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Corporations → Competition Law → Mergers and acquisitions
Overview — Mergers and acquisitions

Kathryn Edghill, Partner, Bird & Bird

Introduction

Section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits the acquisition of shares or assets of a business where the acquisition would have the effect, or be likely to have the effect of substantially lessening competition in a market in Australia. The section applies to acquisitions by corporations and to acquisitions by individuals, but in the latter case, only where the individual acquires the shares or assets of a corporation. The section applies to corporations where they acquire shares or assets of both companies and individuals.

The prohibition applies to acquisitions of assets or shares which are located outside Australia provided that the acquiring company is incorporated in or carrying on business in Australia and the acquisition will affect a market in Australia. The market to be affected must be a substantial market.

The determination of whether there has been a breach of s 50 rests with the Federal Court. In practice, however, it is more often the Australian Competition and Consumer Commission (ACCC) which determines whether mergers and acquisitions can proceed, through the exercise of its informal merger clearance process. It also has powers to review mergers and acquisitions on a formal basis under ss 95AC to 95AS of the CCA. The Competition Tribunal also has powers to authorise mergers and acquisitions under ss 95AT to 95AZM of the CCA. The formal merger clearance process has never been used and the formal authorisation process (which was previously administered by the ACCC and is now administered by the Competition Tribunal) has only rarely been used. This sub-topic, therefore, concentrates on the ACCC’s informal merger clearance process.

Merger factors

In order to determine whether a proposed merger or acquisition will, or will be likely to have the effect of substantially lessening competition in a market:

  • the market or markets affected by the proposed merger or acquisition must be identified; and

  • an assessment of the effect of the proposed merger or acquisition must be made by considering what the future with and without the merger would be. The future without the merger is known as the “counterfactual”.

Section 50(3) of the CCA specifies certain matters which must be taken into account when determining whether an acquisition would have the effect or likely effect of substantially lessening competition in a market. Those factors, set out below, are not exhaustive but must be taken into consideration:

  • the actual and potential level of import competition in the market;

  • the barriers to entry to the market;

  • the level of concentration in the market;

  • the degree of countervailing power in the market;

  • the likelihood that the acquisition would result in the enquirer being able to sufficiently and sustainably increase prices or profit margins;

  • the extent to which substitutes are available in the market or are likely to be available in the market;

  • the dynamic characteristics of the market, including growth, innovation and product differentiation;

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

  • the nature and extent of vertical integration in the market.

These factors, referred to as the “merger factors”, and the ACCC’s approach to them, are discussed further in the ACCCs Merger Guidelines which can be found on the ACCC website.

See Merger factors.

ACCC clearance

There is no compulsory notification of mergers and acquisitions in Australia. Parties who wish to have their proposed merger or acquisition reviewed by the ACCC are required to request that review from the ACCC. The ACCC does, however, regularly monitor the activity of business and may commence investigations and/or take action in the Federal Court to prevent a merger or acquisition from proceeding, without having first been notified by the merger parties.

The ACCC has power to review mergers where:

  • the parties voluntarily submit to the ACCC’s informal merger clearance process (which has no statutory basis); or

  • the parties voluntarily submit to the ACCC’s formal merger clearance process, pursuant to ss 95AC to 95AS of the CCA.

The informal merger clearance process is almost routinely adopted where parties consider that the ACCC will be interested in its proposed merger. The process is subject to Informal Merger Review Process Guidelines published by the ACCC. The process is generally as follows:

  • One or both of the proposed merger parties notifies the ACCC of the proposed merger (frequently on a confidential basis) and provides the ACCC with a submission which addresses each of the merger factors and sets out the reasons why the ACCC should not oppose the merger.

  • The ACCC conducts an internal investigation and, if satisfied that the proposed merger is unlikely to give rise to a substantial lessening of competition in any market, will notify the parties that it does not intend to oppose the merger based on the information it has at that time.

  • If the ACCC considers it necessary and with the consent of the merger parties and any necessary waiver of confidentiality, the ACCC will undertake market inquiries as to the impact of the proposed merger on competition.

  • If the ACCC is satisfied following the completion of merger enquires that the proposed merger is unlikely to result in a substantial lessening of competition it will issue a non opposition letter to the parties and publicly state that it will not be opposing the merger.

  • If upon completion of the first round of market enquiries the ACCC determines that there are certain issues which may give rise to a substantial lessening of competition it will issue a Statement of Issues identifying those issues and inviting the parties and interested members of the public to comment.

  • If following the issue of a statement of issues the ACCC receives further information and/or conducts further market enquiries, it will move to a final decision which may be to issue a no opposition letter or alternatively to inform the parties that it will oppose the merger and publish its reasons in the form of a public completion assessment for doing so.

At any point along the chain, merger parties may negotiate with the ACCC to address any potential anti-competitive issues. If such negotiations result in agreement, they will be reduced to the form of a court enforceable undertaking by the merger parties pursuant to s 87B of the CCA. Generally such undertakings are only accepted where they involve structural matters eg the sale of particular aspects of a business, but not behavioural matters such as a promise not to increase prices.

In making its determination under the informal merger clearance process (or the formal merger clearance process) the ACCC is not empowered to consider whether any anti-competitive effect of the merger is outweighed by public benefits which may arise from it.

The public benefits test is available where a party makes an authorisation application in respect of the merger.

In practice, where mergers are effected globally, the ACCC will, with the consent of the parties, liaise with and exchange information with other regulatory bodies in other jurisdictions.

See ACCC clearance.

Breach of s 50

The ACCC may institute proceedings in the Federal Court to prevent an acquisition or merger from being completed where it is of the view that the acquisition will result in a substantial lessening of competition in a market.

Where a merger or acquisition in breach of s 50 has been completed, the court can make orders requiring the divestiture of any or all of the shares or assets acquired in breach of the section. This may be done on the application of the ACCC or any other person.

The ACCC may also seek orders declaring an acquisition which has taken place to be void with the result that the shares or assets to which the declaration relates are deemed not to have been disposed of by the vendor and the vendor will be required to refund any amount paid.

See Breach of s 50.




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