Chapter 3
The premise of the bill
3.1
This chapter focuses on the claim made by the drafter of the legislation
that the need for action on creeping acquisitions reflects the Australian
Competition and Consumer Commission's (ACCC) highly permissive approach to
merger applications.
The high rate of merger approval
3.2
The principal argument put by the proponent of the bill to amend section
50(1) is that the current rate of merger approvals by the Australian
Competition and Consumer Commission (ACCC) is too high. Associate Professor
Frank Zumbo argues that the ACCC approves 97 per cent of all merger and
acquisition applications and that as a result, 'Australia has some of the most
highly concentrated markets in the world'.[1]
3.3
In evidence to the committee, Associate Professor Zumbo explained how
the figure of 97 per cent was calculated:
In the year 2008-09 there were 412 mergers considered. The
number not opposed outright was 397; opposed outright, 10. When I get to around
the 97 per cent figure I look at the number totally opposed outright. On that
number, 10 out of 412, you get 97.57 per cent. There is a further category—and
I add this for the sake of clarification—that says ‘applications resolved
during review through undertakings’. That represents a further five cases. That
is a case where the ACCC has raised concern and the parties have given
undertakings to the ACCC that satisfy the ACCC. That is a further five. Even if
you add that further five as having been stopped by the substantial lessening
of competition test, then that is a further one per cent. That takes you down
to roughly 96.57 per cent. So, the 97 per cent number is looking at the opposed
outright, but I do accept that there is some flexibility and I am happy to
throw in those extra five or that extra per cent and you are still around 97
per cent.[2]
Criticism of this analysis
3.4
Both Treasury and the ACCC have queried Associate Professor Zumbo's
analysis. The following section canvasses their respective arguments.
Treasury's analysis
3.5
In its submission, Treasury noted that the percentage of mergers opposed
and not opposed is not a good measure of the effectiveness or application of
the merger test because some merger matters are not included in the official
statistics.
3.6
Treasury's submission included the above diagram by way of illustration.
The boxes on the far left and far right of the spectrum represent those merger
categories that are excluded from the official statistics.
3.7
The far left box represents those mergers that do not substantially
lessen competition and are not assessed by the ACCC. A large proportion of the
merger matters that are considered but not opposed by the ACCC are referred to
it by the Foreign Investment Review Board (FIRB) or the Australian Prudential
Regulatory Authority (APRA) or by the merger parties as a matter of courtesy.
These do not raise competition concerns.
3.8
The far right box represents those mergers so likely to substantially
lessen competition that they are not proposed. These mergers are prevented by
section 50(1) 'even though they are not recorded as having been proposed by the
ACCC'.[3]
3.9
The three middle boxes are those mergers that are considered by the ACCC
and are either found not to substantially lessen competition, are approved
subject to enforceable court undertakings or are opposed outright.[4]
3.10
Associate Professor Zumbo did note that the mergers included in the
official statistics and those so 'likely to substantially lessen competition
that they are not proposed' are more likely to arise in concentrated markets.
He told the committee that in a highly fragmented market, the parties are
unlikely to go to the ACCC unless they want 'a letter of comfort'.[5]
3.11
Nonetheless, the key point to make is that if those mergers in highly
fragmented markets represented in the far left box were included in Professor
Zumbo's calculations, the merger approval figure would be significantly less
than 97 per cent.
3.12
The ACCC was also critical of Associate Professor Zumbo's merger
approval statistic of 97 per cent. Mr Tim Grimwade of the ACCC told the committee
that the figure of 97 per cent cannot be a meaningful measure of the
effectiveness of the test. He gave three main reasons why this is the case.
3.13
First, it does not take into account the nature of the matters that the
ACCC reviews. Specifically, there are many merger clearance requests—'between
100 and 200 a year'—referred to the ACCC by the FIRB. The vast majority of
these raise no concerns 'because they relate usually to a new entrant coming in
and buying an asset or business in Australia'. Mr Grimwade noted that
these instances:
...clearly would inflate the denominator, if you are going to
start using a 97 per cent statistic to measure the effectiveness of the test.[6]
3.14
Second, there are matters that do not require review and important sub‑categories
among those that do require a review. The ACCC explained that in this financial
year it has sought to distinguish between pre-assessed mergers that do not
require any review and those that do. In the 2009–2010 financial year, about
120 merger requests have been pre-assessed without any review, leaving 'about
118' that require review.[7]
Of those requiring review:
- some are opposed outright;
- some are accepted that would otherwise have been blocked but for
a remedy being proposed and accepted by the commission; and
- some are put for review but 'withdrawn before we give our final
decision'. There were 'around 21' of this category last year and 'another 10
already' this financial year.[8]
These categories
accord with the three middle boxes in Treasury's diagram (above).
3.2
Third, the ACCC emphasised that there is no legal obligation by parties
to notify the Commission of a merger proposal. Instead, the ACCC structures and
incentivises notifications 'to capture a really large number of mergers' in
order to ensure that it can block any anticompetitive merger. Mr Grimwade
explained:
If we had a mandatory notification process—and we have given
it some thought—it would have all sorts of adverse consequences. For instance,
it would send a signal to those that do not meet the notification
thresholds—because you have to have a threshold for notification—that perhaps
their merger is okay when in fact it might not be.[9]
3.3
The ACCC was asked its view as to how many mergers and acquisitions are
prevented by the substantial lessening of competition test. Mr Grimwade gave
the following response:
...having regard to the matters that we review, leaving aside
the matters we do not review that we pre-assess do not require review, and you
include the matters we oppose, the matters we would have opposed but for
accepting a remedy or the matters that were withdrawn, you end up this
financial year looking at about 77 per cent, I think. I think it is a furphy to
use a statistic like that to make such a big decision on changing a test of this
function effectively for two decades that is consistent with international best
practice and has largely generated very good outcomes for the Australian
economy.[10]
International comparisons
3.15
Ms Julie Clarke of Deakin University has argued that the approval of
roughly 95 per cent of merger proposals notified to the ACCC in any given year
does not necessarily mean that the 'substantial lessening of competition test'
is set too high. Indeed, she noted in her submission to the inquiry that this:
...percentage is consistent with the percentage of notified
mergers challenged in most other OECD jurisdictions. In the United States, for
example, the percentage of notified mergers challenged is routinely lower than
that challenged in Australia. This statistic simply reflects the fact that the
vast majority of mergers do not raise competition concerns. It does not imply
that the law itself is too lenient.[11]
3.16
Associate Professor Zumbo told the committee that comparisons of merger
approvals between Australia and the United States must be seen in context. He
explained:
Our concern in Australia is that our markets are getting even
more concentrated and quickly so. If you have a 97 per cent approval rating in
the United States, which is a much bigger market, it takes a lot longer to get
to the level of concentrations that you have in Australia if it is the same
approval rating of 97 per cent. We need to look at each country on its own
merits, as we have to look at each merger on its own merits.[12]
Navigation: Previous Page | Contents | Next Page