In late November this year, the competition taskforce of the Australian Government Treasury (Treasury) published a consultation paper which outlines options to reform Australia’s merger laws to tackle perceived competition issues in the economy. Treasury is of the opinion that, under the current regime, the intensity of competition has weakened across the economy, and that this reduction in competition is likely to have contributed to a decline in Australia’s productivity. 

Treasury’s concerns with the current regime

Treasury cites several concerns about Australia’s merger control laws, including those previously raised by the Australian Competition and Consumer Commission (‘ACCC’). For example, the ACCC argued that the current voluntary regime is not ‘fit for purpose’ as companies can threaten to continue with a merger while it is still under review, fail to notify transactions altogether and/or give incomplete or inaccurate information. It is also seen by the ACCC as being skewed towards clearance, with most evidence heard from experts and executives of the merging companies, and third parties reluctant to give evidence in court.

Finally, Treasury is also concerned that acquisitions which could result in anti-competitive detriment – such as creeping or serial acquisitions – are not sufficiently covered by Australia’s current merger laws. It therefore seeks views on options to reform Australia’s merger control laws. 

Proposed changes to Australia’s merger control system

Treasury has outlined three potential policy frameworks for a new merger control regime:

Option 1 

A voluntary formal clearance regime, where businesses have the option to notify the ACCC. In response the ACCC could grant legal immunity from court action under the relevant prohibition against anticompetitive mergers if the regulator decides the merger would not be likely to substantially lessen competition. 

Option 2 

A mandatory and suspensory regime for notification above a certain threshold. When notified, the ACCC would commence a review and the merger would be suspended until the assessment is made. To stop an anticompetitive acquisition, the ACCC would need to demonstrate that a merger should not be authorised due to its likelihood of substantially lessening competition. 

Option 3 

The option proposed to Treasury by the ACCC. It would involve a mandatory formal clearance regime, where mergers above a certain threshold attract mandatory notification, and mergers below that threshold could be called-in by the ACCC where competition concerns exist. Clearance would only be granted by the regulator where it is satisfied that the merger would not be likely to substantially lessen competition.

Options 1 and 2 are expressed to be “judicial enforcement” models of merger control, as the ACCC will need to rely on litigation to prevent a merger if the parties choose to proceed. By contrast, the third option is described as an “administrative model” in the sense that transactions would require approval before proceeding (with the ACCC as the primary decision-maker, subject to review by the Competition Tribunal).

Proposed changes to the merger control test 

Treasury has also proposed three options to update the merger control test (i.e. the test of whether mergers are likely to substantially lessen competition):

Option A

Treasury proposes to change the list of matters that must be considered when assessing whether a merger impacts competition. Alternatively, it suggests that the list could be removed from the legislation altogether, which would give the decision-maker a wider discretion to consider the competitive impacts of the proposed transaction. 

Option B

The test of whether a merger has the impact of a substantial lessening of competition could be expanded to include mergers that ‘entrench, materially increase or materially extend a position of substantial market power’. This could help to address the regulator’s concerns that transactions in certain markets (e.g. concentrated industries or those with increased barriers to entry) may impact competition. 

Option C

Other agreements between the two merging entities (e.g. non-competes) should be considered as part of the competitive impacts of a merger transaction. 

Next Steps 

Businesses should carefully consider the potential impact of the proposed reforms, which could result in increased costs for merger parties, obligations to provide more information upfront, and elongated processes for merger review (among other things). Treasury is seeking submissions on the effectiveness of the current regime, and options for reform, by 19 January 2024. Stakeholders from across industry and regulatory spaces are encouraged to provide submissions to better streamline the proposal moving forward.

If you would like to make a submission, or have any questions about the consultation paper, please contact Thomas Jones or Matthew Bovaird.

This article was written with assistance from Benjamin Holmes and Dylan McGirr.