Australia's current merger laws powerless to stop rising tide of ‘excessive consolidation,’ ACCC chief says

If Australian competition law is a circus, then Rod Sims is the man in the big tent sporting a top hat and tails, spinning priceless porcelain plates.

In a speech designed to lay out his agency’s priorities for the year, the country's competition ringmaster told a Sydney audience that the times would suit the Australian Competition & Consumer Commission in 2019. The ACCC may have been running at full capacity, he said, but it was ready to deliver on key projects.

After years of gathering dust, Australia’s 2009 criminal-cartel laws have been put into use, and the ACCC is now predicting three new prosecutions a year — in addition to a landmark action against Australia & New Zealand Banking Group, Deutsche Bank, Citigroup and six of the banks’ managers.

Then there’s the development of Australia’s data portability initiative, the establishment of a rapid-response financial services team to counter what ACCC Chair Sims has described as Australia’s “cozy oligopoly” of mollycoddled banks, a world-first digital platforms inquiry, and a feud with (under-)regulated airports.

All of these big-picture issues got an airing in Sims’ speech to the Committee for Economic Development, a think tank that offers Australia’s top competition official an annual platform to showcase the ACCC’s elaborate circus act.  

Yet it was Sims’ comments about mergers and acquisitions in Australia — and his plans to get vocal on the legal principle of the “substantial lessening of competition” — that pointed to a new trick in the ACCC show. Sims was alerting his audience to what he considered a fresh regulatory challenge.

“There seems [to be] a current bias to excessive consolidation to a few firms in each sector,” Sims told the committee on Tuesday. “As a community, we need to question whether this is the outcome we want.”

Of course, it’s debatable whether the wider Australian community spends much time pondering Section 50 of the 2010 Competition and Consumer Act. Yet Sims’ comments, and his earlier statements in a radio interview, reveal that the ACCC is lobbying for legislative change.

The take-home message is that the regulator doesn’t believe that Section 50 offers the powers it needs to oversee what it regards as a worrying trend toward industry concentration. The ACCC can impose no penalties, and there are no disincentives for anticompetitive mergers. The regulator's role is too circumscribed, Sims said.

“We must in particular remember that when we oppose a proposed merger under Section 50, there is no question of a penalty for breaching the law,” he said. “Instead, what is at stake is the level of concentration, and so the health of the Australian economy.”

But how is this possible? How can a national regulator that has the power to scuttle a deal — or at least put up major roadblocks — claim that its statutory role in overseeing mergers and acquisitions isn’t up to the task of safeguarding competition in Australian markets?

Those questions are now being debated against a politically fluid backdrop, with the ACCC’s calls for greater powers to take the fight to big business likely to resonate among lawmakers who have good reason to convince the electorate of their regulatory bona fides.

The ‘SLC’ challenge

Section 50 of Australia’s competition law prohibits acquisitions that will result in a “substantial lessening of competition” — a legal definition referred in ACCC shorthand simply as "SLC." 

It’s against that definition that the regulator must assess mergers and acquisitions that come before it. A decision by the ACCC not to clear a deal comes with no penalty, and merging parties are free to appeal the decision in court — which in recent years has proven to be an effective course of action.  

The ACCC has found itself launching court action resulting not from its primary decision on whether to approve deals, but from ancillary competition issues emerging from reviews. That points to the regulator's concerns over the anticompetitive thrust of some of the deals it assesses.

Last July, the ACCC blocked a merger between biomedical services company Cryosite and rival Cell Care, then launched legal action at the Federal Court of Australia against Cryosite, alleging anticompetitive behavior ahead of the deal.

Also in July, the ACCC blocked the acquisition of rail assets belonging to logistics firm Aurizon by industry rival Pacific National, before promptly launching legal action against the two companies and obtaining a court injunction against the former.

In a media scrum following yesterday’s speech, Sims identified other M&A decisions taken by the commission that had led him to conclude that his regulatory powers weren’t sufficient to counter what he saw as a tide of anticompetitive consolidation in Australian industry.

The first was a decision to oppose AGL Energy's acquisition of Macquarie Generation — an energy company controlling the Bayswater and Liddell power stations in New South Wales.

AGL launched an appeal at the Australia Competition Tribunal, which overturned the ACCC’s decision — something that Sims argued was a terrible mistake on the tribunal’s part. “We’ve lost some cases I don’t think we should have lost — Bayswater and Liddell is the classic one,” he told reporters.

Sims also pointed to a controversy over the Port of Newcastle, on Australia’s east coast, as an example of the regulator’s impotence when it came to managing what it considered anticompetitive acquisitions.

The ACCC had been aware of the anticompetitive arrangements put in place, Sims said, but it had been able to intervene only when the Port of Newcastle announced plans to develop a container terminal.

In response to such setbacks, the ACCC has used new funding to create its SLC Unit, staffed by specialist competition investigators working “to reduce the time of investigations and achieving outcomes in a much more commercial relevant timeframe.”

Sims revealed in his speech that the unit was expected to take two or three cases to court this year. However, he wasn’t willing to elaborate on which industries might be affected and how the investigations might interact with the ACCC’s standard reviews of proposed M&As.

Labor in power

Sims’ speech came just a day after the opposition center-left Australian Labor Party announced that it would be campaigning in the next general election — expected in May — on the need to grant the ACCC the power to carry out post-merger reviews of M&A deals.  

That proposal would allow the ACCC to review any decision to clear a deal twice over a 10-year period. According to Labor Party lawmaker Andrew Leigh, it would help Australia avoid the “negative impact” of certain US mergers, such as the tie-ups of America Online with Time Warner and eBay with Skype.

When asked about the proposal, Sims was careful to steer clear of politics; Labor is currently leading in opinion polls and appears likely to win the upcoming election. But the ACCC chief said he would readily accept such powers, were parliament to grant them. 

“It’s hard for me to push back when somebody says, ‘You’ve made a decision — shouldn’t you check that you’ve got it right?’,” Sims told reporters, while adding that any such powers would demand a substantial increase in the ACCC’s resources.

“All our resources are fully occupied doing what we’re doing,” he said. “If we do more of this, then we do less of that.”

The policy initiative appears to respond to Sims’ earlier statements on the challenges of regulating a highly volatile digital environment.

In a speech last October, Sims commented on Facebook’s purchase of photo-sharing app Instagram in 2012, saying that it would be “extremely difficult to predict … whether, in the absence of the acquisition by Facebook, Instagram would have grown and become an independent challenger to Facebook.”

The ability to review a regulatory decision with the benefit of hindsight would help regulate industries that are evolving rapidly and, more importantly, would also fit in with Sims’ broader claim that current legislation is weighed in favor of industry players, to the detriment of consumers.

“There often seems to be too much weight placed on the capacity of market forces to overcome problems caused by a lack of competition in concentrated markets,” Sims said, citing calls for “national champions” and the need to safeguard investment as symptomatic of an unhealthy regulatory landscape.

“We must, and will, highlight that most companies want less, not more, competition,” Sims said.