Merger law reforms: the wait may be over, but the suspense is building

Deal conditions and strategy

The current informal merger review process permits parties to choose whether to seek clearance. Many private equity deals that raise no substantive competition issues are notified and cleared within a few weeks through the ACCC’s confidential pre-assessment process. This enables acquirers to obtain ACCC clearance prior to approaching or signing a transaction with a target, and to put forward offers without any ACCC condition.

Under the new regime, notification to the ACCC will be mandatory if a transaction meets the prescribed notification thresholds, and the notification will be public.

• On the buy-side, the absence of a confidential clearance process is likely to reduce parties’ willingness to make unsolicited bids or approaches, where the bid will need to be conditional on ACCC clearance. Bidders may be unwilling to disclose their interest in a target unless they can make an unconditional offer, as vendors will find such offers less attractive.
   
• Vendors who run competitive processes may also face reduced optionality and certainty, as they would need to “pick a winner” and factor in ACCC clearance risk, rather than being able to require bidders to seek clearance prior to signing.
   
• For both bidders and vendors, assessments of the likelihood of ACCC clearance being obtained and timing will be critical to bid strategy.

Treasury is consulting on a process for the ACCC to grant “notification waivers”, which would be confidential for on-market takeover bid proposals (prior to launch) but not other types of bids.

Importantly, the ACCC will not have a power to ‘call in’ deals that fall below the notification thresholds.  This may provide parties with greater certainty as to whether ACCC review will or will not be required, and so whether transaction documents should include an ACCC condition precedent. By contrast, ‘call in’ powers exist in many other jurisdictions, such as in the EU.

Timelines

The proposed assessment timelines are material: Phase I public review will take 30 working days (ie ~6 weeks). More complex “Phase II” reviews will take 120 working days in total (~6 months), or 170 working days (~8 months) if public benefits are considered. A 15 working day “fast track” determination will be available for acquisitions where the ACCC identifies no concerns. 

Under the Exposure Draft, the ACCC can “stop the clock” on those timelines merely by serving a section 155(1) notice to obtain information or documents. If that is adopted, the ACCC would be able to extend its assessment period, even if the recipient responds in full within the time permitted.

Fees

Notifiable transactions will attract a filing fee, likely falling in the range of $50,000 to $100,000. The cost of filing fees will increase regulatory burden on serial acquirers.

While timelines will apply to the ACCC’s consideration, the clock will not start running until the ACCC accepts a filing as valid. 

The ACCC is likely to set minimum upfront information requirements for valid applications. We expect the ACCC may require disclosure of information about, for example, the parties and their portfolios (potentially including indirect, minority and cross shareholdings) and prior transactions in the same market(s).

The ACCC will be required to publish on the register detailed reasons for is decisions, which it currently does only in limited cases. Over time, that should lead to greater certainty for private equity investors about the ACCC’s approach, the likelihood of clearance and expected timing. But it will also increase public information about sequential deals.