Pacific National-Aurizon court defeat still vindicates regulator, Australian competition chief says
27 May 2019. By James Panichi.
A court finding that the acquisition of the Acacia Ridge Terminal in north-eastern Australia by freight operator Pacific National would have harmed competition has vindicated an ultimately unsuccessful court action launched by the country’s competition regulator, its chief says.
Speaking at a conference in Sydney over the weekend, Australian Competition & Consumer Commission Chairman Rod Sims described as “good news” the Federal Court of Australia’s ruling that Pacific National’s acquisition of the terminal from rival Aurizon would have harmed competition — even though the court ultimately allowed the deal to proceed.
“The Court found that if Pacific National acquired the terminal, it would have the ability and incentive to discriminate against a new entrant, and barriers to entry would be heightened,” Sims said.
“However, unfortunately, the bad news from our perspective is that the court accepted that the behavioral undertaking offered by Pacific National was sufficient to address that competitive harm,” he said.
“We are firmly of the view that a long-term behavioral undertaking to provide access at Acacia Ridge Terminal will not be effective in enabling competition in the supply of intermodal rail services,” Sims said, adding that the ACCC was still considering whether to appeal the ruling.
The Federal Court’s decision to wave through the acquisition based on Pacific National’s last-minute, unconditional undertakings has been criticized by the competition regulator and has raised the prospect of merging parties using the courts as a soft-touch to overturn unfavorable decisions by the ACCC.
During its review of the proposed acquisition, the ACCC had already rejected a similar legal undertaking on the part of Pacific National, saying that a behavioral undertaking, rather than a clear-cut structural arrangement, wouldn’t be adequate to ensure future competition around the key piece of rail infrastructure.
“An owner-operator has many subtle ways of discriminating against, or damaging, another user of the terminal,” Sims told the conference of competition lawyers from Australia and New Zealand.
“Such an undertaking would not be enough to give a would-be entrant sufficient confidence to make the significant investment necessary to actually enter the market,” he said.
Referring to opinions expressed by competition regulators at this month's International Competition Network annual meeting in Cartagena, Columbia, Sims said he had encountered a “feeling of disbelief” that a court would treat a behavioral commitment “as solving the competition problems likely to result from the transaction.”
The ACCC’s court action against the two companies began in 2018, when it announced it would oppose Pacific National’s proposed A$220 million ($152.5 million today) acquisition of Aurizon’s Queensland intermodal business and Acacia Ridge Terminal.
The regulator commenced legal action at the Federal Court alleging anticompetitive conduct and, on the same day, added to its lawsuit an injunction to stop Aurizon shutting down certain assets in Queensland ahead of the deal on the grounds that they were no longer viable.
In the same speech, Sims defended the ACCC’s decision to oppose the merger between telecommunications company TPG and Vodafone Hutchison Australia, saying that Australia already had a very concentrated mobile network market dominated by Telstra, Singtel Optus and Vodafone.
Sims said he rejected the belief that a merged TPG-Vodafone would have brought with it greater competition by establishing a third player big enough to take on Telstra and Optus.
“A stable, three-player market facing no threats will likely lead to stable and so-called rational pricing,” Sims said, explaining that “rational pricing” described prices that were both higher and more stable.
“Indeed, we should never confuse rational pricing with the consumer interest,” Sims said. “Consumers need the benefits of vigorous competition in order to obtain competitive pricing and the innovation that is in their interest.”
TPG has announced that it will appeal the ACCC’s decision to oppose the deal, in a move that appears likely to exacerbate tensions between the country’s competition regulator and the Federal Court of Australia over the enforcement of merger and acquisition decisions.
“Effective merger control in general is fundamental to a successful market economy,” Sims said. “I think there are more debates to come as we reflect on the economic harm associated with concentrated markets.”