The Commerce Commission ("NZCC") has recently released draft updated versions of its Mergers and Acquisitions Guidelines ("M&A Guidelines") and its Authorisation Guidelines (together, the "Guidelines") for comments.1 The NZCC is consulting on the Guidelines before they are finalised mid-2013, providing an excellent opportunity for anyone who has ever had an issue or concern with the NZCC's processes or competitive analysis to provide constructive feedback to the NZCC. Speak now or forever hold your peace...
NZCC guidelines play an important role in assisting businesses and their advisors in understanding how the Commerce Act 1986 will be interpreted by the NZCC. The NZCC should be commended for the work that has been put into ensuring that their guidance reflects the current law and international best practice.
The express incorporation of international best practice also highlights the increasing convergence of approaches taken by international competition regulators. This is likely to intensify as more and more cooperation agreements are put in place between international regulators.2
Finally ... benefits and detriments guidelines
The Authorisation Guidelines are well overdue. Other than the Streamlined Authorisation Process Guidelines released in May 2009, there has been no guidance from the NZCC on what it considers constitutes a substantive "benefit" or "detriment" for the purposes of an authorisation since the 1997 Guidelines to the analysis of public benefits and detriments were withdrawn over ten years ago.
The key points in respect of the Authorisation Guidelines are:
- Total welfare test: The NZCC has not been tempted to try to develop a consumer welfare standard hybrid as some other international regulators have, but instead has maintained its strict adherence to the total welfare standard. It notes that transfers of wealth between groups are irrelevant unless the benefit is being transferred from overseas persons to New Zealanders and there is no indirect detriment as a result. This approach is to be commended for its clarity and adherence to the economic fundamentals of the NZCC's role.
- Non-quantifiable benefits and detriments: The flip side of a 'dry' economic approach, when coupled with a historical Court of Appeal decision that requires the Commission to "quantify benefits and detriments to the extent possible", is that non-quantifiable benefits and detriments tend to be given less weight. This is not a new issue, it arises in almost every authorisation of any significance, however there is little guidance on how intangible benefits or detriments are to be weighed against tangible and thus quantifiable detriments or benefits.
- Benefits that are not economic efficiencies: The Guidelines accept that the Commerce Act does not limit "benefits" to economic efficiencies, but the list of broader benefits that an applicant might wish to raise has been replaced with a list of categories of efficiencies. Additional guidance on benefits that may not result in efficiencies would have been beneficial.
- Timing is key: Benefits and detriments will be discounted by the NZCC according to when they are expected to occur and how likely they are to occur. This is not controversial.
- Relevant evidence: Examples have been identified by the NZCC that will support a party's claim of net public benefit. This provides useful guidance to applicants.
- No assumed inefficiencies: Helpfully, the NZCC confirms it no longer assumes that a transaction that lessens competition will necessarily lead to a loss in either productive efficiency or dynamic efficiency. The NZCC will now consider each case on its merits.
The M&A Guidelines consolidate the NZCC's current merger process guidelines, and a number of pieces of guidance on discrete merger issues, to provide a 'one stop shop' for guidance on the mergers and acquisitions clearance process.
Consistent with responses to the NZCC's early consultation on how the Guidelines should evolve; additional guidance is now provided on:
- Bidding markets: unique issues are raised where tenders or auctions are conducted for effective control of an entire market changing the dynamics from competing "in the market" to competing "for the market". In particular, such mergers effectively remove a bidder from the tender process. The effect this has depends on how closely the two merging parties competed with one another pre-merger.
- Multi-sided platforms: prevalent in its analysis of media mergers, and in the Interchange proceedings against the major retail banks, the NZCC has developed its view of how competition needs to be assessed in multi-sided platform markets, where suppliers are charged to place items on the platform and similarly customers are charged to access the platform to buy items.
- Partial ownership structures: pre-existing ownership of a competitor impacts on a business' incentives to compete but may equally lessen the competitive impact of the particular transaction before the NZCC. The new guidelines outline a more sophisticated analysis of these incentives and competitive effects.
- Mergers between competing buyers: the commentary draws upon the United States and UK equivalent guidelines. The NZCC states that its analysis of mergers between competing buyers will be a mirror image of its analysis on the selling side - looking at whether suppliers could respond to a decrease in the price of their product by switching to alternative buyers.
Market definition is so yesterday
The NZCC has moved with the current fashion amongst international competition regulators that no longer regard market definition as a fixed parameter within which its policy instrument, of prohibiting anticompetitive mergers, must be exercised, but rather as a loose framework for considering the 'more important' questions of incentives and constraints on the parties post merger.
This change in position is reflected in the NZCC's move away from the use of market share "safe harbours". The NZCC instead refers to "concentration indicators". The result is most likely to be less business certainty.
A missed opportunity?
There are some issues that are arising more frequently in clearance applications which could have benefitted from further guidance. These include:
- Confirming the NZCC's position on how the counterfactual is assessed in multiple/parallel bid situations.
- Confirming the point at which the NZCC no longer has jurisdiction to clear a merger because it is no longer sufficiently "conditional". Academic commentary, including from the Chair in his former roles, suggests that an "acquisition" occurs when a beneficial interest is acquired. The Commerce Act provides that a clearance can only be obtained when an acquisition is "proposed" (ie not completed). The question often arises whether the NZCC has jurisdiction when the sale and purchase agreement is conditional on other matters but not specifically conditional on NZCC (or "necessary regulatory") clearance.
- Details of what economic modelling the NZCC will use, and in which types of cases. This would better enable parties and their advisors to provide arguments and data that assist the NZCC in its modelling from the outset.
- Details of the types of evidence including original business documents it will likely require in any clearance process. This is spelt out more clearly in the equivalent ACCC guidelines.
The next step in the NZCC's review process is receiving and reviewing submissions from interested parties. Interested parties have until 9 April 2013 to make a submission, and Russell McVeagh will be making a submission on both the M&A and Authorisation Guidelines. We are more than happy to incorporate any comments that you may have into our submission or alternatively to assist you in drafting your own submission. The opportunity to shape how the NZCC operates arises infrequently, and we would encourage anyone who has dealt with the NZCC in this context before to take advantage of this public consultation process.
Contributed by Bradley Aburn, Chris Bowden and Sarah Keene.