed by an additional period of assessment (approximately four to 10 weeks), after which it will release its final decision to oppose, not oppose, or not oppose subject to the acceptance of remedies.
While the ACCC will attempt to meet shorter deadlines, particularly where genuine commercial considerations can be demonstrated, it will not do so if this compromises its ability to make appropriate market enquiries. The ACCC publishes an indicative and non-binding timeline for each public informal clearance review at the beginning of the public review process, which outlines the dates it expects each of the above stages to be completed. The timeline may be suspended or revised if the ACCC requests additional information from the merger parties or other parties, or if remedies are proposed that require additional public consultation.
Parties are usually requested to respond to information requests within one to two weeks. The ACCC may require a period of time to properly consider the information provided, especially where it is voluminous. Where a remedy is proposed and is in suitable form, the ACCC may publicly consult on its content. The duration of public consultation depends on the complexity of the issues and the remedies proposed (eg, divestment).Authorisation
In the case of applications for merger authorisation, the ACCC must make a decision in respect of an application within 90 days of the application being validly lodged (this may be extended as set out in question 11). If the ACCC has not made a decision within 90 days (or any extended period), the application is taken to have been refused.
Substantive assessmentSubstantive test
What is the substantive test for clearance?
Under the informal review process, the substantive test that must be satisfied is that the acquisition will not result, or be likely to result, in a substantial lessening of competition in a relevant market. For merger authorisation, the ACCC must be satisfied that either the proposed acquisition will not result, or be likely to result, in a substantial lessening of competition, or that the public benefit resulting (or likely to result) from the proposed acquisition would outweigh the public detriment that would result, or be likely to result, from the proposed acquisition.
In evaluating whether a proposed acquisition is likely to have the effect of substantially lessening competition, the ACCC uses the ‘with or without test’ - it assesses the likely future state of competition with the merger and the likely future state of competition without the merger. In conducting this analysis, the ACCC is required to take into account various merger factors set out in section 50, namely:
- the actual and potential level of imports;
- barriers to entry and expansion;
- market concentration;
- countervailing power;
- the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;
- the availability or likely availability of substitutes;
- dynamic characteristics, including growth, innovation and product differentiation;
- the likelihood that the acquisition would remove a vigorous and effective competitor from the market; and
- vertical integration.
In conducting the ‘with or without test’, the ACCC will take into account whether one of the merger parties is likely to exit the market in the near future (ie, whether it is a ‘failing firm’). Where one of the merger parties is a failing firm, the current state of competition will overstate the future state of competition without the merger. In those circumstances, it is less likely that the merger will give rise to a substantial lessening of competition. However, mere speculation that a firm may exit in the near future is insufficient. It must generally be shown that there is an imminent danger of failure and that the firm is unlikely to survive or be restructured without the merger, and the assets associated with the firm will leave the industry (eg, there is no other buyer).
For both informal merger clearance and merger authorisation, the analytical and evaluative framework the ACCC will apply when assessing whether a merger is likely to give rise to a substantial lessening of competition is set out in the ACCC’s Merger Guidelines. Although the Merger Guidelines do not have legal force when determining whether a proposed transaction would breach Australian merger law under sections 50 and 50A, they formally reflect the ACCC’s approach and indicate the analytical and evaluative framework the ACCC applies when reviewing the competitive effects of a transaction on a market in Australia.
As noted above, a merger may also be authorised where it is likely to result in a public benefit that outweighs the public detriment that would result, or be likely to result, from the proposed acquisition. Although ‘public benefit’ is not defined in the CCA, the CCA does provide that the ACCC should have regard to:
- a significant increase in the real value of exports;
- import replacement; and
- all other matters relating to the international competitiveness of the Australian industry.
These factors are not exhaustive and it is common for the acquirer to suggest a range of other public benefits such as increased efficiency, industry rationalisation, employment growth and protection of the environment. The ACCC Merger Authorisation Guidelines set out the analytical and evaluative framework the ACCC will apply when assessing the public benefits of a merger.
Is there a special substantive test for joint ventures?
There is no special substantive test for joint ventures. As discussed in question 3, joint ventures are only covered by the merger regime if they involve the acquisition of shares or assets. However, other provisions of the CCA need to be considered in relation to joint ventures, including the civil and criminal cartel offences and the provisions dealing with anticompetitive arrangements.Theories of harm
What are the ‘theories of harm’ that the authorities will investigate?
The ACCC assesses prospective mergers from the viewpoint of whether or not they are likely to result in a substantial lessening of competition, and will consider the ‘merger factors’ listed in section 50 of the CCA as well as any other relevant factors. These merger factors provide insight as to the likely competitive pressure the merged firm will face following the merger and the possible competitive effects of the merger. The types of mergers that the ACCC will assess under sections 50 and 50A include horizontal, vertical and conglomerate mergers. The assessment of the competitive effects is based on the traditional theories of competitive harm - namely, unilateral and coordinated effects.Non-competition issues
To what extent are non-competition issues relevant in the review process?
Where a party seeks merger authorisation, non-competition issues may be relevant, as they are taken into account when determining whether the public benefit of the merger outweighs the public detriment (see question 19). They are also relevant if the merger occurs wholly outside Australia and falls for review under section 50A.
Otherwise, the ACCC will not accept arguments relating to non-competition issues when assessing whether a merger would or would be likely to result in a substantial lessening of competition.Economic efficiencies
To what extent does the authority take into account economic efficiencies in the review process?
The Merger Guidelines recognise that an acquisition that increases the competitiveness of the merged firm may also increase competition in the market. While the ACCC’s focus in the section 50 merger analysis is the effect of the merger on competition, competitive constraints and the efficiency of markets rather than the efficiency of individual firms, it will consider how economic efficiencies may affect a firm’s ability and incentives to compete in the relevant market. For example, the Merger Guidelines identify that if efficiencies are likely to result in lower (or not significantly higher) prices, increased output or higher quality goods or services, the merger may not substantially lessen competition. The ACCC generally only considers merger-related efficiencies to be relevant to the section 50 merger analysis when it involves a significant reduction in the marginal production cost of the merged firm and there is clear and compelling evidence that the resulting efficiencies directly affect the level of competition in a market and these efficiencies will not be dissipated post-merger. Economic efficiencies can be considered if the transaction is reviewable under section 50A.
Relevantly, the Merger Guidelines provide that if an acquisition is likely to result in a lessening of competition but the likely public benefit resulting from the acquisition would outweigh the public detriment, then the matter may be more appropriately dealt with by way of an authorisation application to the ACCC, where economic efficiencies are taken into account in the net public benefit analysis.
Remedies and ancillary restraintsRegulatory powers
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
If the ACCC considers that a transaction is likely to result in a substantial lessening of competition, the ACCC has standing to seek an injunction from the Federal Court to prevent a merger from proceeding. The ACCC may also seek remedies following an acquisition including damages, divestiture, pecuniary penalties and also an order declaring the transaction void. The maximum pecuniary penalty is:
- for individuals, A$500,000; and
- for corporations, the greater of: A$10 million; three times the value of the benefit obtained directly or indirectly by a body corporate that is reasonably attributable to the contravening conduct; or, where the value of that benefit cannot be readily calculated, 10 per cent of the annual Australian turnover of the body corporate and its related bodies corporate.
The ACCC will normally seek these remedies against the purchaser, although technically the vendor could also be liable. The ACCC does not have the power to impose these remedies itself, and must apply to the Federal Court.Remedies and conditions
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
In relation to informal clearances, the ACCC may grant clearance subject to remedies in the form of undertakings. Where the ACCC raises concerns about a transaction, the parties may modify the proposal by providing a court-enforceable undertaking pursuant to section 87B of the CCA, which may include divestment or behavioural undertakings. The ACCC’s Merger Guidelines indicate that the ACCC has a strong preference for structural (divestment) undertakings and that behavioural undertakings will only occasionally be appropriate, as an adjunct to a structural remedy. It is rare for the ACCC to accept behavioural undertakings that apply on a permanent basis. In addition, the Merger Guidelines state that the ACCC will generally prefer divestiture to occur on or before the completion date of a merger.
In relation to merger authorisations, the ACCC may grant authorisation subject to conditions specified in the authorisation. The conditions may include a condition that a person give and comply with a section 87B undertaking. When authorisation is granted subject to conditions, the authorisation will only provide protection from the operation of section 50 of the CCA if the acquisition is completed in accordance with the authorisation, including any conditions attached to the authorisation.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
Where divestment is negotiated as part of a remedy provided to the ACCC, the divestiture remedy will specify the period within which divestment must occur. As stated in question 25, the ACCC’s preference is for divestments to occur on or before the completion of the acquisition. If this is not possible, the ACCC’s general practice has been to require an independent administrator or manager to be appointed during a hold-separate period between completion of a merger and subsequent divestment of any business or assets required to obtain competition clearance. Although the period in which divestment must take place will depend on the circumstances, the ACCC’s preference is a divestment period of one to three months where divestment post-completion is required.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
There have been no recent cases where the ACCC has taken action in the Federal Court in relation to a foreign-to-foreign merger. However, in the past the ACCC has in some instances required the acquirer in foreign-to-foreign merger situations to provide a court-enforceable undertaking remedy before deciding that it would not oppose the transaction. For example:
- in March 2019, the ACCC accepted an undertaking from Gebr. Knauf KG (Knauf) and a number of related Australian entities in relation to Knauf’s proposed acquisition of USG Corporation (USG). USG’s only interest in Australia was its 50 per cent share in a joint venture with Boral International Pty Ltd and Boral Building Materials Pty Ltd. The undertaking provided that if Knauf did not divest USG’s joint venture interest to an ACCC-approved purchaser within a certain period, Knauf would divest certain other assets;
- in March 2016, the ACCC accepted an undertaking from Iron Mountain Incorporated in relation to its proposed acquisition of Recall Holdings. The undertaking provided that Iron Mountain would divest its Australian business, other than its local records management customers in the Northern Territory and its data protection business;
- in January 2015, the ACCC accepted an undertaking from GlaxoSmithKline Plc (GSK) and Novartis AG (Novartis) in relation to GSK’s proposed acquisition of Novartis’ global human vaccine businesses. The undertaking provided that the merged entity would comply with European Commission commitments relating to the divestiture of GSK’s global MenACWY Vaccines Business;
- in December 2014, the ACCC accepted an undertaking from GSK and Novartis Consumer Health Australasia Pty Ltd in relation to Novartis AG and GSK’s proposal to merge their healthcare businesses. The undertaking provided that the merged entity would divest Novartis’ business relating to Nicotinell products in Australia; and
- in July 2014, following the Hertz Global Holdings Inc (Hertz) acquisition of Dollar Thrifty Automotive Group Inc (Thrifty), the ACCC accepted an undertaking from the parties. The terms of this undertaking provided that the Hertz and Thrifty businesses in Australia must continue to compete. This was ensured by ring-fencing the management of the businesses, limiting the information shared by the businesses, preventing the sharing of confidential information between the businesses and Hertz relinquishing certain licensing rights in respect of the Thrifty business in Australia.
The ACCC may not seek stand-alone remedies in circumstances where the remedies provided to other regulators have resolved the competition concerns in Australia.
- In March 2018, the ACCC announced that it would not oppose Bayer AG’s proposed acquisition of Monsanto Corporation on the basis of global divestments. The European Commission gave conditional approval to the proposed acquisition, subject to divestiture of Bayer AG’s herbicide, traits and seeds businesses, along with a number of research and development functions and projects. The ACCC previously had concerns the proposed acquisition may substantially lessen competition in the supply of weed management systems for use on canola crops and reduce competitive tension in research and development of new crop protection products. The global divestments resolved these competition concerns in Australia.
- In June 2017, the ACCC announced that it would not oppose the proposed merger of The Dow Chemical Company and EI Du Pont de Nemours and Company. The European Commission cleared the proposed merger, subject to the divesture of parts of EI Du Pont de Nemours and Company’s global pesticide business and global research and development organisation. Separately, The Dow Chemical Company also agreed to divest its acid co-polymers and ionomers business. In its statement of issues, the ACCC had previously expressed concerns the proposed merger may substantially lessen competition in the supply of certain insecticides, seeds and materials science products and reduce competitive tension in research and development of new crop protection products. Ultimately, the ACCC considered that these competition concerns would be addressed by the broader global divestments.
In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?
Related and ancillary arrangements or restrictions are not specifically ‘approved’ by the ACCC when granting informal clearance, although they may be relevant to the competition assessment that is conducted. In some cases, the ACCC may require the parties to give it court-enforceable undertakings before it will grant informal clearance of a proposed merger, and it is possible that these undertakings may include a commitment to amend, terminate or assign existing agreements. It is possible, however, to seek authorisation from the ACCC for ancillary restraints on the basis that they give rise to a public benefit. Provisions (such as non-compete arrangements) contained in a share or business sale agreement are assessable under the other provisions of the CCA, but may benefit from an exemption in certain circumstances.
Involvement of other parties or authoritiesThird-party involvement and rights
Are customers and competitors involved in the review process and what rights do complainants have?
For non-confidential mergers that require a public review, the ACCC will generally invite market participants to make submissions in relation to the proposed merger and, where applicable, in response to a statement of issues or proposed undertakings. These inquiries may include consultations with competitors, suppliers, customers, industry associations, government agencies and departments, overseas agencies and departments and consumer groups. Information provided to the ACCC under the informal clearance process by the parties to the transaction or third parties is usually confidential, and with limited exceptions is rarely made public. If informal clearance is granted by the ACCC and the merger proceeds, this does not prevent any person bringing an action in the Federal Court claiming damages or seeking divestiture of the shares or assets acquired, on the basis of a contravention of section 50. There have been instances of such private litigation in the past.
Where an acquirer has applied to the ACCC for authorisation of a proposed merger, the ACCC must place a copy of the application and accompanying information and documents on the ACCC website (subject to confidentiality of specific information), and invite interested persons to make a submission to the ACCC in relation to the application. If authorisation is granted by the ACCC in relation to the proposed acquisition, then an action cannot be brought by the ACCC or third parties on the basis that the acquisition contravenes section 50 of the CCA, provided it was completed in the relevant time frame and in compliance with any conditions imposed. However, a third party with sufficient interest may apply to the Tribunal for a review of the ACCC’s determination. The scope of the Tribunal’s review is limited to the information before the ACCC, although it may consider new information not in existence at the time of the ACCC’s determination and information sought by the Tribunal to clarify the information before the ACCC.Publicity and confidentiality
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
The informal clearance process may be undertaken by the ACCC on a confidential or non-confidential basis. If a merger is pre-assessed or an acquirer seeks a confidential assessment, no public review will be conducted and the details of the proposed merger and the ACCC’s views on it will not be included in the mergers register on the ACCC website. If the ACCC decides that a public review is required, the ACCC will disclose its consideration of the public proposal, but information that is provided to the ACCC either by the parties to the transaction or by third parties on a confidential basis will not be disclosed unless required by law. The ACCC actively seeks to protect the confidentiality of information provided to it on a confidential basis, so that potential acquirers as well as other interested parties feel comfortable providing commercially confidential information to the ACCC to assist in its assessment of the transaction. Note, however, that the ACCC may provide such information to other regulators, both in Australia and overseas, pursuant to section 155AAA of the CCA.
In terms of publicity, once a transaction undergoes a public review, the ACCC will list the review on its website. It may issue a general invitation for submissions from third parties, or conduct a targeted consultation process where submissions are sought directly from customers, suppliers, competitors and other potentially affected parties. If the ACCC releases a statement of issues in relation to the transaction, it will also usually issue a media release. At the conclusion of a merger, the ACCC will routinely issue a media release, and subsequently will either post a summary of the reasons for the decision on the website or issue a public competition assessment with more detailed reasons for the ACCC’s decision.
The authorisation process is a public process where the ACCC is required by legislation to keep a merger authorisation register and publish on the register any applications for authorisation lodged with the ACCC as well as any accompanying information or documents. Interested parties are invited to make submissions and, subject to any confidentiality claims, the register must include any document given to the ACCC in relation to an application and particulars of any oral submission made to the ACCC. The register must also include the ACCC’s determination. There are specific grounds on which confidential information can be excluded from the ACCC’s website and the merger authorisation register. In particular, the ACCC must exclude information from the public register if it contains particulars of a secret formula or process, the cash consideration offered for the acquisition of shares or assets, or the current costs of manufacturing, producing or marketing goods or services. Any requests to have documents or submissions, or parts of them, excluded from the public register for confidentiality reasons must be made at the time of providing the document or making the submission to the ACCC.Cross-border regulatory cooperation
Do the authorities cooperate with antitrust authorities in other jurisdictions?
The ACCC liaises with, and seeks assistance from, overseas regulators in relation to merger matters. This includes the New Zealand Commerce Commission (NZCC), with which the ACCC has a protocol for cooperative trans-Tasman mergers review and cross-commission appointments between the ACCC and NZCC, the Department of Justice (antitrust division) and the Federal Trade Commission in the United States, the Competition Bureau in Canada, the European Commission, and the Competition and Markets Authority in the United Kingdom. Where the ACCC seeks to engage in such exchange through sharing of confidential information and documents obtained from the merger parties, its common practice is to obtain consent for such disclosure from the parties through its standard form waiver. Exchange of information between these regulators is subject to the confidentiality restrictions under which the regulator operates. The ACCC is also actively involved in the International Competition Network through which it is able to liaise with individual competition agencies.
The ACCC is also notified by other Australian regulators of proposed mergers. For example, FIRB refers some mergers to the ACCC for comment on the basis that competition is a relevant factor when considering the national interest. The ACCC may use this information as a starting point for conducting its own assessment of the merger. Although there is no statutory link between FIRB and the ACCC, it is common practice for FIRB to not give foreign investment approval until the ACCC provides informal clearance or otherwise indicates that it has no objections.
Judicial reviewAvailable avenues
What are the opportunities for appeal or judicial review?
There is no statutory right under the CCA to appeal an ACCC informal clearance decision. If the ACCC indicates that it will reject an application for informal clearance and oppose the merger, the acquirer may seek a declaration in the Federal Court that the proposed acquisition does not have the effect or likely effect of substantially lessening competition. If the parties decide to proceed with the transaction, the ACCC may seek an injunction. If the ACCC rejects an application for informal merger clearance, the applicant also has the option of instead applying to the ACCC for authorisation. Unlike the informal clearance process, authorisation allows for net public benefits to be considered as part of the ACCC’s assessment and also offers additional appeal rights (as set out below) if the application is rejected by the ACCC.
If the applicant (or another person with a sufficient interest in the application) is dissatisfied with a determination made by the ACCC in relation to a merger authorisation application, the applicant or other interested person may apply to the Tribunal for a merits review of the determination. As discussed above, the scope of the Tribunal’s review is limited to the information before the ACCC, although it may consider new information not in existence at the time of the ACCC’s determination and information sought by the Tribunal to clarify the information before the ACCC. Appeals on decisions of the Tribunal can be made to the Full Federal Court on a question of law.Time frame
What is the usual time frame for appeal or judicial review?
In relation to informal clearances, if the matter proceeds to the Federal Court then there is no set time frame for the case to be determined. Federal Court proceedings in respect of mergers can be protracted, although the court attempts to deal with such issues expeditiously.
In relation to merger authorisations, if a determination made by the ACCC is appealed to the Tribunal, the Tribunal must make a decision within 90 days of receiving the application for review. An extended period of 120 days applies for the review if the Tribunal allows new information, documents or evidence. The Tribunal may extend this period by a further 90 days if the Tribunal considers it necessary because of its complexity or other special circumstances. In relation to appeals on decisions of the Tribunal, there is no set time frame by which an appeal on a question of law would be heard by the Full Federal Court, although, as noted, the court will attempt to deal with merger matters expeditiously.
Enforcement practice and future developmentsEnforcement record
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
As at 7 June 2019, 24 of the 310 mergers assessed by the ACCC under the informal clearance regime have undergone a public review in FY2018-2019. Out of those mergers, 16 were cleared unconditionally, five were cleared subject to remedies to address competition concerns, one was discontinued before the ACCC made a final decision and two were opposed.
To date, there has been only one application made to the ACCC for merger authorisation under the new regime discussed above under question 6, in relation to the proposed acquisition by AP Eagers Limited of Automotive Holdings Group Limited. That application is still under consideration.
There are a number of enforcement trends that have recently emerged. One of those trends is that the ACCC is increasingly beginning to scrutinise the broader commercial arrangements between merger parties. For example, in July 2018 the ACCC instituted proceedings against Cryosite, Limited (Cryosite), a supplier of cord blood tissue and banking services in Australia, in relation to the proposed sale of its assets to Cell Care Australia Pty Ltd (Cell Care). The ACCC alleged that Cryosite and Cell Care engaged in cartel conduct, which amounted to ‘gun jumping’ by making an agreement as to how they would market their services and how customers would be allocated between them in the pre-completion period. The parties had not sought informal merger clearance from the ACCC. Cryosite ultimately admitted that it had engaged in cartel conduct and agreed to pay a penalty of A$1.05 million in civil penalties.
In July 2018 the ACCC also commenced proceedings against rail companies Pacific National Pty Limited (Pacific National), Aurizon Holdings Limited (Aurizon) and related entities in relation to Pacific National’s proposed acquisition of Aurizon’s Queensland intermodal business and the Acacia Ridge Terminal. After conducting a public merger review and opposing the transaction, the ACCC instituted proceedings for alleged breaches of section 45 (the anticompetitive agreements provision) and section 50 of the CCA. In May 2019, the Federal Court delivered its decision in favour of Pacific National and Aurizon, in light of Pacific National’s willingness to enter into an undertaking guaranteeing other operators access to the terminal and fair prices.Reform proposals
Are there current proposals to change the legislation?
There are no current proposals to change the legislation. However, significant changes to Australian competition law were introduced on 6 November 2017 through the commencement of the Competition and Consumer Amendment (Competition Policy Review) Act 2017. The Act introduced the following changes to the merger review process:
- the ACCC, instead of the Tribunal, is now the first instance decision-maker for all merger authorisation reviews;
- parties are no longer able to apply directly to the Tribunal for authorisation;
- the ACCC has jurisdiction to authorise a merger if the ACCC is satisfied that the merger would not result, or would not be likely to result, in a substantial lessening of competition, or that the merger would result, or be likely to result, in a benefit to the public and that benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct. Previously, the ACCC had no power to authorise a merger or consider public benefits. Instead, parties had to apply to the Tribunal directly for authorisation involving consideration of the net public benefit;
- the ACCC has the power to compel the production of certain information, documents and evidence when considering the application for authorisation;
- the ACCC’s review is subject to a statutory deadline of 90 days after which the ACCC is deemed to have refused to grant authorisation unless the parties agree to an extension; and
- decisions made by the ACCC are subject to review by the Tribunal, subject to a statutory deadline of 90 or 120 days, as applicable (which can be extended in certain circumstances).
The changes are a significant departure from the previous process whereby parties could choose to notify the ACCC of a proposed acquisition (using either the informal or formal merger review processes) or to seek authorisation directly from the Tribunal without first needing to apply to the ACCC. The ACCC is now the decision maker of first instance for all merger reviews and authorisation applications.
Update and trendsKey developments of the past year
What were the key cases, decisions, judgments and policy and legislative developments of the past year?Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
The ACCC is becoming increasingly focused on the impact of mergers undertaken by digital platforms (particularly with respect to the control of data), as evidenced by the recommendations in its Digital Platforms Inquiry Preliminary Report released in December 2018. The ACCC has recommended in its report that:
- the factors to be taken into account under section 50(3) of the CCA in assessing the likely competitive effects of a merger should be amended to clarify that the following are relevant factors: the likelihood that an acquisition would result in the removal of a potential competitor; and the amount and nature of data to which the acquirer would likely have access as a result of the acquisition; and
- the ACCC is intending to ask large digital platforms (such as Facebook and Google) to provide advance notice of the acquisition of any business with activities in Australia and to provide sufficient time to enable a thorough review of the likely competitive effects of the proposed acquisition.
The ACCC has also focused on issues concerning the control of data in other transactions. For example:
- In the proposed acquisition of three WestConnex toll road concessions by the Sydney Transport Partners consortium (which includes Transurban Group among others), the ACCC was concerned that the Transurban Group had a competitive advantage that would be enhanced by the proposed acquisition because of its access to traffic data. Transurban Group ultimately provided an undertaking to the ACCC to the effect that it would publish certain traffic data on a quarterly basis and update it if the New South Wales government announces a toll road concession sale process six or more weeks before that traffic data is due to be published under the quarterly process.
- In the proposed acquisition by Tabcorp Holdings Limited of Intecq Limited (November 2016), the ACCC explored venues’ concerns that following the transaction, Tabcorp Holdings Limited may misuse customer gaming data and customer data obtained from venues that are customers of Intecq Limited, to favour venues that use Tabcorp Holdings Limited’s full service products in a way that would distort competitive dynamics. However, the ACCC recognised that Tabcorp Holdings Limited and Intecq Limited operated in a heavily regulated environment, and misuse of the relevant data in the manner contemplated would result in severe consequences for Tabcorp Holdings Limited. Given the regulations and the consequences for failing to comply with them, the ACCC considered that Tabcorp Holdings Limited was unlikely to misuse Intecq Limited’s data to distort competition following the acquisition.
- In the proposed merger between Essilor International SA and Luxottica Group SpA (October 2017), the ACCC considered whether the proposed merger would provide the merged firm with downstream rivals’ commercially sensitive information through Essilor International SA’s practical management system, Sunix. The ACCC found that most retailers’ data was stored on their own private servers. While it was likely that some retailers’ data would be stored on a third party ‘cloud’ server in the future, this data would be protected from use by the merged entity, either on an individual store or aggregate basis, through existing contractual arrangements.
In 2018 and 2019, the ACCC has continued to work closely with international agencies in the review of global deals. An example was the acquisition of Monsanto Corporation by Bayer AG (March 2018), where the ACCC worked with the European Commission, US Department of Justice and the Canadian Competition Bureau in assessing the transaction. The European Commission ultimately gave conditional approval for the transaction subject to the divestiture of major parts of Bayer’s. In light of the parties’ divestiture commitments to the European Commission, the ACCC concluded that the transaction would not substantially lessen competition in a relevant market in Australia.
In its Merger Guidelines, the ACCC acknowledges the importance of company documents and public statements in its assessment of certain mergers. In 2017, the ACCC foreshadowed that there will be increased scrutiny of contentious mergers. In addition, the ACCC noted that it would be adopting a more intensive information gathering approach when reviewing contentious mergers. This change was adopted in response to concerns that the ACCC’s approach to merger review has not resulted in probative or persuasive evidence for the Tribunal or Federal Court of the likely anticompetitive effects of proposed acquisitions. To that end, the ACCC has indicated there has recently been a significant increase in the number of section 155 notices issued in the context of merger reviews (from 44 notices in FY2016-17 to 89 notices in FY2017-18). Those notices have involved both requests for information and documents, as well as directions to attend oral examinations under oath. While the issue of such notices continues to be concentrated on a handful of contentious mergers, it shows that the ACCC is serious about carrying out its intention to scrutinise transactions with potential competition concerns more rigorously.