At a glance
By Gary Anders
Banking giant ANZ announced at the end of July that it had completed its A$4.9 billion acquisition of Queensland’s Suncorp Bank – the biggest transaction in Australia’s banking sector for years.
The path to getting the deal over the line was anything but smooth. It took about 18 months, after initially being rejected by the Australian Competition and Consumer Commission (ACCC) on the grounds it would substantially lessen financial market competition.
The ACCC was later overruled by the Australian Competition Tribunal (ACT), the body with authority to affirm, set aside or vary the ACCC’s decisions.
To get the deal over the line, and to receive federal government approval, ANZ needed to accept a range of conditions. These included agreeing to more than A$35 billion of lending commitments in Queensland, and to the preservation of Suncorp and ANZ branches in the state as well as jobs for at least three years.
A new era for mergers
As the tail end of the ANZ-Suncorp Bank negotiations continued behind the scenes, the federal government announced a planned major overhaul of Australia’s merger and acquisition (M&A) laws.
The proposed reforms are contained in a detailed report released by the federal government and Treasury in April, titled Merger Reform: A Faster, Stronger and Simpler System for a More Competitive Economy.
In a statement, the federal treasurer, Jim Chalmers, says the reforms will boost competition and productivity in the economy and make the merger approval system faster, stronger, simpler, more targeted and more transparent.
“Most mergers have genuine economic benefits – allowing businesses to achieve greater economies of scale and scope, helping them to access new resources, technology and expertise,” he stated.
“However, they can cause serious economic harm when firms are solely focused on squeezing out competitors to capture a larger percentage of the market.”
Chalmers cited government analysis showing that Australia’s competitiveness has been declining since the 2000s, while market concentration has nearly doubled since 2010.
The government aims to simplify and speed up the process for mergers that are in the national interest and give the regulator stronger powers to identify and scrutinise transactions that pose a risk to competition, consumers and the economy.
Key changes
Under the reforms, mergers will be approved to proceed within 30 working days where the ACCC raises no competition concerns.
Australia’s current merger regime does not require merger parties to notify the ACCC of proposed acquisitions or to wait for ACCC clearance before proceeding.
The proposed reforms include introducing a mandatory notification requirement for merger deals above certain turnover thresholds, and a prohibition on merger transactions proceeding without receiving a determination from the ACCC or the ACT.
The thresholds haven’t yet been set, however it has been widely reported that the mandatory notification levels will be for transactions with a minimum value of A$35 million or where either of the parties have an annual turnover of A$400 million or above (regardless of the transaction value).
The government says this will ensure that acquisitions most likely to impact consumers are subject to sufficient scrutiny.
The law will specify the factors the ACCC must consider for merger applications, which will help the regulator to better differentiate between benign acquisitions and those that would entrench or extend market power.
In addition, to protect consumers from the possible impacts of serial acquisitions in certain industries, the ACCC will be able to take into consideration the cumulative effect of mergers by the acquirer or target within the previous three years.
A fit-for-purpose regime
The ACCC has long been calling for a fit-for-purpose merger regime in Australia to better identify and prevent anti-competitive transactions.
ACCC chair Gina Cass-Gottlieb says the government’s proposed reforms will benefit Australian consumers and businesses of all sizes.
“Higher prices, less choice and less innovation can result from weakened competition. Stronger merger laws are critical to ensure anti-competitive mergers do not proceed,” she says.
Business Council of Australia (BCA) chief executive Bran Black says close consultation will be required to ensure businesses aren’t burdened with unintended consequences.
“Mergers can lead to diversification and efficiencies that benefit consumers, and the ability of businesses to acquire, dispose, restructure and merge forms an integral part of commerce,” Black says.
“The government has accepted important points advocated by the BCA, including there be no change to the onus in the merger test, clear decision-making timelines and streamlining FIRB [Foreign Investment Review Board] competition assessments.
“When implementing this reform, we need to ensure Australia’s merger regime doesn’t add further red tape to businesses. For example, the BCA expects to see reasonable and practical thresholds for merger notification.”
Black says it is also critical that the ACCC be appropriately resourced to transition and deliver the reforms, so investment and acquisitions are not bottle-necked.
“The average period for the ACCC to process merger authorisations has been 171 days, with the longest being 260 days – a long way from the existing 90-day statutory requirement.
“This time is far too long and so we need clear decision timelines to provide investment certainty, and that means making sure the ACCC is adequately resourced.”
The need for change
Deborah Healey, professor in the Faculty of Law and Justice at the University of New South Wales, agrees with the ACCC that the current system is not working effectively.
“The fact is that Australia currently has a really unique voluntary clearance system, which has worked well in some ways, but I think changes to the dynamics of the economy – particularly in relation to digital players — means that it really needs to be reviewed,” Healey says.
“There’s evidence worldwide that market concentration is growing and … that creates difficulties. Australia … is out of step procedurally with what occurs overseas in a merger situation.”
Healey points out that most mergers in Australia are not dealt with by the courts, but are managed through a voluntary clearance procedure via the ACCC. By contrast, she says that regions and countries where most M&A activity occurs, such as the European Union, the United States and China, have compulsory notification of mergers above a certain turnover threshold.
The problems with voluntary clearance mean recently the ACCC has noted it’s been getting information much later or not at all, because there’s been no compulsory notification, Healy says.
“And, basically, companies are starting to say: ‘Well, if you don’t like what we intend to do, you better stop the merger in court.’ What happens then is it goes to court and it’s quite difficult for the ACCC to show, to the court’s satisfaction under the current test, that the proposed merger will have the effect of substantially lessening competition.”
These issues are further compounded by the fact that it is important that markets remain dynamic and competitive, Healy adds.
“The digital market is so dynamic. It’s really hard to judge the likely competitive impact of acquisitions of nascent competitors. Are they buying a competitor because it will be good and they’ll develop it? Or are they buying it just to shut it out of the market, so that there won’t be a strong competitor against them in the future?”
Assisting small business
Council of Small Business Organisations Australia (COSBOA) chief executive, Luke Achterstraat, says the Australian economy is best served by markets that comprise both large and small businesses.
“Competition drives more choice, greater quality and lower prices for consumers, and small businesses are a key factor in ensuring good levels of competition across Australian markets,” he says.
“COSBOA welcomes the government’s proposal to introduce a mandatory and suspensory merger regime which will help to ensure that all merger activity with likely anti-competitive effects can be properly reviewed and analysed.”
Achterstraat adds that COSBOA is particularly supportive of the measures designed to address the small business community’s long-held concerns about how to effectively capture creeping acquisitions and deal with transactions that might further entrench the market power of larger businesses at the expense of their smaller counterparts.
“The publication of ACCC determinations on a public register will increase transparency around decision making and facilitate greater awareness within the business community regarding intended acquisitions.”
