The Government’s Proposed Reforms To Australia’s Merger Regime.
Earlier this year, the Australian Government announced its plan to reform Australia’s merger rules. Now, the Government has released draft legislation with its proposed reforms, which would see Australia implement a mandatory and suspensory merger clearance regime.
The Government’s proposed new framework is contained in the Treasury Laws Amendment Bill 2024: Acquisitions (“Draft Bill”) and would see Australia’s merger rules move closer to those of international jurisdictions such as the EU and US.
Here is a summary of the Government’s proposed reforms and some of the key aspects of the changes.
Rationale for the reforms
Treasury argues that the proposed reforms are designed to establish a cohesive and efficient review process for acquisitions, and it also claims they will improve efficiency, predictability, and transparency. The ACCC has fought hard for merger reform given its expressed dissatisfaction with the voluntary nature of Australia’s merger laws. However, critics have argued that the reforms may create uncertainty and confusion given the complexity and broad scope of the changes.
The proposed new regime
While Australia’s current competition laws prohibit mergers that would have the effect or likely effect of resulting in a substantial lessening of competition (“SLC”), they do not require parties to notify the ACCC or wait for clearance before proceeding. Rather, companies may voluntarily seek informal clearance from the ACCC or apply for formal merger authorisation.
The ACCC’s informal clearance regime has been in place for several years and, despite occasional complaints from both sides, has proven to be flexible, transparent and reasonably fast. However the ACCC, particularly under former Chair Rod Sims, has become increasingly concerned about mergers which could harm competition proceeding without clearance being sought.
The proposed reforms would introduce a single mandatory and suspensory regime, where acquisitions above certain thresholds require ACCC clearance, and cannot be completed without that clearance being obtained. If approved, a transaction must be completed within 12 months of clearance, or it will become ‘stale’. The onus is on the acquirer (or acquirers) to notify the ACCC, and proposed mergers can still be notified even if they do not meet the relevant thresholds.
Penalties will apply for failing to notify, implementing a deal before receiving clearance (often referred to as ‘gun jumping’), and providing false or misleading information.
ACCC powers to ‘stop the clock’
At this stage, the Government has not stipulated what information must be included in a notification. However, the ACCC will have the power to determine that there has been no “effective notification” if the information is incomplete or misleading (effectively delaying the ACCC’s review). The timing for a decision may also be extended if the ACCC uses its information-gathering powers (i.e. by issuing a section 155 notice), or if there is a material change in facts. This gives the Commission significant control over timeframes, but is not out of step with other merger regimes (like the EU) that allow regulators to “stop the clock” in a review or the current informal clearance process which has similar mechanisms.
Thresholds for notification not yet specified
The Government has not yet provided guidance as to what the thresholds for notification will be. The thresholds will be contained in Regulations (rather than primary legislation), which is intended to provide flexibility to update them over time. In addition, the thresholds will be based on criteria such as turnover, market concentration, and transaction value. Further details will be released later this year, but it is possible that they will align with thresholds used in the UK, Europe, or the US. For example, in the US, the minimum notification threshold in 2024 is US $119.5 million.
Different review phases and timeframes for ACCC decisions
The review process will consist of an initial ‘Phase 1’ period lasting up to 30 business days (although applications can be fast-tracked after 15 business days if the ACCC has no concerns).
The ACCC can proceed to an in-depth ‘Phase 2’ review if there are competition concerns (i.e. if it “reasonably suspects” that the acquisition would be likely to substantially lessen competition). This review period is up to 90 business days and allows for extensive legal and economic analysis. These timeframes are broadly consistent with other mandatory merger regimes like the EU. In addition, the phased review process bears some resemblance to the UK merger control regime, which involves a two-staged process: an initial review (Phase 1) and an in-depth review for more contentious deals (Phase 2).
A significant feature of the new regime (and a potential point of difference from the informal clearance process) is a commitment to transparency. As part of Phase 2, the ACCC may issue a “notice of competition concerns” outlining its preliminary assessment. This notice will detail objections to the deal, along with the facts, information, and evidence relied on by the ACCC.
The Government has provided a visual representation of the timeline below:
Changes to substantive and public benefits test
Under the new regime, the ACCC must allow a merger to proceed, following a Phase 2 review, unless it ‘reasonably believes’ that the merger would be likely to substantially lessen competition. This means that the ACCC’s previous proposal during the Treasury consultation on merger reform, which would have shifted the onus onto parties to satisfy the ACCC that the transaction would not SLC, has not been adopted. This, at least, is a win for merger parties.
The Draft Bill also includes a new definition of “substantially lessening competition” in the CCA, which appears to significantly broaden the scope of that threshold. The new definition provides that an SLC can include creating, strengthening, or entrenching a substantial degree of market power. This change would apply not only to mergers but also to other prohibited conduct, such as misuse of market power, exclusive dealing or anticompetitive agreements (with the potential to broaden the scope of these provisions).
If a merger is not cleared following the ACCC’s review, a subsequent process allows the ACCC to consider the net public benefits of a deal. However, the ACCC will need to be satisfied that the public benefits substantially outweigh any detriments. This is a higher threshold than under the current merger authorisation test (which simply requires that the public benefits outweigh the detriments). This seems a little odd given the ACCC’s expressed intent in considering environmental and sustainability benefits on antitrust enforcement.
ACCC to consider cumulative effect of transactions and other relevant matters
The ACCC will also be able to consider the cumulative effect of acquisitions by taking into account the combined effect of the merger and any acquisitions in the previous three years.
In making these changes, the Government intends to tackle concerns around so-called serial acquisitions and roll-up strategies, which has been an increasing area of concern for the ACCC in recent times.[1] As a result, businesses will need to consider the combined effect of any acquisitions in the lead up to the reforms commencing. The “merger factors” are also set to be updated to include new factors such as the “need to maintain and develop effective competition in markets” and the effect of the transaction on the “conditions for competition”. This signals a change of focus from the current merger factors, which the Government says simply acts as ‘a checklist’, to a principles-based approach which is intended to enhance conditions for competition and safeguard consumers.
Appeal rights
It will be open for a notifying party to seek merits review of ACCC decisions in the Australian Competition Tribunal. This is a limited form of merits review, similar to the current merger authorisation process, with the Tribunal only allowed to consider information that was before the ACCC during its decision (with the exception that it can consider new information ‘not in existence’ at the time of the decision). The Federal Court will only be an option for judicial review (i.e. it will not be available for merits review).
The Draft Bill also introduces a new internal review process by the ACCC, alongside the option to appeal to the Tribunal.
Transition to the new regime
The regime is set to come into effect from 1 January 2026 (although parties can make applications under the new regime earlier than that). The existing regime will be phased out, with the merger authorisation process unavailable from 1 July 2025, and the informal merger clearance continuing until 31 December 2025.
For further information, please contact Thomas Jones, Matthew Bovaird, Patrick Cordwell, or Dylan McGirr. This article was written with the assistance of Chloe Corne.
[1] See https://www.accc.gov.au/system/files/merger-reform-submission.pdf.
