Tabcorp, Tatts decision lacks assessment of harm to competition, Australian Federal Court rules
21 September 2017. By Phoebe Seers.
The Australian Competition & Consumer Commission has succeeded in persuading the Federal Court that the competition tribunal erred in concluding that it did not need to assess a competitive detriment the ACCC had alleged in the merger between gaming giants Tabcorp and Tatts.
The Australian Competition Tribunal incorrectly concluded that such an assessment was unnecessary because it was satisfied the merger would not result in any substantial reduction of competition in the wagering services market, according to the reasons for the court's judgment.
The Federal Court ruled yesterday that the tribunal's June 22 authorization of the A$6 billion ($4.8 billion) merger be set aside. The ACCC said it was "pleased" with the decision.
"There is little doubt … that the competitive effect advanced by the ACCC was a detriment within the scope of [the Competition and Consumer Act] and thus a mandatory relevant consideration that had to be considered," the court's reasons for the judgment state. "If the tribunal failed to take account of this matter then, at least prima facie, its decision must be set aside."
Tabcorp bypassed the ACCC's informal merger clearance procedure, which prohibits one company buying shares in another if the deal would substantially lessen competition in the market. According to the Federal Court, there was a perception at Tabcorp that the merger risked infringing that prohibition.
The law allows the tribunal to "authorize" a merger, but authorization must not be granted unless the tribunal is satisfied the deal would result in "such a benefit to the public that the acquisition should be allowed to occur."
Tabcorp applied to the tribunal under that provision. Its application was opposed by the ACCC and a number of intervening entities, including online bookmaker CrownBet.
The tribunal granted its authorization on June 22, stating that the deal's benefits to the public were "substantial," and even that the merger would "lead to greater competition, particularly in online wagering".
A review on the merits of the decision was not open to the ACCC. Instead, it applied to the Federal Court for a judicial review of the decisionmaking process on three grounds. CrownBet also filed an application for a judicial review, pleading similar grounds.
The first of the ACCC's reasons was a review of the tribunal's reasoning that it could conclude only that the proposed acquisition was likely to result in a competitive detriment if it concluded that there would be a substantial lessening of competition.
The second was the tribunal's failure to compare the likely future state of competition, both with and without the proposed acquisition, in its consideration of whether the deal was likely to result in any competitive detriment.
Finally, the ACCC sought a review on the grounds that the tribunal made an error in the weight it gave to the deal's supposed benefits, such as cost savings and revenue synergies, which would be retained by Tabcorp and not shared with consumers more broadly.
The ACCC persuaded the court only of the first of those three arguments. Tabcorp and Tatts have been ordered to pay the regulator's costs.
"Although detriments are not expressly referred to in the provision, they are, as a matter of necessary implication, mandatory relevant considerations," the court said.
Having examined the benefits and detriments resulting from, or likely to result from, the proposed acquisition, the tribunal is then to determine whether the overall benefit is such that the acquisition should be permitted, it said.
"It is to be emphasized that a mandatory consideration in the tribunal's assessment of an acquisition will include any non-trivial competitive detriment which will result, or is likely to result, from the acquisition whether it occurs on a market-wide basis or not," it said.
That contentious point arose before the tribunal when the ACCC submitted that if the merger proceeded, the newly merged entity would no longer be constrained by Tabcorp in setting its takeout rate in Queensland, Tasmania, South Australia or the Northern Territory, and that it would be able to increase that rate to its legal maximum in an unconstrained fashion.
That was said by the ACCC to have a significant price effect in the segment, which the tribunal was required to consider, and was substantive.
The ACCC did not submit that the competitive effect in the segment meant that there was a substantial lessening of competition in the overall wagering market.
Conversely, Tabcorp contended that the merger would increase competition in the overall wagering services market and, further, that it would benefit a segment of the public — the racing industry.
In its reasoning, the tribunal said an analysis of whether the target of the acquisition was likely to be a vigorous competitor was necessary only "if analysis shows that the merger is likely to result in a detriment; and we can only reach that point if the tribunal concludes that there will be a substantial lessening of competition in the market for consumer wagering services."
"More importantly, for the sake of analysis, the tribunal takes the view that there will not be a substantial lessening of competition in the consumer wagering market as a result of the proposed merger. In this respect, no detriment to the public is likely to arise," the tribunal said.
The court agreed with the ACCC and CrownBet that the Tribunal had erred. One way of characterizing the legal error is that the tribunal failed to carry out its duties and made a jurisdictional error by omitting to deal with a central issue raised by the ACCC, the court said. It follows that the tribunal did not have jurisdiction to make the decision, or that the decision was not authorized, or that it was contrary to the law.
The court had earlier said the reasons for the decision would not be made public until next week. However, they were available on its website today.