Mandatory merger clearance regime announced: issues and areas to watch

By Steve Johns, Ben Hamilton, Kurt Wicklund and Anne Utecht

About one year after ACCC Chair Gina Cass-Gotlieb expressed support for substantial reforms to the Australian merger control regime, Treasury has now published details of its proposed changes in its Merger Reform Paper. The proposed changes differ from the ACCC’s suggestions, which we have commented on previously. The release of the reforms is timely, given the frequent public commentary regarding the perceived lack of competition in key industries, including supermarkets and banking.

Key features of the proposed new regime

The new legislative provisions are scheduled to come into effect on 1 January 2026 and a first draft of the proposed legislation is expected to be published later this year. The proposed reforms are subject to an extensive consultation process and the details are still subject to change.

The proposed reforms are as follows:

• Notification will be mandatory for transactions above a certain threshold.
• The ACCC will charge notification fees of $50,000 to $100,000 (this does not include private legal fees or any tribunal review fees); however, exceptions for small businesses may apply.
• Notification will have a suspensory effect on the proposed transaction. Parties will be restricted from completing a transaction until the ACCC makes a determination (or the time for making a determination expires).
• High-level details of all notified transactions and the respective determinations will be publicly available.
• The relevant test will be whether the proposed transaction is likely to substantially lessen competition. This will be a slightly revised test, being whether the transaction is likely to create, strengthen or entrench substantial market power.
• The ACCC’s analysis will take between 15 working days and up to 4½ months (or longer), depending on the level of competition concern.
• Penalties will apply for non-compliance with the notification requirements.

Issues and areas to watch

Although the reforms are welcome, they are not without issues. These include lack of certainty around thresholds, high notification costs and potentially drawn-out timelines for transactions. We expand further on some of these issues below.

Threshold calculation

Treasury proposes a multiple threshold test, including a monetary threshold and a market-share or supply-share threshold. It is suggested that the monetary threshold will include several metrics, including transaction value, turnover and/or profitability.

This test raises number of issues:

• It is unclear what is meant by ‘profitability’ – are more profitable businesses likely to be subject to more stringent notification requirements?
• Transaction parties may need to determine their market share (or supply share) to determine if notification is required – this may become a threshold question for transaction parties rather than a factor to be assessed by the ACCC as part of its assessment of a notification.
• The potential subjectivity of the above calculations, particularly where market data is sparse or conflicting.

While a combined threshold of turnover and transaction value is common in other jurisdictions, the introduction of a threshold based on market share is potentially problematic. The ACCC provides general guidelines as to how it addresses the question of defining a market and assessing market share, but the process is not simple, and a determination will often need to be made in light of conflicting data and can be open to interpretation. The proposed reforms now potentially require all transaction parties to make this assessment and with a degree of accuracy that has not previously been required.  Failure by transaction parties to define market shares correctly could result in non-compliance with the merger control regime, by not notifying the ACCC of a transaction that it considers will exceed the relevant thresholds.

Putting aside the cost and complexity of defining a market, there are also practical issues with this approach. Market data is not always readily available for every market, and some transaction parties may only be able to provide estimates of their respective market shares. Attaching the threshold decision of whether or not a transaction will be required to be notified to potentially unsophisticated transaction parties and unreliable metrics may considerably complicate the merger control process and transactions.

Combined value of three years

The reform proposals also require that any acquisitions by the transaction parties that took place in the three years prior to notification will be aggregated and that value will be considered in determining if the ACCC is required to be notified of the transaction.

This is especially relevant to private equity funds or serial acquirers, where the combined value of transactions over the prior three years may be significant.

Timeframes

Similar to the system in the European Union, it is proposed the timeline of the assessment will depend on whether the ACCC considers a notified transaction to be high risk. A Phase I review will take 30 business days (15 if the application can be fast-tracked), the Phase II review will extend to an additional 90 business days.

To what extent the assessment process will impact transaction timelines is not clear. Ultimately, it will depend on how quickly the ACCC is able to complete its assessment of the transaction. However, if the experience with FIRB is any guide, it is likely that transaction timelines will be impacted as the ACCC adjusts the volume of likely notifications.

Costs

Application fees of $50,000 to $100,000 are likely to impose a significant burden for many smaller transactions. Together with increasing fees for FIRB applications, this will have the effect of increasing the overall cost of transactions.