Australian Merger Reform Proposal 2024

As the economy responds to structural shifts, the Government’s view is that allowing the ACCC to consider whether an otherwise anti-competitive merger raises substantial and meaningful net public benefits is important. Public benefits will only be considered following completion of ‘Phase II’ (a form of ‘Phase III’). Parties also may seek review by the Australian Competitive Tribunal either:

1. after a ‘Phase II’ determination; or
2. after the ACCC makes a determination on public benefit grounds (i.e., after a ‘Phase III’ determination).

If the ACCC does not make a determination within a specified time period, the merger will be deemed to be approved. Clear timeframes and performance metrics are intended to hold the ACCC accountable.

Timeframes could be extended if, for example, remedies are offered, if requested information is not promptly required, or with the agreement of the merger parties. Treasury has said it will consult on “stop the clock” type mechanisms and associated procedural safeguards.

Limited review of ACCC decisions

The Government’s proposal will result in the merger review process moving away from a “judicial enforcement model”, where a Federal Court judge may hear a claim brought by the ACCC that a merger has an anti-competitive effect or by merger parties that it does not have that effect, and will be replaced with an “administrative enforcement model”, where the ACCC is the first instance decision-maker.

The Australian Competition Tribunal will have the power to conduct a merits review of ACCC merger determinations, upon application by a merger party or relevant third party (with standing). This is the current review process which applies for merger authorisation.

The Federal Court’s power to hear an appeal from an ACCC determination will be limited to judicial review (that is, an error of law, rather than a review of the merits) – this means that no challenge will be available if a different view of the evidence would be taken by a Federal Court judge.

Substantive test for merger clearance 

Reformulated competition test

The Government has not accepted the ACCC’s proposal to reverse the “onus of proof” by changing the competition test to only permit mergers if the ACCC (or Tribunal) is positively satisfied that the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition. This would have required satisfaction of a negative proposition.

The Government considers that the existing informal merger clearance ‘substantial lessening of competition’ test is the appropriate framework but that it should specifically include consideration of whether the proposed merger “creates, strengthens or entrenches a position of substantial power in any market”. This is intended to take into account the competitive structure of a market in an overall assessment of the effects of a merger on competition.

Under the proposed test, the ACCC must permit a merger unless it reasonably believes that the merger would have the effect, or be likely to have the effect, of substantially lessening competition in any market, including (but not exclusively) if the merger “creates, strengthens or entrenches a position of substantial power in any market”.

The ACCC will need to be affirmatively satisfied that there is a “real chance” of a substantially lessening competition. The ACCC does not need to prove that the merger will have the effect of substantially lessening competition.

The cumulative effects of all mergers undertaken by the parties to the merger within the last three years are relevant both to the notification threshold being met and the substantive consideration of the merger’s effect.

The Government’s proposed amendments to the test keep Australia in line with overseas jurisdictions, by not assuming that mergers are intrinsically anti-competitive.

Competition principles

The test will be supplemented by competition principles, replacing the ‘merger factors’ currently set out in the Competition and Consumer Act. The ACCC is expected to consult on, issue and periodically update guidance on the principles to be applied when assessing mergers. The guidance will include the following principles:

• the need to maintain and develop effective competition within markets; and
• the market position of the businesses concerned and their economic and financial power.

Net public benefits test

The Government has not proposed any changes to the formulation of the net public benefits test itself. A net public benefits test currently exists for merger authorisation (as well as authorisation of other anti-competitive conduct).

What next?

Details of the new system will be finalised following further consultation with stakeholders, including regarding notification thresholds and the principles to supplement the competition test.

Treasury will then consult on exposure draft legislation.

Related insights

Competition law reform in Australia: Episode 1 - Merger reform

In our first podcast on the work of the Treasury Taskforce, we delved into the merger reform proposals that were under consideration by the Treasury Taskforce preceding today’s Government announcement.