Chapter 1Introduction and background
1.1On 10 October 2024 the Senate referred the provisions of the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 to the Senate Economics Legislation Committee (the committee) for inquiry and report.
Purpose of the Bill
1.2The bill includes a package of reforms that seek to modernise Australia’s merger review framework and implement a ‘faster, stronger, simpler, targeted, and more transparent and streamlined system that better addresses anti-competition mergers and acquisitions (‘acquisitions’).
1.3More specifically, the bill would amend the Competition and Consumer Act 2010 (CCA) to replace the existing merger framework with a mandatory and suspensory administrative system for acquisitions, with the Australian Competition and Consumer Commission (ACCC) as the first instance administrative decision-maker.
1.4Ultimately, the reforms aim to meet community expectations that the ACCC can detect and prevent anti-competitive acquisitions, and deliver lower prices and improved quality and service for consumers, businesses and the wider community.
Context and development of the reforms
1.5As the Explanatory Memorandum sets out, mergers and acquisitions are an important part of a productive and dynamic economy, allowing business to ‘achieve greater economies of scale and to access new resources, technology and expertise’. Most acquisitions do not raise competition concerns. However, some can harm competition and hurt consumers.
1.6As the Assistant Minister for Competition, Charities and Treasury, the HonDrAndrew Leigh, wrote in April 2024:
Encouraging firms to enjoy economies of scale while curbing monopoly power is at the heart of merger laws. Most mergers are not anti‑competitive, and can be beneficial to the economy. But some mergers deserve closer scrutiny, to ensure that they are providing real benefits.
1.7As the Explanatory Memorandum sets out, there are currently three pathways by which anti-competitive mergers may be prohibited in Australia’s approach to the control of mergers and acquisitions:
informal review by the ACCC, ‘a process which has developed without any legislative framework, [and which] enables businesses to manage regulatory risk and seek the Commission’s non-binding view on whether an acquisition is likely to substantially lessen competition’. Most mergers that are notified to the ACCC are considered through the ACCC’s informal merger review process—for example, 99per cent in the 2022–23 financial year;
formal merger authorisation by the Commission, ‘a formal legislative process which allows the Commission, and the Tribunal on review, to provide businesses with immunity from court action under competition law for a proposed merger or acquisition if it is satisfied that it would not be likely to substantially lessen competition or that it is likely to result in a net public benefit’; and
Federal Court proceedings related to the acquisition, ‘in which the Commission, parties to the acquisition or third parties can seek orders relating to the acquisition’.
1.8In August 2021, the ACCC ‘kick-started’ a national discussion about merger reform.In a speech to Law Council of Australia’s Competition and Consumer Workshop, the then Chair of the ACCC, Mr Rod Sims AO, noted that contrary to popular belief, the ACCC does not ‘approve’ mergers. Instead, he explained, Australia relies on a ‘merger enforcement’ model, by which to stop a merger the ACCC must persuade the Federal Court that the proposed acquisition is likely to have the effect of substantially lessening competition in the future, in breach of section 50 of the CCA.
1.9Mr Sims suggested that Australia’s approach to merger control:
…is out of step with most merger regimes internationally, under which mergers are required to be notified as part of a formal assessment regime, and must obtain clearance before they can proceed.
There are also flaws in the way our merger law is applied. Changes to the test for assessing mergers are necessary to ensure the focus is on the competition that will be lost if the merger proceeds, and on the impact of the merger on structural conditions for competition in the relevant market.
1.10Mr Sims identified areas for merger reform that the ACCC considered needed particular attention to prevent anti-competitive acquisitions, while at once emphasising that the ACCC was seeking to encourage a lively and open debate on the subject.
1.11On 23 August 2023, the Treasurer announced a Competition Review to provide advice on ways to improve competition across the economy, with a focus on reforms that would increase productivity, boost wages growth, and reduce cost of living pressures. The Treasurer announced that the Review would consider, among other things, ‘proposals put forward by the [ACCC] around merger reform’.
1.12Treasury established a Competition Taskforce to undertake the Review. The Taskforce has been overseen by an Expert Advisory Panel comprising KerrySchott, David Gonski, John Asker, Sharon Henrick, John Fingleton, DanielleWood and Rod Sims. Dr Leigh has written that expertise of the panel ‘has been invaluable in shaping a reform package that is economically sound and practically workable.’
1.13The Taskforce released a consultation paper on the proposed merger control reforms on 20 November 2023, and in turn conducted an extensive consultation process on reform options from November 2023 to January 2024.
1.14The Competition Review found that the Australia’s current merger review system is not fit for purpose. Of 1400 mergers that take place annually, the Review found the ACCC only considers about 300 of these mergers. ‘Three out of four mergers,’ as Dr Leigh wrote in April 2024 in response to the findings of the Review, ‘fly under the radar’. Moreover, where the ACCC does conduct a review, Dr Leigh continued, there is a lack of transparency, ‘with only a fraction of mergers reviewed by the ACCC every year done so publicly’.
1.15Like Mr Sims in 2021, Dr Leigh further observed that Australia’s current system is an international outlier:
This system looks even odder in an international context. Almost every advanced country, including the United States, Japan, Canada and all European Union members, has a system that requires the compulsory notification of mergers. Australia is an outlier in not requiring merger notification. The result is that our competition watchdog is flying blind.
1.16In response to the Competition Review’s findings, on 10 April 2024 the government announced its proposed reforms to improve the merger control system. The government indicated the reforms would introduce a system that was faster, stronger, simpler, more transparent and more targeted.’
1.17The Explanatory Memorandum sets out the benefits of the move away from a current system of merger control overly reliant on enforcement and court decisions, to an administrative system:
A faster, clearer, streamlined process for the review of acquisitions will enhance efficiency, predictability and transparency. It will strengthen merger control by targeting, through a risk-based system, those mergers most likely to impact Australian consumers if they are anti-competitive.
By moving to an administrative system, business will benefit from guidance and engagement with the Commission as the expert decision-maker. This will reduce uncertainty and improve predictability. The Commission will undertake an economic and legal, evidence-based assessment of notified acquisitions, improving outcomes for competition and consumers. This will deliver lower prices and improved quality and service for consumers, businesses and the wider community. Importantly, the reforms will meet community expectations that the Commission can detect and stop harmful, anti-competitive acquisitions.
1.18As Dr Leigh has also observed:
Modernising Australia’s merger laws will be good for consumers, who are always the greatest beneficiaries of competition. But they may also be important for employees, who gain from a competitive labour market, where firms cannot wield monopsony power.
Consultation in relation to the bill
1.19An exposure draft of ‘Treasury Laws Amendment Bill 2024: Acquisitions’ was released for public comment on 24 July 2024.
1.20Some elements of the proposed framework, including mandatory notification thresholds and fees, will be provided for in subordinate legislation, which will be subject to separate consultation processes.
Overview of the bill
1.21This section of the report provides a high-level summary of the new law. More detail is provided in the Explanatory Memorandum.
1.22As previously noted, the bill would create an administrative and suspensory review system for acquisitions, with the ACCC as the first instance administrative decision-maker. As summarised in the Explanatory Memorandum, the bill:
introduces a requirement for certain acquisitions of shares or assets to be notified to the Commission for assessment prior to completion, with penalties to support compliance;
establishes a new administrative system where the Commission will undertake an economic and legal assessment of whether the acquisition is likely to substantially lessen competition in a market, or is of public benefit;
streamlines the assessment of mergers and acquisitions with clear suspensory timelines;
promotes integrity and good decision-making by providing for review of Commission decisions by the [Australian Competition] Tribunal;
enhances transparency through establishment of a public register of notified acquisitions and other procedural safeguards;
provides that fees are payable for certain actions under the reforms.
1.23As the Explanatory Memorandum sets out, a ‘corporation or person that is a party to an acquisition must provide a notification to the Commission if an acquisition is a notifiable transaction, unless the Commission has determined that the acquisition does not require notification’.
1.24Importantly, the thresholds for notification will be determined by the Minister by legislative instrument. The thresholds will be subject to regular review ‘and set with respect to evidence of the risk of potential harms to the community over time’. Moreover:
To ensure that the system is fit for purpose as businesses evolve and minimise avoidance, the Minister will be able to determine whether certain categories of transactions should be notifiable or exempt from notification. The Commission will regularly report on the number of notifications made and provide a general description of the kinds of acquisitions notified.
1.25For acquisitions that are notifiable, the ACCC would be required to ‘undertake an assessment as to whether the acquisition is likely to substantially lessen competition or result in a public benefit’. The Explanatory Memorandum notes:
An acquisition may have the effect of substantially lessening competition in a market if it would or would be likely to have the effect of creating, strengthening or entrenching a substantial degree of power in the market. To consider whether an acquisition is likely to substantially lessen competition, also requires an assessment of the relevant markets in which the parties compete or operate affected by the acquisition, as well as adjacent markets, whether that is at a national or local level, wholly or partly in Australia.
1.26The bill establishes a two-phased approach to the ACCC’s assessment of an acquisition against the ‘substantial lessening of competition’ test:
Phase 1, wherein all notified acquisitions are considered. Where no competition concerns are raised, the ACCC may quickly determine that a notified acquisition can proceed.
Where the ACCC is satisfied an acquisition could be likely to substantially less competition, a more in-depth Phase 2 assessment may be conducted. More detail on the processes required as part of the Phase 2 assessment, including notification of the parties and limits placed on the opportunities for judicial review of the decision to conduct a Phase 2 assessment, are provided in the Explanatory Memorandum.
1.27Following a Phase 2 assessment, the ACCC:
…must determine that an acquisition may be put into effect, with or without conditions, unless it is satisfied that the acquisition would have the effect or be likely to have the effect of substantially lessening competition.
1.28However, the ACCC may still approve an acquisition that would otherwise be anti-competitive ‘if the Commission is satisfied it would be likely to result in a public benefit that outweighs the public detriment’.
1.29As a safeguard, parties to an acquisition may apply to the Australian Competition Tribunal for a merits review of an ACCC decision. The Tribunal is ‘an independent administrative decision-making body with economic, business and legal expertise’.
1.30To provide for timely decision-making, both phases of the assessment process are subject to timeframes, as set out in the bill. Timeframes are also specified for reviews by the Tribunal of Commission.
1.31In undertaking its assessment, the ACCC must publish details of the acquisition on a public acquisitions register and engage with businesses, stakeholders and the community.
1.32An acquisition subject to ACCC review cannot be put into effect unless the ACCC has made a determination that it may be put into effect. Any acquisition put into effect, or purportedly put into effect, when it must not be, would be rendered void.
Commencement
1.33There is some variation of the commencement dates for each schedule of the bill:
Part 1 of Schedule 1 to the Bill commences the day after Royal Assent.
Part 2 of Schedule 1 to the Bill commences on 1 July 2025.
Part 3 of Schedule 1 to the Bill commences on 1 January 2026.
Part 1 of Schedule 2 to the Bill commences on 1 January 2026.
Parts 2 to 5 of Schedule 2 to the Bill commence the day after Royal Assent.
Financial impact and compliance cost impact
1.34According to the Explanatory Memorandum, Schedule 1 to the Bill is estimated to have the following impact on the underlying cash balance over the forward estimates period:
| | | | |
-0.5 | -6.8 | -1.9 | +16.7 | +16.9 |
1.35The financial impact of Schedule 2 is ‘unquantifiable but expected to be small’.
1.36The annual compliance cost is estimated to be $10.8 million above the status quo, assuming the number of notifications remains similar to current volumes. The Explanatory Memorandum notes that there is uncertainty and difficulty in predicting future merger activity in Australia as it depends on underlying market conditions.
Scrutiny of the bill
Legislative scrutiny
1.37The bill has not yet been reviewed by the Senate Scrutiny of Bills committee.
Human rights compatibility
1.38According to the Statement of Compatibility with Human Rights, as contained in the Explanatory Memorandum, the Bill engages the following human rights:
the right to a fair trial under articles 14 and 15 of the International Covenant on Civil and Political Rights (ICCPR);
the right against self incrimination under article 14(3) of the ICCPR;
the right to protection from arbitrary or unlawful interference with privacy under article 17 of the ICCPR;
the right to access information held by public bodies under article 19(2) of the ICCPR.
1.39Details on how the bill engages these human rights is provided in the Explanatory Memorandum.
1.40The Statement of Compatibility concludes that the bill is compatible with human rights to the extent human rights are engaged, and that such engagement is necessary and proportionate to the policy outcome.
Conduct of the committee’s inquiry
1.41On 10 October 2024, the bill was referred by the Senate to the committee for inquiry and report by 13November 2024. On 13 November 2024 the reporting date was extended to 15November 2024
1.42The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 24October2024.
1.43The committee received 15 submissions, which are listed at Appendix 1.
1.44The committee held one public hearing on 30 October 2024. The names of witnesses who appeared at the hearing can be found at Appendix 2.
Acknowledgements
1.45The committee thanks all individuals and organisations who assisted with the inquiry, in particular those who made written submissions and participated in the public hearing.