In the IBA Antitrust Newsletter, Senior Associate Caitlin Davies from our Australasian Competition Group writes about a move towards new merger clearance processes.

1. INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION10
A MOVE TOWARDS NEW MERGER CLEARANCE PROCESSES
I
t is a fascinating time for merger review in
Australia. The Australian Competition and
Consumer Commission (ACCC) has been
handling an ever-growing caseload of mergers
and come in for criticism in recent Australian
Competition Tribunal decisions. In September,
the Federal Government released an Exposure
Draft of amendments to the competition
law to implement key recommendations of
an independent enquiry (Harper Review).
Changes to the merger clearance procedures
are set to deliver more authority to the ACCC,
positioning it as first instance decision-maker
for all mergers. Yet Rod Sims, Chairman of
the ACCC, has his eye on an even greater
change: he has suggested effectively flipping
the burden on merging businesses to show
that an increase in concentration would not
damage competition.
Merger clearance strategy is critical for
businesses negotiating large or complex
transactions. Complexity can arise from
the industry structure and its competitive
dynamics, or the intricacies of the deal.
There may be multiple potential acquirers
in a bid process, or the transaction may be
the Australian component of a much larger
global deal. Businesses must assess the risk of
ACCC intervention and likelihood of success,
and weigh up various factors – including time
constraints, cost, confidentiality, and availability
of documents and evidence. Understanding the
options is an important first step.
The current state of play
The Competition and Consumer Act 2010
(Cth) (CCA) prohibits mergers which
would be likely to substantially lessen
competition in a market in Australia, known
as the ‘substantial lessening of competition
(SLC) test’. That yardstick has been in place
since the early 1990s and is in line with
many overseas jurisdictions.
Businesses wishing to pursue a merger
which could have some impact on
competition have several options. Each has
its benefits and disadvantages, providing
different levels of certainty and timeliness.
• In most cases, parties seek informal
clearance from the ACCC. The result is an
informal statement that the regulator does
not intend to oppose the transaction, or
that it opposes the transaction because it
fails the SLC test.
• The formal merger review process has never
been used since its introduction in 2007.
If the ACCC refuses clearance, parties can
take the matter to the Australian Competition
Tribunal (the ‘Tribunal’) for review.
• The third option is to seek authorisation
directly from the Tribunal on the basis that
the deal will result in public benefits which
outweigh any detriments. This avenue
has now been used twice – most recently
in July in a successful application for the
acquisition of a marine freight business.
• A party may seek a declaration from the
Federal Court that the proposed merger
will not substantially lessen competition,
an approach only rarely used.
Changes proposed
The Harper Review Panel (the ‘Panel’)
recommended that the informal clearance
process be retained, improved by
consultation with business representatives
aimed at more timely decisions. The
Panel also recommended that the formal
merger approval process be combined
with the Tribunal authorisation process. It
suggested improving the process by removing
unnecessary deterrents and making the
ACCC investigator and first-instance decision-
maker in all cases, with the Tribunal as the
review body.
The Government’s draft legislation would
implement the Harper model:
• A business will be able to apply to
the ACCC for a merger authorisation
through a process which is intended
to be less prescriptive than formal
clearance, but the ACCC will still set the
information requirements.
• The ACCC must make a decision within
strict timeframes, and will have the power
to authorise the merger applying either
A move towards new merger
clearance processes
AUSTRALIA
Caitlin Davies
MinterEllison
Australasia
Competition Group

2. ANTITRUST NEWSLETTER DECEMBER 2016 11
A MOVE TOWARDS NEW MERGER CLEARANCE PROCESSES
the SLC or the public benefits test.
• If the parties are dissatisfied with the ACCC’s
decision, they may apply to the Tribunal
for merits review. The Tribunal may have
regard only to limited material: essentially the
documents which were before the ACCC. Its
review will also be subject to strict timeframes.
A fused authorisation process, where the
ACCC makes an initial decision reviewable by
the Tribunal, may not appear to be as material
a change as it is. In two recent Tribunal
decisions, AGL-MacGen and Sea Swift-Toll, the
ACCC had refused informal merger clearance
so the parties went to the Tribunal successfully
seeking an authorisation. Critically, however,
the Tribunal currently bases its decision
on different grounds. Its job is to weigh up
public benefits and detriments, so it considers
evidence not relevant to an SLC assessment.
Still, detriment to competition is an
important consideration for the Tribunal in
applying the public benefits test. In Sea Swift, the
Tribunal found not only that there was no SLC
but very limited competitive detriment, caused
by one issue which was neatly resolvable by an
undertaking. In both MacGen and Sea Swift, the
Tribunal emphasised the importance of making
decisions based in real-world fact and rejected
ACCC theories of harm which it considered
were based on unsubstantiated speculation.
Combining the formal clearance and
authorisation processes is not a simple
streamlining exercise – it will have real
impact. The changes would make the ACCC
the first port of call for all mergers, removing
the ‘direct to Tribunal’ route which has in
recent years emerged as a useful alternative
in some complex mergers. Currently, the
Tribunal process gives parties an alternative
decision-maker – useful where they may have
reached an intractable difference of opinion
with the ACCC.
Commentators have also raised concern
that the changes would significantly dial back
the Tribunal’s ability to conduct a full and
unfettered review. The Tribunal will have very
limited scope to seek additional information
and parties will be unable to put all relevant
evidence, cross-examine witnesses and make
new submissions. Without relaxing that scope,
there is a real risk that businesses will be
deterred from using the new process and have
recourse only to the Federal Court.
ACCC Chair’s recent call for change
At the RBB Economics Conference in Sydney
on 27 October 2016, ACCC Chair, Rod Sims
delivered a keynote address suggesting that,
as Australia’s economy is becoming more
concentrated, the ACCC should take a more
sceptical approach to mergers that increase
concentration. He advocated applying the
‘standard economic wisdom’ that ‘mergers
resulting in high levels of concentration
in markets with substantial barriers to
entry will usually reduce competition
and cause harm to consumers and our
economy’. Accordingly, he suggested that
merger proponents should bear the onus
of establishing a ‘clear and convincing
economic and evidence based explanation’
to the contrary. This could replace the SLC
test with a United States-style ‘rebuttable
presumption’ that mergers in concentrated
markets should be barred.
Sims’s proposal would drastically change
the process and the prospects for major
merger proponents. It would allow the ACCC
to sit back and require parties to prove
that a deal would not damage competition,
effectively reversing the existing role of the
regulator. That novel approach, combined
with the Exposure Draft procedural changes,
would risk turning the ACCC into judge, jury
and executioner, and deterring businesses
from pursuing borderline or even potentially
pro-competitive transactions.
Conclusion
While it is likely that the Government will
proceed with Harper’s recommendation to
make the ACCC the first instance decision-
maker to authorise mergers based on both
the SLC and public benefits tests, it remains
to be seen whether the Government will
soften the drafting to preserve crucial
Tribunal independence in reviewing ACCC
decisions. The impact of those amendments,
however, pale in comparison to the potential
risk of Sims’s mooted change to the legal
test which would force businesses to do the
regulator’s legwork based on a questionable
assumption that all concentrations are
damaging to consumers.