ACCC concerned about voluntary merger notification regime

In its preliminary submission to the government’s Competition Policy Review, the Australian Competition and Consumer Commission (ACCC) told Treasury it was concerned that the current voluntary merger notification process in Australia creates incentives for strategic behaviour by merger parties, which can lead to anti-competitive outcomes detrimental to consumers and businesses alike.

The ACCC’s submission was put to Treasury in late December, in response to Treasury’s Merger Reform consultation paper that put forward three options to change the way reform law works:

• Option 1 - A voluntary formal clearance regime, where businesses could choose to notify a merger and the ACCC could grant legal immunity from court action under the prohibition against anti-competitive mergers (in section 50 of the Competition and Consumer Act 2010 [Cth]) if satisfied the merger would not be likely to substantially lessen competition.
• Option 2 - A mandatory suspensory regime, with compulsory notification of mergers above a threshold. Transactions would be suspended for a period while the ACCC conducts a competition assessment. To prevent an anti-competitive merger, the ACCC would need to prove to the Federal Court that the merger would be likely to substantially lessen competition.
• Option 3 - A mandatory administrative regime. This would provide for compulsory notification of mergers above a threshold and allow the ACCC to ‘call in’ transactions below the threshold where there are competition concerns. The ACCC would grant clearance if it is satisfied the merger is not likely to substantially lessen competition. If clearance was not granted on competition grounds, a second-stage public benefit test could apply. The ACCC’s decision would be reviewable by the Tribunal.

Effective merger control is crucial for maintaining competitive market structures, which are fundamental for driving dynamism, productivity, and wages growth, the watchdog said. However, it flagged several key issues with the current merger regime, including the non-notification of mergers, the provision of inadequate or insufficient information, the increased gaming of the system, and the default position that allows mergers to proceed.

It also raised concerns about challenges with serial acquisitions, insufficient transparency in the ACCC’s decision-making process, lack of cost recovery, and Australia’s position as an international outlier with its voluntary notification process.

As outlined in its submission, the ACCC is putting its weight behind a mandatory administrative regime (option 3), arguing that the other options “do not address the incentives that exist with the current merger regime and do not achieve the policy considerations relevant to good merger control”.

For example, it said that the voluntary notification system in option 1 incentivises merger parties to engage with the ACCC in ways that best position their deal for clearance. This strategic behaviour often involves withholding information, threatening to complete mergers before the ACCC’s assessment, and engaging in legal brinkmanship, all of which introduce uncertainty and inefficiency into the process.

It warned that it also could allow firms to continue making strategic decisions about whether to notify. This could result in harmful mergers proceeding without scrutiny, as evidenced by past acquisitions in sectors such as pet retail, aviation, healthcare, and agriculture. It also criticised this option for creating different tests and review bodies depending on whether a transaction is voluntarily notified, which could lead to fewer mergers being notified.

While option 2 addresses non-notification for mergers above certain thresholds, the ACCC argued that it still retains challenges inherent in the existing enforcement model.

It suggested it creates incentives for strategic behaviour and lacks transparency. It retains the challenges of the existing enforcement model, including the difficulties for third parties and consumers to participate in the process. The ACCC expressed concern that this option would result in inefficient expenditure of public resources due to the high costs of litigation.

‘We shouldn’t have a process that is prey to legal brinkmanship’: ACCC chair

ACCC chair Gina Cass-Gottlieb said: “Evidence shows that Australia’s economy is being impacted by weakened competition in many sectors, risking higher prices for consumers and businesses.

“The ACCC does not have the tools it needs to see and prevent all anti-competitive mergers and it means that harmful mergers may be taking place under the radar.

“The lack of a requirement for firms to tell the ACCC about proposed mergers makes Australia an outlier among most OECD economies.

“Mergers proceeding without our knowledge pose clear risks to our competitive market economy and the prices and service quality provided to small businesses and consumers.

“We recognise that there are risks of impact on economic activity if the regime is too restrictive or uncertain. Our proposed merger reforms are designed to allow an efficient, transparent, and low-cost approval for the vast majority of mergers that do not raise competition concerns, so businesses can proceed quickly and with certainty.”

The ACCC chair therefore said that option 3 “achieves the right balance, with minimal regulatory burden for those acquisitions that do not have anti-competitive effects, and a structured, transparent, and timely process for those acquisitions where there are potential anti-competitive effects”.

“We shouldn’t have a process that is prey to legal brinkmanship, with all the uncertainty and expense that entails,” Ms Cass-Gottlieb said.

“Consumers, small businesses, and farmers will benefit from the ACCC reforms, which will include high levels of transparency and provide certainty. But we also believe that companies and other businesses concerned about their suppliers, customers, or rivals merging will also benefit.”

Ms Cass-Gottlieb concluded by saying that the reform review “represents a once-in-a-generation opportunity to set rules for competition that drives dynamism, productivity, and restraint on prices in Australia and that bring us into line with our international peers.”

The ACCC has said it would be making a further, more detailed submission to Treasury, in late January.

[Related: ACCC made ‘fatal mistake’ in blocking ANZ/Suncorp merger: ANZ counsel]