By Shannan Welsh (Paralegal) and David Robbins (Principal Solicitor)
Earlier this year, the Australian Competition and Consumer Commission (“ACCC”) released findings arising out of reviews it had undertaken of six mergers that occurred between 2017-2019 which were not opposed by the ACCC. Some of these reviewed mergers included Caltex’s acquisition of Milemaker, Emergent Cold’s acquisition of AB Oxford Cold Storage Company and Winc’s acquisition of OfficeMax.
The ACCC is responsible for enforcing the Competition and Consumer Act 2010 (Cth) (the “Act”) which at s50, prohibits mergers that would have the effect, or be likely to have the effect, of substantially lessening competition in a market. Reviews of past merger decisions, known as ‘ex post’ merger reviews, are undertaken by competition authorities such as the ACCC as a way of informing and improving the processes and decision making surrounding mergers.
Whilst the six mergers that were the subject of review were not opposed by the ACCC at the time, the report found the accuracy of these decisions to be mixed. It was found that some of the predictions, forecasts and assumptions made at the time of the ACCC’s original decisions were broadly correct, whilst others did not hold up over time.
The review found that the reasons for this may be attributable to a lack of complete information and evidence the ACCC received at the time of making the original decision, with then-Chair Rod Sims holding that the review has highlighted “the weaknesses in the current informal clearance regime, whereby merger parties effectively decide how much and what type of information they provide upfront to the ACCC”.
The report also flagged the future possibility of conducting ex post reviews of a number of other mergers which the ACCC did oppose, but were later cleared to proceed by the Federal Court of Australia or the Australian Competition Tribunal. Following the clearance of these mergers, the ACCC received a number of complaints from industry participants who raised concerns about the level of competition and/or price increases that have since been observed in the relevant markets. Whilst the ACCC acknowledged that it could not conclude with any certainty that the mergers were to blame, these complaints may raise sufficient concerns to justify the possibility of future ex post reviews.
The review clearly highlights the need for greater scrutiny of claims and evidence presented by merger parties, with Mr. Sims calling for reforms to Australia’s current merger regime including the introduction of a mandatory notification regime. As a result of the report’s findings, the ACCC is said to be implementing changes in how it assesses the economic arguments put forward by merger parties as well as other evidence.
Some of other key takeaways set out in the report discuss that:
- the removal of vigorous and effective competitor/s can harm competition, even when market shares appear relatively low;
- some cleared mergers ended up resulting in significant price increases for segments of markets;
- the likelihood of new entry and expansion is routinely exaggerated;
- third parties are poor assessors of their own countervailing power (where countervailing power refers to the situation where customers can prevent the exercise of increased market power by suppliers); and
- merger parties and third parties may distort or omit relevant information.
It is also worth noting that where a merger contravenes s50, or the ACCC believes it has authorised a merger in circumstances where it was provided with false or misleading information and evidence, the ACCC can apply for a court order that the merger be unwound and declared void as from the day on which it occurred (see s81-81A of the Act). Whilst this power is exercised very rarely and is not discussed in the report, the significant consequences flowing from the exercise of such a power mean that the possibility of it being enforced must be considered – we recommend keeping this in mind should you or your business be required to provide information to the ACCC about a proposed merger or acquisition.
The full report is available for viewing here.
The findings of this review make it likely that the ACCC will approach future proposed mergers or acquisitions with increased scrutiny. If you have any questions about what the findings of this report could mean for your business, or need assistance with mergers and acquisitions, please contact a member of our Competition Law & Regulatory Compliance team or call us on +61 3 9663 9877.