ACCC wins exclusive remit, sharper teeth in first-instance merger reviews in new amendments to law

24 October 2017 10:04am
Circular Quay

18 October 2017. By Phoebe Seers.

​The Australian Competition and Consumer Commission will be solely responsible for merger authorizations at first instance following the passage today of legislation containing broad amendments to Australia's competition regime.

Parties to complex, contentious mergers can expect a longer and more document- and evidence-centric procedure, with no option to bypass the regulator and elect to seek approval from the Australian Competition Tribunal, as some players have chosen to do in the past for tactical reasons.

The law also grants the ACCC extensive powers to obtain documents and evidence in proceedings before it under Section 155, a tool the agency said earlier in the year it would be increasingly using. The maximum penalty for failing to comply with a document request has been substantially increased.

The ACCC's first-instance decision is subject to merits review by the tribunal. The new provisions are scheduled to come into effect in the coming weeks.

ACCC Chairman Rod Sims in August said his agency was moving towards an approach in which, for contentious mergers, "we are gathering substantially more evidence," noting "our track record on opposing mergers in the tribunal and court has not been good".

That new approach, which "definitely increases the burden on merger parties," will help the ACCC both in its decision-making process, but also if its decision is subject to a review.

Under the new law, the tribunal at a review can only look at evidence that was provided to the commission at the time of the application, unless the parties can prove there has been a change in circumstances and that the new evidence did not exist at the time the commission made its decision.

The provisions on evidence seem to preempt the situation where merger parties, anticipating a more favorable audience with the tribunal, only make a half-hearted effort at first instance with the ACCC. "It will be very difficult for parties to game the system now," Andrew Rankin, a partner at Piper Alderman, said.

The new law comes at a time when the merger authorization process has come under scrutiny. In March, listed gaming company Tabcorp applied to the tribunal for authorization of its A$11 billion ($8.6 billion) acquisition of competitor Tatts after the ACCC had voiced concerns over the deal.

The tribunal granted the authorization, but the ACCC successfully sought a Federal Court review of its decision-making process. The deal has now been sent back to the tribunal for reconsideration.

The new law will not affect the Tabcorp-Tatts deal, and until it comes into force, only the existing provisions are available to merging parties. No date has yet been set for when the new law will come into force, although an ACCC media release refers to "the coming weeks."  Whether this results in a rush of merger applications before the amendments come into force remains to be seen, although this seems unlikely.

The new law broadly adopts the recommendations of the 2015 Harper Review of competition policy in relation to mergers, with some slight differences.

Currently, parties wishing to seek approval before they merge have three separate processes available to them: informal clearance by the ACCC — which is by far the most popular route and remains unaffected by the new law; formal clearance by the ACCC — which to date has never been used; and authorization by the tribunal. The latter two processes have now been combined and streamlined.

While small and non-complex mergers benefit from the short timetable of the informal clearance process, it has, in the case of more complex matters, been criticized for being slow or unpredictable in its timing. It was also said that the informal process did not provide enough transparency to merger parties.

The tribunal authorization route has been used three times, most recently by Tabcorp. Each case has been decided in favor of the applicant after the ACCC expressed concerns over the deal.

Sims noted there have been no mergers blocked by the tribunal or court in the last 20 years.

"It is clear, however, that our current approach to merger review and litigation preparation is not resulting in adequately probative and persuasive evidence for the tribunal or Federal Court of the likely anti-competitive effects of the proposed acquisitions," Sims said.

He said the commission was borrowing from the US model, which requires substantially more documentary evidence — so that, if required, they can "better assist" a court or tribunal.

"This will result in an increase in the number of Section 155 notices, involving examinations under oath and significant document requests," Sims said.

The ACCC is now well armed both to make decisions on first-instance merger authorization, and to defend its position in the event a decision is reviewed, before the tribunal, which will function more like an appellate court.

In the past, the ACCC has shown a greater propensity than the tribunal to block a merger, or at least require parties to dismantle a proposal or divest certain assets or business lines, in order to get a deal across the line, Rankin said. Going forward, there will be rigorous scrutiny and a greater opportunity to impede contentious mergers.

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