Purpose of the Bill

The purpose of the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (the Bill) is amend the Competition and Consumer Act 2010 (CCA) to replace the current approach to merger control, with the aim of creating a system that better addresses anti-competitive mergers and acquisitions.

Structure of the Bill

The Bill comprises two Schedules. Schedule 1 has three Parts:

• Part 1 contains an amendment to the CCA to provide that merger authorisation applications under the current arrangements may not be made from 1 July 2025 onwards
• Part 2 proposes a new Part IVA of the CCA, setting out the new merger review framework and consequential amendments to various Commonwealth statutes
• Part 3 amends section 50 of the CCA to clarify the meaning of ‘substantially lessening competition’.

Schedule 2 to the Bill comprises 5 Parts which contain other consequential amendments to the CCA.

Background

Australia’s current merger regime

Generally speaking, a merger occurs when two separate entities combine forces to create a new, joint organisation. An acquisition refers to the takeover of one entity by another. In an acquisition, a new company does not emerge. Instead, the smaller company is often consumed and ceases to exist, with its assets becoming part of the larger company. Mergers and acquisitions may be completed to expand a company’s reach or gain market share in an attempt to create shareholder value.

The current law is primarily contained in section 50 of the CCA. Subsection 50(1) provides that a corporation must not directly or indirectly acquire shares in the capital of a body corporate, or acquire any assets of a person if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market. Subsection 50(2) is in near equivalent terms but refers instead to a person rather than a corporation. Where a person has contravened section 50, the Federal Court may give directions that the person dispose of any, or all, of the shares or assets acquired in contravention of that section.

There is no legal requirement in the CCA that merger parties notify the Australian Competition and Consumer Commission (ACCC) before completing a merger.

Informal review process

Instead, the ACCC has established an Informal Merger Review Process which enables merger parties to seek the ACCC’s view on whether the proposed acquisition is likely to have the effect of substantially lessening competition. According to the ACCC Guidelines (p 6) ‘this process has developed over time to provide an avenue for merger parties to seek the ACCC’s view prior to completion of a merger’.

The test to be applied is set out in subsection 50(3) of the CCA which lists a range of matters that are taken into account when assessing whether a merger is likely to substantially lessen competition.

Importantly, a decision by the ACCC under the informal review process does not confer protection from subsequent legal action based on an alleged contravention of section 50 of the CCA, in particular by third parties.

Formal merger authorisation

Section 88 of the CCA empowers the ACCC (and on appeal, the Australian Competition Tribunal) to grant immunities, called authorisations in relation to conduct that would, or might otherwise, contravene the competition provisions in the CCA. The benefit of receiving a formal authorisation is that it confers protection from subsequent legal proceedings by the ACCC and other parties. The disadvantage is that the process is lengthy (involving public consultations) and expensive (the application fee is $25,000).

The test to be applied is set out in subsection 90(7) of the CCA which prohibits the ACCC from granting an authorisation unless it is satisfied in all the circumstances:

• that the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition or
• the conduct would result, or be likely to result, in a benefit to the public and the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.

Merger reforms process

Reform of Australia’s merger laws was first mooted by ACCC Chair Rod Sims on 27 August 2021 in his annual address to the Law Council of Australia's Competition and Consumer Workshop. At that time, he argued that effective merger control is essential to ensure markets remain competitive by preventing anti-competitive mergers.

The reform of mergers and acquisitions laws has been a lengthy process including:

• an initial consultation paper circulated for public comment on 20 November 2023
• the announcement of new reforms intended to make the ‘merger approval system faster, stronger, simpler, more targeted and more transparent’ on 10 April 2024
• publication of an exposure draft of the Bill in July 2024 which received 29 submissions
• subsequent consultation on the relevant thresholds for notification issued on 30 August 2024 and
• the Government response to stakeholder comments on the proposed merger reform package on 10 October 2024 (the day the Bill was introduced into Parliament).

Policy position of non-government parties/independents

At the time of writing none of the non-government parties nor any independent Members and Senators had commented on the Bill.

Financial implications

The Explanatory Memorandum (p 2) sets out the cost of the merger reforms for the Government.

Key issues and provisions

Acquisitions that must be notified

Under proposed Part IVA of the CCA (at item 35 of Schedule 1 to the Bill), certain acquisitions, including acquisitions of shares in the capital of a body corporate or of any assets of a person or corporation, are required to be notified to the ACCC before they are put into effect: proposed subsection 51ABB(1). The ACCC must also be notified of a proposed acquisition of units in a unit trust or of interests in a managed investment scheme: proposed subsection 51ABC(1).

An acquisition is required to be notified if:

• it meets a specified threshold: proposed paragraph 51ABO(a) or
• if it is within a determined class of acquisitions: proposed paragraph 51ABO(b).

The Minister is empowered to make a legislative instrument setting out the relevant thresholds: proposed subsection 51ABP(1) and the relevant classes: proposed subsection 51ABQ(1). Before making a legislative instrument determining a class of acquisitions, the Minister may ask the ACCC for analysis of matters such as the likely effect that making the instrument would have on consumers and the likely regulatory impact of the instrument: proposed subsection 51ABQ(3) and proposed section 51ABR.

Obligations of parties

Item 27 of Schedule 1 inserts proposed Division 1A into Part IV of the CCA, which deals with restrictive trade practices. Proposed Division 1A sets out the obligations of parties to an acquisition, being:

• the principal party to a notifiable acquisition must notify the ACCC: proposed section 45AW
• a notifying party must advise the ACCC of any material change of fact in relation to a notified acquisition: proposed section 45AX
• an acquisition must not be put into effect if it is stayed: proposed section 45AY
• if the acquisition is approved subject to conditions, then those conditions must be complied with: proposed section 45AZ.

Notification thresholds

According to the Government response to the consultation on merger reform (p 2), there are three notification thresholds:

• a single economy-wide monetary threshold focused on large mergers, if the Australian turnover of the combined businesses is above $200 million, and either the business or assets being acquired has Australian turnover above $50 million or global transaction value above $250 million
• any merger involving a very large business with Australian turnover more than $500 million buying a smaller business or assets with Australian turnover above $10 million
• to target serial acquisitions, all mergers by businesses with combined Australian turnover of more than $200 million where the cumulative Australian turnover from acquisitions in the same or similar goods or services over a three-year period is at least $50 million will be captured, or $10 million if a very large business is involved.

Parties can seek a notification waiver from the ACCC to confirm that an acquisition is not required to be notified: proposed subsection 51ABU(1).

The Government response to the consultation on merger reform (p 2), notes that an earlier proposal to include market concentration thresholds has been removed. This has been supported by Business Council of Australia chief executive Bran Black.

The removal of the market concentration threshold was welcomed on the grounds that:

the market concentration thresholds will be challenging to apply in practice, leading to conservative over-reporting from merger parties.

In his second reading speech, Treasurer, Dr Jim Chalmers particularly referenced supermarkets stating:

In addition, the legislation provides flexibility to allow the Treasurer to adjust and calibrate the thresholds to respond to evidence based concerns from the ACCC about high-risk mergers, like in the supermarket sector.

This power, combined with the thresholds, will allow the ACCC to review all the mergers that they have been typically concerned about.

Exemption from notification

The Bill does not address previously proposed exemptions relating to temporary holdings by financial institutions and authorised insurance companies, or insolvencies and inheritances, but has retained a carve-out for internal restructures and most transactions made in the ordinary course of business. Proposed subsection 51ABT states that an acquisition of shares in the capital of a body corporate is not required to be notified if:

• the body corporate is a Chapter 6 entity (i.e. a listed company, or an unlisted company with more than 50 members, or a listed registered scheme, within the meaning of the Corporations Act 2001) and
• the acquisition does not result in someone’s voting power (within the meaning of the Corporations Act) in the body corporate increasing:
  • from 20% or below to more than 20% or
  • from a starting point that is above 20% and below 100%.

Tests to be applied

The test to be applied to a notifiable acquisition by the ACCC is whether the acquisition, if put into effect, would or could, in all the circumstances, have the effect, or be likely to have the effect, of substantially lessening competition in any market: proposed subsection 51ABZH(1). An acquisition may satisfy the test of substantially lessening competition in a market if the acquisition would, in all the circumstances, have the effect, or be likely to have the effect, of creating, strengthening or entrenching a substantial degree of power in the market: proposed subsection 51ABZH(4). Where no competition concerns are raised, the Commission may quickly determine that a notified acquisition can proceed—this is called Phase 1.

Where the ACCC is satisfied that the acquisition could be likely to substantially lessen competition, it may undertake a further in-depth review, known as Phase 2. The test to be applied is whether the effect of substantially lessening competition would be likely to result in a public benefit that outweighs the public detriment: proposed subsection 51ABZW(2).

Complexity of decision-making process

The ACCC has published information about the current merger authorisation process. As the test to be applied is in similar terms to the test to be applied during Phase 2 review it is worth noting the complexity of this process. The merger guidelines state (p 33):

When considering the anticipated benefits put forward by an applicant, the ACCC will assess (among other things):

• whether the anticipated benefit is transaction specific
• who the benefit accrues to and how widely it is shared in the community
• whether the benefit is ongoing or a one-off
• how the benefit will arise
• when the benefit is likely to arise
• the likelihood that the benefit will be realised
• the magnitude of the benefit.

The ACCC takes into account any benefits that would result from the proposed acquisition regardless of the market in which that benefit arises.

Statutory time limits

Once the ACCC has been notified of an acquisition statutory time frames apply to the decision-making process.

• For a Phase 1 determination, the period is 30 business days starting on the effective notification date: proposed subsection 51ABZI(4). However, the period is subject to extensions, for instance if there has been a material change of fact: proposed subparagraph 51ABZB(2)(a)(ii).
• For a Phase 2 determination, the period is 90 business days starting immediately after the end of the Phase 1 determination period: proposed subsection 51ABZI(5). The period may also be subject to extensions.

As well as the right to extend timeframes, the ACCC has a number of ‘stop the clock’ rights. These occur, for instance, when the ACCC seeks additional information and documents in respect of a notification that is incomplete or misleading: proposed subsections 51ABZA(5) and 51ABZS(5).

The total of the relevant timeframes is set out in the figure below.

Source: ACCC: Statement of Goals for Merger Reform Implementation, p 5.

Speed of the decision-making process

It was reported:

the ACCC expects about 80 per cent of mergers to be cleared within 15 to 20 business days. A second phase, to be conducted within 90 business days, will involve an in-depth review, while the final 50 business days will consider the public benefit.

The ACCC in its Statement of Goals for Merger Reform Implementation noted:

If a determination is not made by the ACCC within the statutory timeframe, subject to any allowable extensions, the acquisition will be deemed approved and can be put into effect. This will hold the ACCC accountable in meeting statutory deadlines. (p 6)

However, the ACCC (p 7) states:

We will encourage pre-lodgement engagement with merger parties to facilitate, where needed, discussions regarding their notification, timing considerations and information requirements, including exploring what data the parties maintain during their regular course of business. This will enable us to identify upfront whether and why any additional information should be provided at the outset to assist the notification being considered expeditiously. The approach to pre-lodgement discussions will be tailored taking into account the complexity of each matter and our prior level of knowledge of the market/s under consideration.

The Australian Chamber of Commerce and Industry (ACCI) does not support the new process, stating in its submission to Treasury about the exposure draft (p 2):

This proposed framework imposes more regulatory hurdles on businesses, requiring merger applications to be more resource intensive. Unlike, the current regime where businesses provide the ACCC with the pertinent information, the Exposure Draft introduces various information requirements for an application to be deemed ‘complete’. Additionally, ongoing obligations would be imposed on businesses to notify the ACCC of any material changes of fact in the notification until the ACCC makes its determination…

A poorly designed mandatory notification regime will only delay much needed investment. Reviewing mergers that do not present competition issues will consume limited ACCC resources that could be better devoted to assessing mergers that do pose a risk to competition.

Application fees and other costs

It has been suggested that applicants for merger/acquisition approval will need to pay the ACCC for each review (see for instance proposed paragraph 51ABX(1)(b) and proposed subsection 51AZC(3)) with the merger reform paper (p 2) stating fees are likely to be in the range of $50,000-100,000—with additional fees for Tribunal review: proposed section 112 of the CCA inserted by item 56 of Schedule 1.

According to the Explanatory Memorandum to the Bill (p 144) ‘an exemption from fees will be available for small business’.

However, there could be incidental cost as well. Businesses are concerned that long delays may cost time and money and may pose a deal-breaking risk for many prospective merger partners.

Compared to the current right of judicial review by the Federal Court, the right to appeal the decision of the ACCC to the Australian Competition Tribunal is expected to be cheaper.

Reviews and appeals

Under the process set out in the Bill the ACCC is the primary decision-maker: proposed section 51ABZE. A party that is dissatisfied with the decision at first instance may seek a review of the decision by the Australian Competition Tribunal (ACT): proposed section 100A (item 50 of Schedule 1). There is a right of appeal to the Federal Court of Australia of the ACT decision.

According to the submission to Treasury by Arnold Bloch Leibler in relation to the exposure draft:

The Draft Bill seeks to replace the Court’s decision of whether an acquisition breaches s 50 of the CCA with an administrative regime that extinguishes a fundamental property right (to sell or dispose of property) without government approval and paying a fee. It is unclear to what extent the Government has considered potential constitutional challenges, based on the separation of powers or s 51(xxxi) of the Constitution, although the s 51(xxxi) risk is acknowledged in s 189 of the Draft Bill.

That provision is preserved in proposed section 192 of the CCA, at item 71 of Schedule 1 to the current Bill.

Transparency–acquisitions register

Proposed section 51ABZZH of the CCA requires the ACCC to establish the acquisitions register. The register must include, for each notified acquisition:

• the details of each notification of the acquisition
• a copy of each acquisition determination (if any) made in respect of the notification, and a statement of the ACCC’s reasons for making the determination and
• if a notification of the acquisition is subject to phase 2 review—a copy of the notice given to the notifying party: proposed section 51ABZZI.