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AustraliaCooney Report 1991

Mergers, Monopolies and Acquisitions
Senate Standing Committee on Legal and Constitutional Affairs
Adequacy of the existing legislative controls in the Trade Practices Act over mergers and acquisitions

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Length: 150 pages

About this Review

This Committee was to review the adequacy of merger regulation and look at the appropriate substantive test and whether compulsory notification should be introduced. They were also to examine the scope of s 46 (market dominance) and the unconscionable conduct provisions of the Act

 

Terms of reference

Committee was to inquire into

(a) the adequacy of the existing legislative controls in the Trade Practices Act 1974 over mergers and acquisitions, with particular reference to:

(i) the appropriate test that should apply; and

(ii) whether compulsory, pre-merger notification should be introduced and, if so, in what circumstances.

(b) whether, in situations of existing market dominance, the Trade Practices Commission should be able to examine conduct in addition to that already covered by s 46, and, if so, what action (including divestiture) might be taken as a result of such examination.

(c) the extension of section 52A (unconscionable conduct) to all commercial dealings;

(d) any other matters (including review mechanisms) considered by the committee to be relevant to any or all of these matters.'

 

Recommendations

Mergers | Misuse of Market Power| Unconscionable Conduct | Penalties

View PDF of all recommendations contained reproduected on pages xiii-xviii of the Report.

Mergers and acquisitions: the appropriate test

Recommendation 1

The Committee recommends that section 50 of the Trade Practices Act 1974, be amended to prohibit mergers or acquisitions which would have he effect or likely effect of substantially lessening competition in a substantial market for goods and service

Notes

[implemented by the Trade Practices Legislation Amendment Act 1992 (effective 21 January 1993)]

[Senator Kemp (Liberal Party of Australia) wrote a dissenting report on this issue, recommending that the dominance test be retained.]

Recommendation 2

The Committee recommends that, to make clear the ambit of the new test, guidelines be incorporated in the Trade Practices Act 1974

 

Recommendation 3

The Committee recommends that the guidelines should contain criteria including:

* the level of concentration in the market;
* the likely level of foreign competition in the market;
* the availability of product substitutes;
* barriers to entry;
* whether one party to the merger is a failing firm;
* the likelihood that the proposed merger would remove a vigorous and effective competitor;
* the extent to which effective competition remains or would remain in the market;
* change and innovation in the market;
* the ability to significantly increase prices following a merger; and
* any other factors relevant to competition in a market.

Note
These criteria are now reflected in s 50(3) TPA. See Trade Practices Legislation Amendment Act 1992]

 

Recommendation 4

The Committee recommends that where a proposed merger fails to meet the test including the guidelines the Trade Practices Commission should nevertheless have the power to authorise it when it is for the benefit of the public

 

Compulsory pre-merger notification

Recommendation 5

The Committee recommends that it be obligatory for a notice to be given to the Trade Practices Commission where mergers or acquisitions of a substantial nature are proposed. What is a matter of a substantial nature should be defined in the Act. The matters of which notice is to be given should be limited so that undue burden is not cast on those who must comply.


Note:
This recommendaton was not implemented

Recommendation 6

The Committee recommends that proposals for what the notice is to contain should be drawn up by the Attorney-General's Department and released for public comment. The proposal should be drawn up on the basis that those seeking a merger or an acquisition should not have to comply with requirements that are too wide, vague, onerous or vexatious.

 

Mandatory authorisation and sensitive industries

Recommendation 7

The Committee recommends that section 50 should remain legislation aimed at protecting competition generally. Where there are other than economic issues involved in industry structure or ownership, they may well be dealt with in specific legislation. For example, at the moment, there are issues arising in the banking and media industries which could be dealt with in terms of discrete legislation.

 

Pre-notification authorisation and the Trade Practices Tribunal

Recommendation 8

The Committee recommends that parties proposing to merge should have the option of either approaching the Trade Practices Commission for authorisation, with a right of appeal to the Trade Practices Tribunal, or of approaching the Trade Practices Tribunal directly.

Note:
Not implemented - but see also Dawson Report and Trade Practices Legislation Amendment Act (No 1) 2006

Recommendation 9

The Committee recommends that strict time limits be imposed on the Trade Practices Commission and the Trade Practices Tribunal within which they are to determine authorisation applications or appeals. The Commission should continue to be required to determine an application within 45 days. Any appeal from a decision of the Commission to the Tribunal should be determined by the Tribunal within 45 days. Where the Tribunal is approached directly, it should be required to determine an application within 60 days.

 

Recommendation 10

The Committee further recommends that adequate funding should be made available to the Commission and the Tribunal to enable this to be done.

Note:
in relation to mergers see also recommendation 18 re: injunctions

Misuse of market power

Recommendation 11

The Committee recommends that section 46 be amended by adding a further subsection to provide that, although the Trade Practices Commission has the overall onus of proving a breach of that section, when it has brought forward evidence which makes it as likely as not that one has occurred then one will be taken to have occurred unless the corporation in question shows otherwise.

[Senator Kemp (Liberal Party of Australia) wrote a dissenting report on this issue, recommending that s 46 be retained in existing form.]

Recommendation 12

The Committee recommends that section 46 be amended to provide that where persons engage in conduct for the purpose of eliminating from or harming a class of persons in a market they shall be taken to be doing so in respect of a specific member of it.

[See Trade Practices Legislation Amendment Act 1992]

Recommendation 13

The Committee recommends that serious and persistent misuse of market power be dealt with by increased monetary penalties. It recommends that divestiture not be made available as a remedy.

Senators Spindler (Australian Democrats) and Schacth (Australian Labor Party) wrote a dissenting report on this issue, claiming that there was a need for a 'remedy of divestiture, in the case of serious and persistent misuse of market power' (p 135). They also recommended that the 'courts should have the power to make wide discretionary orders in cases where breach of the misuse of market power provision has been shown' (p 139)

Unconscionable Conduct

Recommendation 14

The Committee recommends that section 52A of the Trade Practices Act be repealed. It recommends that legislation be introduced giving the Trade Practices Commission the ability to bring proceedings on behalf of a person who has a right of action at common law arising from the unconscionable conduct of another.

Recommendation 15

The Committee further recommends that appropriate funds be made available to the Trade Practices Commission to enable this to be done.

Pecuniary penalties

Recommendation 16

The Committee recommends that subsection 76(1) of the Trade Practices Act be amended to substantially increase the pecuniary penalties available to punish breaches of the provisions of Part IV of the Act

Recommendation 17

The Committee recommends that subsection 79(1) of the Trade Practic~s Act be amended to substantially increase the pecuniary penalties to punish breaches of the provisions of Part V of the Act.

Private right to injunctive relief

Recommendation 18

The Committee recommends that the private right to injunctive relief in relation to mergers not be reintroduced into the Trade Practices Act 1974.

Enforceability of undertakings

Recommendation 19

The Committee recommends that the Trade Practices Act be amended to provide remedies for breaches of undertakings made between the Trade Practices Commission and another person or persons.

Other remedies

Recommendation 20

The Committee recommends that consideration be given by the Attorney-General to introducing a range of appropriate remedies for contraventions of Part IV of the Trade Practices Act 1974.

Implementation of recommendations

Recommendation 21

The Committee recommends that the details of any proposed amendments to the Act should be developed by the Attorney-General's Department following consuttation with all relevant parties and released by way of Exposure Draft Bill for public comment. Public comment should occur over a reasonable time of not less than three months.

 

Key statements

View extracts from the report

I am in the process of re-producing the report - chapters are being added progressively here.

On the issue of merger analysis

Noted (at pp 18-19) Prof Michael Porter's analysis of what is necessary for international competitiveness, in particular, his questioning of common view that domestic firms must be large to gain sufficient economies of scale to compete internationally. Quoting from his book, 'The Competitive Advantage of Nations':

'A strong antitrust policy - especially for horizontal mergers, alliances and collusive behaviour - is fundamental to innovation. While it is fashionable today to call for mergers and alliances in the name of globalization and the creation of national champions, these often undermine the creation of competitive advantage. Real national competitiveness requires governments to disallow mergers, acquisitions and alliances that involve industry leaders ... Companies should, however, be allowed to acquire small companies in related industries when the move promotes the transfer of skills that could ultimately create competitive advantage.' (Porter, Michael E, The Competitive Advantage of Nations (1990))

The Committee concluded that

"the empirical evidence on the effects of mergers is conflicting and not conclusive. The economic evidence that mergers actually result in productive efficiencies remains equivocal. Nor is it clear that efficiencies, where they have occurred, have improved the international competitiveness of Australian firms, or resulted in demonstrable benefits to consumers." (p 20 and 48)

They continued at p 21 and 48-49:

"The Committee notes the growing body of economic theory which suggests that international competitiveness is achieved not through mergers but through the encouragement of competition ..."

On the issue of compulsory notification

Benefits

[para 4.12] 'A compulsory pre-merger notification scheme would give the TPC adequate time to deal with those mergers against which it should proceed, thereby enabling optimal use of its resources; it would ensure that 'midnight mergers' do not occur; would reduce the likelihood of costly litigation; and it would support the principle that it is preferable to prevent the completion of a merger rather than attempt to later unwind it through the use of forced divestiture.' [fn: Attorney-General's Department submission (9.8.91), p 16]

[para 4.14] 'Professor Clarke considers it 'axiomatic' that the TPC should be informed of any proposed merger which may have the effect of substantially lessening competition in a significant market, and should be given time to consider its response. He contends that 'to leave the Commission in the position of having to discover such mergers for itself pays scant regard to its role as guardian of the public interest in this area.' [fn Evidence p 66] These views are shared by Professor Baxt.' [fn Evidence p 15]

Detriments

[para 4.21] 'The Victorian Employers' Chamber of Commerce and Industry [fn Submission p 3] summarises the key arguments in opposition to compulsory pre-merger notification as:

  • increased resource demands placed on the TPC
  • increased delays and compliance costs for business
  • interference and adverse impact on the merger process itself
  • depressed business activity as a consequence of increased regulation and the TPC is, in any event, already aware of imminent significant mergers.'

Cost to administration and compliance cost for business also discussed.

 

Membership

Senator Barney Cooney (Chairman)

Senator Amanda Vanstone (Deputy Chair)

Senator Giles
Senator Kemp
Senator O'Chee
Senator Schacht
Senator Spindler
Senator Walsh

 

Submissions and meetings

62 written submissions

Witnesses appearing at public hearings included:

Individual

Prof Robert Baxt
Mr Peter Bobeff
Senator Ron Boswell
Prof Philip Clarke
Mr W R McComas
Dr Warren Pengilley

Organisations

Business Council of Australia
(Mr Clive Randolph Speed)

Cth A-G's Department
(Mr Stephen Skehill, Mr James Dick, Mr Anthony Wing)

Confederation of Australian Industry
(Mr Robert Gardini, Mr John Martin)

Department of Treasury
(Mr Richard Murray, Mr Rodney Shogren, Mr David Imber)

Franchiser's Association of Australia
(Mr Alan Atchison, Mr Michael Ahrens)

Law Council of Australia
(Mr Roger Featherston, Mr Richard St John, Mr Anthony Kelly)

Trade Practices Commission
(Prof Alan Fels, Prof Brian Leslie Johns, Mr Alan Asher, Mr Hank Spier, Mr John O'Neil, Mr Timonthy Holland, Mr Howard Hollow)

 

Legislative changes