Obtaining clearance for a foreign investment proposal from the Australian Competition and Consumer Commission (ACCC) normally means that it will not otherwise be opposed on competition grounds. But there is no guarantee…
Even where the ACCC has cleared a transaction on the basis that it is unlikely to have the effect of substantially lessening competition in a market in Australia, the Treasurer on the advice of the Foreign Investment Review Board (FIRB) may still take into account competition concerns in determining whether the transaction passes the “national interest” test of the foreign investment regime.
For example, the Treasurer recently blocked the proposed acquisition of GrainCorp by the world’s largest agricultural trader and processor Archer Daniels Midland (ADM) of the USA – despite the acquisition having received ACCC clearance. The transaction attracted wide-spread grower opposition due to concerns that it would impede growers’ ability to access GrainCorp’s extensive grain storage, transport and port terminal network.
The Treasurer concluded that it was not the “right time” for a foreign ownership of these key Australian assets as competition in this industry was still just emerging. The underlying concern appeared to be that a foreign owner’s commercial incentives may be less aligned with the interests of Australian growers (than an Australian owner’s) and as a result, there may be a greater risk that the infrastructure would be operated by ADM in a manner inconsistent with the growers’ interests in having non-discriminatory access to it at competitive prices.
In contrast, the ACCC concluded that there is unlikely to be any material change in the merged entity’s ability or incentive to foreclose access to its supply chain services that would give rise to a substantial lessening of competition as the transaction would only result in a transfer of ownership without providing the merged entity with any increased market power.
The ADM/GrainCorp matter highlights that the “national interest” test sets a much lower threshold for the Treasurer to oppose a transaction on competition grounds than the ACCC’s “substantial lessening of competition” test. The term “national interest” is not defined in the foreign investment legislation and the Treasurer has very wide discretion in applying the test in a particular set of circumstances.
The Government’s Foreign Investment Policy contains some guidance about its approach in assessing competition issues raised by a foreign investment proposal. The Policy states that the Government “favours diversity of ownership within Australian industries and sectors to promote healthy competition” and that it will consider whether a proposed investment:
- “may result in an investor gaining control over market pricing and production of a good or service in Australia”; and
- has an impact on “the make-up of the relevant global industry, particularly where concentration could lead to distortions to competitive market outcomes.”
The Policy is too sketchy to allow parties to predict with any certainty whether or not the Treasurer may seek to oppose a transaction on competition grounds in any given circumstances.
Shell’s pending bid for the BG Group may be another opportunity for the Treasurer to voice his concerns about the competitive effects of a proposed transaction in the context of a foreign investment review. The bid comes at a time when there is wide-spread concern about the prices and the availability of gas in eastern Australia which resulted in a Government-initiated inquiry into the east coast gas market by the ACCC. Both, Shell and BG Group have interests in up- and downstream gas operations on the east coast of Australia.
Should the ACCC conclude that the bid is not likely to result in a substantial lessening of competition in any relevant domestic gas market, the Treasurer could – potentially – still oppose it on competition concerns in view of the broader community concerns about gas supply and pricing in eastern Australia. The regulatory processes are ongoing in Australia and it remains to be seen what the outcome will be.
Foreign investors who are contemplating an acquisition in Australia which could face wide-spread stakeholder opposition based on its competitive effects in Australia should ensure that any potential competition concerns are appropriately addressed in the submissions to and any direct engagement with the FIRB. Stakeholder briefings about the investor’s future intentions at an early stage of the process may assist to dispel any misconceived competition concerns which may exist amongst stakeholders.