Prohibition of anti-competitive mergers in Australia
Australia's competition laws prohibit acquisitions which have, or would be likely to have, the effect of substantially lessening competition in any market. There is no requirement that a controlling interest be acquired and asset acquisitions alone are sufficient where they will produce an anti-competitive effect. Consequently, for example, acquisitions of land, intellectual property rights or other non-controlling interests which produce the necessary anti-competitive result may be caught.
Mergers or acquisitions which would otherwise be prohibited may be 'authorised' in advance where the parties can demonstrate a public benefit which would outweight the likely anti-competitive detriment associated with the merger.
There are no mandatory pre-merger notification requirements in Australia's competition laws. However, in practice, parties are encouraged to - and do - notify the Australian Competition and Consumer Commission (ACCC) about proposed mergers which may raise competition concerns. This process is informal and ACCC approval does not provide assurances against subsequent third party litigation. A formal process for pre-merger review by the ACCC has been available since 2007, but has never been used in practice.
There is no compulsory pre-merger notification regime in Australia. However, parties are encouraged to notify the ACCC when mergers exceed certain market share levels.
The relevant legislation
The core prohibition
In addition, section 50A deals with mergers occurring outside Australia; however, because section 50 is broad enough to cover most anti-competitive mergers producing anti-competitive effects in Australia, this provision has not been used in practice.
Factors to consider
When assessing whether or not competition would be substantially lessened as a result of the merger or acquisition, the Court must consider the following factors (section 50(3)):
(a) the actual and potential level of import competition in the market;
(b) the height of barriers to entry to the market;
(c) the level of concentration in 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.
This list is non-exhuastive with the result the Court may consider other relevant factors.
Subsection 50(6) provides that:
market means a market for goods or services in:
(a) Australia; or
(b) a State; or
(c) a Territory; or
(d) a region of Australia.
In addition, section 4E states:
For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first‑mentioned goods or services.
There are no mandatory pre-merger notification requirements in Australia's competition laws.
Parties to mergers having the potential to raise competition concerns generally 'informally' notify the ACCC of the merger and usually will not close during this time. The ACCC may
- indicate it will not challenge the merger
- indicate it will oppose the merger
- indicate it will provide clearance subject to the provision of court enforceable undertakings designed to alleviate competition concerns.
Parties are assisted by the ACCC's Merger Guidelines, both for substantive analysis and procedure. The ACCC publishes public competition assessments for mergers which are opposed or are otherwise of public interest (see merger cases page).
If the ACCC indicates it will not challenge a merger this does not mean that a third party cannot challenge the merger; although third parties do not have the power to seek an injunction to prevent a merger, they may obtain remedies in relation to concluded mergers found to have contravened section 50.
To enable parties to obtain greater security a formal notification regime option was introduced in 2007. Clearance under the formal process will preclude third parties from subsequently challenging the merger. This process has never been used.
Parties may seek authorisation for an acquisition pursuant to s 95AU of the CCA. This must occur before the acquisition takes place. It is currently the Australian Competition Tribunal and not the ACCC which has the power to grant authorisations in relation to mergers. The Tribunal must not grant authorisation unless it is satisfied that the acquisition is likely to result in such benefit to the public that it should be allowed. The Tribunal must consider as benefits:
- significant increase in the real value of exports
- significant substitution of domestic products for imported goods
- all matters relevant to the international competitiveness of any Australian industry
Other factors may also be considered.
There have been three applications for merger authorisation since 2007 (when the power to grant authorisation shifted from the ACCC to the Tribunal), one of which was withdrawn before a Tribunal decision; the other two applications (AGL/MacGen and Sea Swift/Toll) were successful in 2014 and 2016 respectively.
- Application by Murray Goulburn Co-Operative Co Limited for Merger Authorisation (withdrawn in 2013 before being heard).
- Application by AGL Energy Limited for merger authorisation (proposed acquisition of Macquarie Generation) (24 March 2014). On 25 June 2014 the Tribunal granted authorisation for the proposed acquisition.
- Application by Sea Swift Pty Limited for merger authorisation (proposed acquisition of certain Toll Marine Logistics assets) (made and withdrawn in 2015; new application 2016). On 1 July 2016 the Tribunal granted authorisation (subject to conditions)
The history and future of the provision
There have been several reviews into Australian merger law and regulation. Full details of the history of the provision and relevant reviews can be found on my detailed mergers page.
The original 1974 Act prohibited the acqusition of assets and shares, which resulted in a substantial lessening of competition in a market for goods or services. Only three years later, this test was replaced with a market dominance test; mergers were only prohibited where they resulted in or substantially strengthened a ‘position to control or dominate a market’.
In 1989 the Griffiths Committee recommended retaining the dominance test; shortly thereafter, in 1991, the Cooney Committee recommended a substantially lessen competition test. The Cooney Committee recommendation resulted in legislative change in 1992, returning the test to one of 'substantial lessening of competition' and introducing a non-exhaustive list of matters the Court must consider in making this assessment (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 and this was accepted by the government; there has been no change to the substantive test since 1992 other than the following changes, which have had no demonstrable impact on the provision, in 2011:
- changing the reference to 'a market' in section 50(1) with 'any market'
- removing the requirement in subsection 50(6) that a market (for purposes of mergers) must be a 'substantial' market
Procedurally, the Dawson Committee made recommendations relating to merger clearance and authorisation processes which came into effect in 2007. In particular, the power to hear merger authorisation claims at first instance moved from the ACCC to the Tribunal and a formal merger clearance process was introduced, to operate in parallel with the successful informal process.
In 2014-2015 an independent review of Australia's competition law and policy (the Harper Review) recommended that the current substantive test for mergers be retained. However, it made significant recommendations in relation to process; in particular, it recommended combining the formal clearance process and the authorisation process (retaining the informal process) and giving the power back to the ACCC to make a determination on formal applications at first instance. The Government accepted these recommendations in 2015 and has indicated it will develop exposure draft legislation for public consultation in 2016.
Penalties and remedies for contravention
Application may be made to the Court for the following:
- Injunction (ACCC only; not private parties) (section 80)
- Pecuniary penalties for breach (section 76)
- Divestiture (section 81)
- Damages (by persons who suffer loss and damage as a result) (six year limitation period) (section 82)
- Disqualification from directorship (section 86E)
- Non-punitive orders (such as community service order) (section 86C)
- Other orders (Court may make 'such orders as it thinks appropriate' (section 87)
In addition, the ACCC may accept enforceable undertakings pursuant to s 87B. These are utilized by the ACCC to alleviate competition concerns in some merger cases.
Note that the ACCC has no power to block a merger; this power resides solely with the Federal Court of Australia.
Details about the key cases relating to mergers in Australia can be found on my merger page (cases).
For research and commentary on merger law in Australia see the reading room.