Australian Competition Law

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Collection of Merger Resources

This page provides links to various resources available relating to mergers.

In Australia mergers are prohibited if it can be demonstrated that they will have the effect or likely effect of substantially lessening competition in a market (section 50 TPA). It is possible to obtain clearance (formal or informal) or authorisation for proposed mergers, but there is no mandatory notification process.

Clearance will be granted only if the ACCC does not believe the merger will SLC (s 95AN). Authorisation, on the other hand, may be granted by the Australian Competition Tribunal even where the merger will SLC if it can be demonstrated that the merger would lead to such a benefit to the public that it should be allowed to occur (s 95AZH).

Section 50A deals with mergers occurring outside Australia.

History of merger regulation in Australia

The original Trade Practices Act 1974 applied a substantial lessening of competition test - specifically, it prohibited the acquisition of assets and shares, which resulted in a substantial lessening of competition in a market for goods or services.

In 1977 the substantial lessening of competition test was replaced with a market dominance test by the Trade Practices Legislation Amendment Act 1977. As a result, acquisitions were only prohibited where they resulted in or substantially strengthened a ‘position to control or dominate a market’. This was (generally) considered a higher threshold so that less mergers were captured.

In 1989, the House of Representative Standing Committee on Legal and Constitutional Affairs (the Griffiths Committee) recommended retaining the dominance test in its report ‘Mergers, Takeovers and Monopolies: Profiting From Competition?’.

Shortly thereafter, however, the Senate Committee on Legal and Constitutional Affairs (the Cooney Committee). It recommended that the test in s 50 be lowered to prohibit acquisitions or mergers that substantially lessen competition in a market. This change was introduced by the Trade Practices Legislation Amendment Act 1992 which also intorduced a provision for the substantial lessening of competition test in relation to trans-Tasman mergers and introduced a non-exhaustive list of matters to be considered by teh Courts when determining if a merger substantially lessened competition (s 50(3))

In 2002, numerous submissions were made to the Dawson Committee recommending that the substantive test for mergers change back to one of dominance, incorporate an ‘efficiency’ test or incorporate a public benefit test. The Dawson Committee recommended that the substantive test of ‘substantial lessening of competition’ be retained. This was accepted by the government and no legislative change has been made to the substance of the prohibition.

The Dawson Committee did, however, make recommendations relating to merger clearance and authorisation processes that were introduced by the Trade Practices Legislation Amendment Act (No 1) 2006. For more details on the Committee's discussion of mergers and the submissions made to the Committee relating to mergers see: Julie Clarke, 'The Dawson Report and Merger Regulation' (2003) 8(2) Deakin Law Review 245

There is a current push for the introduction of provisions to deal with creeping acquisitions and legislation is expected later in the year.

The Law

Section 50 - Mergers which SLC

Section 50A - Acquisitons that occur outside Australia

Part VII Division 3 - Merger clearances and authorisation

Section 50
Prohibition of acquisitions that would result in a substantial lessening of competition

(1) A corporation must not directly or indirectly:

(a) acquire shares in the capital of a body corporate; or

(b) acquire any assets of a person;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Note: The corporation will not be prevented from making the acquisition if the corporation is granted a clearance or an authorisation for the acquisition under Division 3 of Part VII: see subsections 95AC(2) and 95AT(2).

(2) A person must not directly or indirectly:

(a) acquire shares in the capital of a corporation; or

(b) acquire any assets of a corporation;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Note: The person will not be prevented from making the acquisition if the person is granted a clearance or an authorisation for the acquisition under Division 3 of Part VII: see subsections 95AC(2) and 95AT(2).

(3) Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must be taken into account:

(a) the actual and potential level of import competition in the market;

(b) the height of barriers to entry to the market;

(d) the degree of countervailing power in the market;

(e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;

(f) the extent to which substitutes are available in the market or are likely to be available in the market;

(g) the dynamic characteristics of the market, including growth, innovation and product differentiation;

(h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor;

(i) the nature and extent of vertical integration in the market.

(4) Where:

(a) a person has entered into a contract to acquire shares in the capital of a body corporate or assets of a person;

(b) the contract is subject to a condition that the provisions of the contract relating to the acquisition will not come into force unless and until the person has been granted a clearance or an authorization to acquire the shares or assets; and

(c) the person applied for the grant of such a clearance or an authorization before the expiration of 14 days after the contract was entered into;
the acquisition of the shares or assets shall not be regarded for the purposes of this Act as having taken place in pursuance of the contract before:

(d) the application for the clearance or authorization is disposed of; or

(e) the contract ceases to be subject to the condition;
whichever first happens.

(5) For the purposes of subsection (4), an application for a clearance shall be taken to be disposed of:

(a) in a case to which paragraph (b) of this subsection does not apply—at the expiration of 14 days after the period in which an application may be made to the Tribunal for a review of the determination by the Commission of the application for the clearance; or

(b) if an application is made to the Tribunal for a review of the determination by the Commission of the application for the clearance—at the expiration of 14 days after the date of the making by the Tribunal of a determination on the review.

(5A) For the purposes of subsection (4), an application for an authorisation is taken to be disposed of 14 days after the day the Tribunal makes a determination on the application.

(6) In this section:

market means a substantial market for goods or services in:
(a) Australia; or
(b) a State; or
(c) a Territory; or
(d) a region of Australia.

Section 50A
Acquisitions that occur outside Australia

(1) Where a person acquires, outside Australia, otherwise than by reason of the application of paragraph (8)(b), a controlling interest (the first controlling interest) in any body corporate and, by reason, but not necessarily by reason only, of the application of paragraph (8)(b) in relation to the first controlling interest, obtains a controlling interest (the second controlling interest) in a corporation or each of 2 or more corporations, the Tribunal may, on the application of the Minister, the Commission or any other person, if the Tribunal is satisfied that:

(a) the person’s obtaining the second controlling interest would have the effect, or be likely to have the effect, of substantially lessening competition in a market; and

(b) the person’s obtaining the second controlling interest would not, in all the circumstances, result, or be likely to result, in such a benefit to the public that the obtaining should be disregarded for the purposes of this section;
make a declaration accordingly.

(1A) Without limiting the matters that may be taken into account in determining whether the obtaining of the second controlling interest would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the matters mentioned in subsection 50(3) must be taken into account for that purpose.

(1B) In determining whether the obtaining of the second controlling interest would result, or be likely to result, in such a benefit to the public that it should be disregarded for the purposes of this section:

(a) the Tribunal must regard the following as benefits to the public (in addition to any other benefits to the public that may exist apart from this paragraph):

(i) a significant increase in the real value of exports;

(ii) a significant substitution of domestic products for imported goods; and

(b) without limiting the matters that may be taken into account, the Tribunal must take into account all other relevant matters that relate to the international competitiveness of any Australian industry.

(2) Where an application under subsection (1) is made:

(a) the Tribunal shall give to:

(i) each corporation in relation to which the application relates; and

(ii) the Minister and the Commission;

a notice in writing stating that the application has been made; and

(b) the persons referred to in paragraph (a) and, if the application was made by another person, that other person are entitled to appear, or be represented, at the proceedings following the application.

(3) An application under subsection (1) may be made at any time within 12 months after the date of the acquisition referred to in that subsection in relation to which the application is made.

(4) The Tribunal may, on the application of the Minister, the Commission or any other person, or of its own motion, revoke a declaration made under subsection (1).

(5) The Tribunal shall state in writing its reasons for making, refusing to make or revoking a declaration under subsection (1).

(6) After the end of 6 months after a declaration is made under subsection (1) in relation to the obtaining of a controlling interest in a corporation or 2 or more corporations by a person or, if the person, before the end of that period of 6 months, makes an application to a presidential member for an extension of that period, after the end of such further period (not exceeding 6 months) as the presidential member allows, the corporation or each of the corporations, as the case may be, shall not, while the declaration remains in force, carry on business in the market to which the declaration relates.

(7) Subsection (1) does not apply in relation to an acquisition referred to in that subsection if section 50 applies in relation to that acquisition.

(8) For the purposes of this section:

(a) a person shall be taken to hold a controlling interest in a body corporate if the body corporate is, or, if the person were a body corporate, would be, a subsidiary of the person (otherwise than by reason of the application of paragraph 4A(1)(b)); and

(b) where a person holds a controlling interest (including a controlling interest held by virtue of another application or other applications of this paragraph) in a body corporate and that body corporate:

(i) controls the composition of the board of directors of another body corporate;

(ii) is in a position to cast, or control the casting of, any votes that might be cast at a general meeting of another body corporate; or

(iii) holds shares in the capital of another body corporate;
the person shall be deemed (but not to the exclusion of any other person) to control the composition of that board, to be in a position to cast, or control the casting of, those votes or to hold those shares, as the case may be.

(9) In this section:
market means a substantial market for goods or services in Australia, in a State or in a Territory.

Part VII Division 3—Merger clearances and authorisations

Subdivision A—Preliminary

95AA Simplified outline of this Division

[This page contains only select provisions relating to authorisation and clearance.
For full Division see the Act; see also ACCC Merger Guidelines]

This Division is about merger clearances and merger authorisations.

It relates to section 50: that section prohibits a person acquiring shares in the capital of a body corporate or assets of another person if the acquisition would have, or be likely to have, the effect of substantially lessening competition in a market. If a person has a clearance or authorisation for the acquisition, section 50 will not prevent the person from making the acquisition.

The main differences between merger clearances and authorisations are:
• different bodies decide whether they should be granted;
• different timeframes apply for when the body must make its decision;
• they have different tests that need to be satisfied for them to be granted;
• merits review is not available for decisions on authorisations.

For merger clearances (see Subdivision B):
• the Commission grants them;
• it must make its decision whether to grant within 40 businessdays (which can be extended if the applicant agrees or the Commission so decides), and if it does not, the application is taken to be refused;
• it cannot grant the clearance unless it is satisfied that the acquisition would not have the effect, or be likely to have the effect, of substantially lessening competition in a market;
• if it refuses to grant a clearance, or grants a clearance subject to conditions, then the person who applied for the clearance may apply to the Tribunal under Division 3 of Part IX for review of the Commission’s decision.

For merger authorisations (see Subdivision C):
• the Tribunal grants them;
• it must make its decision whether to grant within 3 months (which can be extended to 6 months in special circumstances), and if it does not, the application is taken to be refused;
• it cannot grant the authorisation unless it is satisfied that the acquisition would result, or be likely to result, in such a benefit to the public that the acquisition should be allowed to take place.

Subdivision D contains a prohibition on providing false or misleading information to the Commission or Tribunal under this Division or Division 3 of Part IX.

Subdivision B—Merger clearances

Section 95AC
Commission may grant clearance for a merger

(1) The Commission may grant a clearance to a person:
(a) to acquire shares in the capital of a body corporate; or
(b) to acquire assets of another person.

...

(2) If the Commission does so, then section 50 does not prevent the person from acquiring the shares or assets in accordance with the clearance.
...

(3) Without limiting subsection (2), an acquisition will not be in accordance with a clearance if any conditions of the clearance are not complied with (whether the conditions are to be complied with before, during or after the acquisition).

Section 95AN
When clearance must not be granted

(1) The Commission must not grant a clearance in relation to a proposed acquisition of shares or assets unless it is satisfied that the acquisition would not have the effect, or be likely to have the effect, of substantially lessening competition (within the meaning of section 50).

(2) To avoid doubt, a clearance cannot be granted for an acquisition that has occurred.

Subdivision C—Merger authorisations

Section 95AT
Tribunal may grant authorisation for a merger

(1) The Tribunal may grant an authorisation to a person:
(a) to acquire shares in the capital of a body corporate; or
(b) to acquire assets of another person.
...

(2) If the Tribunal does so, then section 50 does not prevent the person from acquiring the shares or assets in accordance with the authorisation.
...

(3) Without limiting subsection (2), an acquisition will not be in accordance with an authorisation if any conditions of the authorisation are not complied with (whether the conditions are to be complied with before, during or after the acquisition).

Section 95AZH
When authorisation must not be granted

(1) The Tribunal must not grant an authorisation in relation to a proposed acquisition of shares or assets unless it is satisfied in all the circumstances that the proposed acquisition would result, or be likely to result, in such a benefit to the public that the acquisition should be allowed to occur.

(2) In determining what amounts to a benefit to the public for the purposes of subsection (1):

(a) the Tribunal must regard the following as benefits to the public (in addition to any other benefits to the public that may exist apart from this paragraph):
(i) a significant increase in the real value of exports;
(ii) a significant substitution of domestic products for imported goods; and

(3) To avoid doubt, an authorisation cannot be granted for an acquisition that has occurred.

Cases relating to mergers

Australian Gas Light Company v ACCC (No 3) [2003] FCA 1525

Articles relating to mergers

Australia

Julie Clarke, 'The Dawson Report and Merger Regulation' (2003) 8(2) Deakin Law Review 245

International and comparative

Julie Clarke, ‘Multi-jurisdictional merger review procedures: a better way’ (2006) 14 Trade Practices Law Journal 90-109

Reports

Australia

Dawson Committee Report - Chapter on Mergers (2003)

Griffiths Committee Report (1989)
Mergers, Takeovers and Monopolies: Profiting from Competition?
Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs

Canada

Innovation and Dynamic Efficiencies in Merger Review (April 2007)

New Zealand

A Best Practice Review of the New Zealand Merger Clearance Regime (August 2007)

International

OECD - Dynamic Efficiencies in Merger Analysis (2007)

OECD - Report on Notification of Transnational Mergers (1999)