Keywords: ACCC, Mergers.

How Do We Know if Our Merger Needs ACCC Approval?

Unlike some other jurisdictions, in Australia it is not compulsory to notify the competition regulator of an intended merger. Rather, it’s up to the parties. This can lead to a lot of questions. Here are five to start with.

What Exactly Is a Merger?

First, some terminology. Some people get confused by the use of the term “merger”, as they’re simply planning an “acquisition" or a “takeover". But “merger” is just the language of (international) competition law. Our mergers provision (section 50 of the Competition and Consumer Act) actually applies to any acquisition of shares or assets, regardless of how that acquisition is described. Section 50 doesn’t require all shares to be acquired, nor do you have to acquire all the vendor’s assets. It’s triggered where enough has been acquired to allow the purchaser a real say in the target’s business (or to expand its own operations). But this is not a question of tax law, where it’s essential to know whether there is a going concern at stake. Ultimately, under competition law, it’s all semantics; even if section 50 doesn’t apply, (essentially) the same legal test will arise under another section of the act.

What Is the ACCC’s Role?

The Australian Competition and Consumer Commission (the ACCC) wears many hats, including as principal enforcer of our competition laws. Typically, it won’t advise parties whether it considers proposed conduct to be acceptable, except in the case of mergers. Over many years, an informal practice has developed whereby parties can approach the ACCC to see whether their merger is okay. This is known as “informal merger clearance”. While there is a formal avenue available, informal clearance dominates Australian merger assessments.

What Are the Risks if We Ignore the ACCC?

Obviously, there is a risk that you might breach the law (sound the alarms for huge penalties and the risk of having to undo the transaction). But in truth, this is a low level risk. A far more pressing issue is the reputational damage incurred when you don’t notify and the ACCC thinks you should have. This quickly leads the ACCC to conclude that you don’t care about compliance nor about the ACCC itself. No-one likes to feel unloved. And it’s not the best strategy when the spurned lover is one of Australia’s most effective law enforcers, with fingers in oodles of pies. So you have a cranky customer who complains about your handling of a warranty issue? The ACCC’s starting point is that you don’t respect the law and you don’t respect its enforcer. This risk is far more significant than many people realise.

So When Do We Have to Involve the ACCC?

Informal clearance really is informal, which means there are no hard and fast rules for when you should involve the ACCC. That said, where the ACCC is likely to notice a merger, or the purchaser wants the ACCC to notice it, then at least seek advice.

To this flesh out this, consider the following factors:

1. How big are the parties involved? The ACCC’s merger guidelines state that where the merger parties’ products are substitutes or complements and the merged entity’s market share will exceed 20%, notification is “encouraged”. Where it’s a vertical merger, these numbers don’t really help, but parties should at least seek advice if one has a market share of 20%+ or both have around 10%. 

2. Is the ACCC on the look-out? Maybe one of the parties has a bad reputation with the ACCC (see above), so the ACCC is watching. Alternatively, it might be checking out the industry. For example, right now, mergers in the digital space are on the ACCC’s radar. Consequently, even parties to an apparently innocuous merger might need to consider notifying. ACCC interest can also be anticipated if another industry player is likely to make a complaint.

3. Is there a long-term strategy that warrants early engagement with the ACCC? For example, it may be important to affirm that you’re a good corporate citizen, or you might have more strategic interests at play – perhaps you plan a series of acquisitions and at some point you’ll need to engage with the ACCC. If yes, there are definite advantages to starting early. 

One final trigger: does the transaction require approval from the Foreign Investment Review Board? FIRB relies heavily on the ACCC for guidance as to the competition assessment which forms part of its own requirements.  As such, sometimes the approval process for a merger which wouldn't otherwise warrant clearance may run more smoothly if you first make contact with the ACCC. 

Whose Responsibility Is It? 

Traditionally, the purchaser has running of the clearance process. But the vendor is still liable should a contravention be established; as such, it definitely has skin in the game. The vendor might also wish to carry the process if it is set on exiting the industry via some form of tender process. That way, it can identify genuine prospects in advance and remove some uncertainty both as to ultimate clearance and timing – as everyone knows, increased certainty means a better price.

Disclaimer

The information on this page is intended to be a general guide only. It is not intended to constitute professional or legal advice. While all efforts are made to ensure information is accurate as at the date it is published, there is no guarantee that it will have been updated to reflect subsequent developments.