Australian Merger Reform update: key changes proposed by new Bill

The essence of the proposed merger reform remains unchanged by introducing a mandatory and suspensory notification regime for transactions above certain thresholds, as well as a proposed widening of the substantial lessening of competition test. It is clear from the Government Response and Explanatory Memorandum that the creation, strengthening and entrenchment of market power through acquisitions remain in sharp focus. 

It can be expected that many transactions, although their footprint in Australia may be relatively small, will have to be notified in a first instance.

Despite the removal of market concentration thresholds and the slight increase in global transaction value for medium to large sized acquirers, the ACCC expects 80 per cent of notified transactions to be decided within 15-20 business days (ie through the fast track or Phase I determinations). 

• As with the Exposure Draft, only mergers that result in control over the target can be notifiable. ‘Control', however, will now be defined in the same way as set out in the Corporations Act 2001 (Cth) rather than introducing a new definition. This reduces complexity in the assessment and misalignment between different legislations, although the clear threshold of 20 per cent voting power leading to a presumption of control has been removed for now. In general, a merger party will acquire ‘control’ over the target if it has the capacity to determine the outcome of decisions about the target’s financial and operating policy post-merger. 
• The revised and widened substantial lessening of competition test to include transactions that create, strengthen or entrench a substantial degree of market power will only apply to mergers. In a significant departure from the Exposure Draft, these expanded factors will not apply to the misuse of market power and exclusive dealing provisions. 
• The Bill also includes the power for the Minister to determine certain categories of transactions that are exempt from notification (but may also introduce specific categories that require notification despite not meeting the thresholds). Among others, Treasury expects certain land acquisitions involving residential property development and certain commercial property acquisitions to become exempt. 
• The treatment of serial acquisitions has been clarified. While the general power of the ACCC to consider cumulative effects of transactions from the past three years has been maintained, the criteria for the transaction are more precisely laid out in the Bill. Previous transactions can be considered when deciding on a current notification where: 
  • the parties include any party to the present transaction (or their related body corporates); and 
  • the targets being directly or indirectly involved in the supply or acquisition of the same goods or services that are substitutable or otherwise competitive with each other (Relevant Products).
• The scrutiny on serial transactions has been strengthened by introducing an additional notification threshold^[1], making serial acquisitions mandatory for notification where: 

OR

• Additionally, market concentration thresholds have been abandoned. Notification thresholds will be set solely relating to turnover and transaction value that have been simplified (notably not lowered). Acquisitions will be notifiable where:

OR

Other changes address concerns around procedural fairness and certainty of time frames that were raised during the consultation periods.

These include: 

• clearer processing times with more limitations for the ACCC to ‘stop the clock’; 
• increased obligations on the ACCC to make available their reasoning and evidence for its determination; and 
• access to that evidence by the Australian Competition Tribunal for reviewing ACCC’s decisions. 

[1] These changes are contained in the Government Response only as thresholds are not included in the Bill but will be determined via a different legislative instrument.