The Australian Competition and Consumer Commission (ACCC) has released a revised Merger Review Process Guideline for public consultation.
The Process Guideline is designed to inform the manner in which the ACCC will undertake its informal assessment of mergers and acquisitions under section 50 of the Competition and Consumer Act 2010 (Cth). The current Guidelines have been in effect since 2006, and with changes over time as to the approach the ACCC is taking in its review, the revised Guidelines do not represent an unprecedented shift in approach by the ACCC, but rather formalise its current approach.
The effect of process changes on merger parties
The ACCC’s revised process for informal clearance formalises a more segmented approach which appreciates that not all merger transactions are the same, varying levels of competition issues arise in each transaction and confidentiality in some cases is paramount.
Pre-assessment allows merger parties to gain valuable insight into initial competition concerns and the likely timeframe for informal clearance of a proposed transaction within a relatively short timeframe. The ACCC’s expedited response (often within a two week period) can be invaluable for merger parties, either by obtaining informal clearance quickly, or getting an early sense of the extent of the competition issues envisaged. This process will assist merger parties in setting timetables for completion and assist with business integration and planning.
The ACCC will only grant informal clearance of a transaction in the pre-assessment phase where it views a transaction as low risk of contravening section 50, it is familiar with the industry and the information/arguments provided by merger parties is supported by evidence.
The segmented approach also recognises that parties may require a preliminary view from the ACCC prior to making a formal request for informal clearance, especially where parties are aware that there may be significant barriers to clearance or the transaction is highly confidential and market enquiries could affect the operations of the businesses prior to completion. The ability for merger parties to approach the ACCC for a confidential review of a proposed transaction allows for an assessment of clearance risk, without the need for the matter to be made public.
The ACCC will only provide a qualified view through a confidential review process.
The public review process remains and will be used to ascertain views from the market on a proposed merger. This is a two staged review process, with a second round of market enquiries only undertaken where competition concerns require further consultation.
The ACCC has redefined its timetable and the steps within each phase, indicating that a 6-12 week assessment timeframe will be applied to Stage One, and a further 6-12 week assessment will apply to Stage 2, depending on the complexity or extent of competition issues.
Commercial considerations in the context of a change of process
The need for merger parties to seek informal clearance of a proposed transaction, is a consideration for the merger parties, best undertaken very early in the transaction process. This consideration is often a balance of assessing the risk of not notifying a transaction and the likely effect that failure to notify will have on the deal timetable should the ACCC instigate a unilateral review of transaction. Or, a cost benefit analysis of allowing additional time for clearance of the proposed transaction against the comfort that being granted informal review provides the parties.
The pre-assessment phase (as it is now proposed to be formalised), assists with early identification of issues and likely timeframes for clearance. This is critical to transaction timetables where closing is often reliant on a condition precedent of ACCC clearance. The potentially short timeframe within which clearance may be achieved should be front of mind when negotiating an ACCC condition precedent in sale or purchase agreement to ensure that operationally, the merger parties are able to meet their transactional obligations.
Australian merger process in the global context
Australia operates a voluntary merger clearance regime. Merger parties are encouraged to notify the ACCC where the parties post-merger market share exceeds 20% and the products and/or services are substitutes or complements. This non-binding threshold underpins a merger party’s decision to notify the ACCC of a proposed transaction, and differs to many global competition law jurisdictions where notification is mandatory, often based on financial turnover thresholds.
The ACCC considered 340 potential acquisitions in the 2011/12 financial year, of which 250 were assessed as not requiring public review. Many of these, no doubt, were undertaken through the pre-assessment process.
The pre-assessment phase in Australia is not replicated in other key global competition law jurisdictions, as many mandate pre-merger notification and prohibit the parties from closing the transaction until after a clearance decision has been granted or waiting periods have elapsed. Australian pre-assessment expedites the review of a merger in the context of an informal process which increases the flexibility in approach rather than stipulates pre-assessment prior to a mandatory regime.
The process proposed by the ACCC continues to offer flexibility in approach, while providing a framework for its assessment to give merger parties a level of comfort over the time it will take for the ACCC to assess the likely competitive effects of the proposed transaction.