OECD kpcdb

1. Scope

 

Mergers are regulated under Section 50 of the CCA. Section 50 prohibits a business or a person from directly or indirectly acquiring shares or any assets if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition.

2. Notification

There is no compulsory notification procedure. However, the Merger Guidelines 2008 encourages merger parties to notify the ACCC where the products of the merger parties are either substitutes or complements and the merged parties will have a post-merger market share of more than 20% in the relevant market. Where merger parties do not notify, the ACCC may subsequently investigate the merger and take necessary action.

3. Procedural rules

According to the Merger Guidelines 2008, there are three types of reviews available, namely informal merger review, formal merger clearance and merger authorisation.

Informal merger review: This is the most commonly used avenue for merger parties to seek merger clearance in Australia, and in this process the ACCC does not make a binding decision. Instead, at the end of its review, the ACCC provides merger parties with its view as to whether a proposed acquisition would be likely to substantially lessen competition in contravention of Section 50 of the Act.

​However, informal clearance does not provide statutory protection from subsequent legal action based on an alleged breach of section 50, in particular by third parties.

There is no fixed timeframes for the ACCC to make a decision and the review period depends on the complexity of a case and sufficiency of information provided by the merger parties.

Where the ACCC views that a merger proposal is likely to be prohibited under Section 50, merger parties have the options of either: not proceeding with the merger, providing a remedy (a court enforceable undertaking) to address the ACCC’s competition concerns, or proceed with the merger and defend in court under Section 50. If the merger parties proceed with the merger, the ACCC may apply to the Federal Court of Australia for an injunction (preventing the merger from proceeding), or for an order of divesture for a completed merger and other order such as a declaration that the acquisition is void and penalties. In this case, the burden is on the ACCC to establish that the acquisition contravened Section 50 of the Act.

Formal merger clearance: Merger parties may seek the ACCC’s formal merger clearance before the merger takes place. The ACCC may grant clearance with conditions, such as in the form of a court enforceable undertaking. A formal merger clearance provides merger parties a legal protection from court action on the basis of Section 50.

The decision of the ACCC is made within 40 working days of receiving a complete application. The review period may be extended by 20 working days. Where no decision is made within the timeframe and no extension has been made, the ACCC is taken to have decided not to grant clearance.

Where the formal merger clearance is not granted, the merger parties may apply to the Australian Competition Tribunal for review of the ACCC’s decision.

There have been no applications for formal merger clearance lodged with the ACCC since the legislation was introduced in 2007.

Merger authorisation: Parties may apply to the Australian Competition Tribunal for authorisation of the merger proposal. Authorisation is granted where the Tribunal is satisfied that the merger is likely to result in a net public benefit. The decision of the Tribunal is made within 3 months of receiving a complete application. The review period may be extended to 6 months in complex cases. Once the authorisation is granted, no action can be taken by the ACCC or other parties on the basis of Section 50 in respect of the merger.

There have been five applications for merger authorisation made since 2007 and three of these have progressed to a final decision.

4. Assessment

In its assessment of a merger, the test applied by the ACCC is whether an acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market in Australia.

 

Section 50(3) provides a non-exhaustive list of factors that are taken into account when assessing whether a merger would have the effect, or be likely to have the effect, of substantially lessening competition: import competition; market entry barrier; concentration in the market; countervailing power in the market; the ability to increase prices or profit margins; availability of substitutes; dynamic characteristics of the market; removal of a vigorous and effective competitor; and the nature and extent of vertical integration in the market

5. Remedies and sanctions

The ACCC does not have the power to block a merger. Where the ACCC forms the view that a proposed merger or acquisition is likely to substantially lessen competition in contravention of section 50 of the CCA, the ACCC will notify the relevant parties and make an announcement. At that time, merger parties may decide to abandon the proposed merger, to restructure the transaction, or offer remedies (in the form of court-enforceable undertakings) to resolve the ACCC’s competition concerns. If parties decide to progress the matter, the ACCC may commence action in the Federal Court of Australia seeking to prevent the merger, or if completed, to seek a divestiture and declaration that the merger was void. Alternatively, the parties may choose to seek a declaration from Federal Court that the proposed merger does not contravene section 50 of the CCA (Informal Merger Review Process Guidelines 2013).

The ACCC does not impose remedies on the merger parties but they may be offered by the merging parties to address the competition concerns identified by the ACCC. Where the ACCC has concerns that support the view that a merger is likely to substantially lessen competition, the ACCC can accept a court enforceable undertaking from the merger parties under section 87B of the CCA to remedy those concerns.

While the provision of remedies is voluntary, the ACCC will provide guidance on the form and substance of a remedy and requires all remedies to contain certain standard machinery clauses. The ACCC has a strong preference for structural remedies, and on occasion accepts behavioural remedies as an adjunct to a structural remedy. The ACCC considers that behavioural remedies on their own are only appropriate in certain limited circumstances.

To determine whether a remedy is acceptable, the ACCC considers a range of factors, in particular: the effectiveness of the remedy to address the ACCC’s competition concerns; how difficult the proposal will be to administer; the ability of the merged parties to deliver the required outcomes; monitoring and compliance costs and any risk to competition associated with the implementation of the remedy (or failure to do so). In general, the ACCC conducts market inquiries with interested parties on a proposed remedy to inform its assessment of it. However, the ACCC will only consult on proposed remedies if it considers that the remedies are capable of being enforced and have the potential to adequately address competition concerns arising from the acquisition.

Where the ACCC views that a proposed merger or a completed merger is likely to substantially lessen competition in contravention of Section 50 of the CCA, the ACCC may commence action in the Federal Court of Australia seeking to prevent the merger, or if completed, to seek a divestiture and declaration that the merger was void.

 

* This information is based on Competition Law in Asia-Pacific: A Guide to Selected Jurisdictions (2018).