A recent speech by ACCC Chairman Rod Sims has flagged upcoming changes to Australia’s merger regime. Mr Sims did not detail what specific changes might occur, but his view that “change is needed” is firming: “Surely there is a problem when no contested merger hearing in the last 20 years has resulted in the Court or Tribunal blocking the merger?”
New factors in merger analysis
The speech follows the ACCC’s publication of its Digital Platforms Inquiry final report in June. The report recommended two new factors to be added to the list of factors that must be taken into account in assessing whether a merger or acquisition has the effect or likely effect of substantially lessening competition:
- the likelihood that the acquisition would result in the removal from the market of a potential competitor; and
- the nature and significance of assets, including data and technology, being acquired directly or through the body corporate.
These two new factors would sit alongside the existing list of factors found in section 50(3) of the Competition and Consumer Act 2010 (Cth). The existing factors (amongst others) include the height of barriers to entry in the market, the level of concentration in the market, and the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins.
The final report found that a range of factors contributed to Google’s and Facebook’s dominant positions in their respective markets, two of which were:
- the acquisition of nascent potential competitors (e.g. Facebook’s acquisition of Instagram) or “killer acquisitions”, i.e. a strategic acquisition whereby the acquirer discontinues the target’s innovative projects to protect the acquirer’s existing products from competitive challenge; and
- economies of scope created by control of data sets (e.g. Google’s acquisition of Waze).
While under the current legislation the ACCC, the courts and the Australian Competition Tribunal are not prevented from taking these factors into account, the ACCC took the view that legislative amendments are necessary to highlight the significance of these two factors in merger analysis and to signal their importance to merger parties, the courts and the Tribunal.
The ACCC will likely seek to demonstrate the significance of these considerations to the marketplace by scrutinising deals where data is a necessary input into the delivery of a good or service, and the deal would prevent or reduce access to that data for other participants especially where such loss of access would create a barrier to entry, increase monopoly behaviour or affect subsequent competitive processes (such as tender bidding).
Acquisition notice to become mandatory
The report also recommended that each ‘large digital platform’ should agree to a protocol to notify the ACCC of proposed acquisitions that may impact competition in Australia. Currently, notification of mergers and acquisitions to the ACCC is voluntary. The details of what types of acquisitions would require notification and the minimum advance notice period are yet to be agreed between the ACCC and each large digital platform. No specific timeline was set down for negotiations with the large digital platforms. However, the ACCC says “If such a commitment were not forthcoming from the large digital platforms, the ACCC will make further recommendations to the Government that address this issue.”