Assessing Australia’s proposed merger reform

October 2024  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2024 Issue

The Australian government has announced significant reforms to its existing merger control rules beginning in 2026. The move will see the country replace its existing voluntary, non-suspensory regime with a mandatory and suspensory system, subject to forthcoming economic and market share thresholds.

The new rules are largely consistent with other comparable jurisdictions’ regimes. The changes represent a reasonable balance between the Australian Competition and Consumer Commission’s (ACCC’s) proposals and the response of the Australian business community to the Treasury’s consultation process.

On 10 April 2024, the Treasury announced its intention to introduce a “fast, stronger and simpler merger system” within Australia’s merger laws. The new merger control system will apply from 1 January 2026 and propose a single, streamlined merger control system which is set to enhance efficiency, predictability and transparency for all stakeholders. It aims to limit the scope for strategic behaviour by parties to a merger.

The new mandatory reporting regime will replace the existing voluntary informal notification and merger authorisation model and is said to better equip the ACCC to detect, review and protect consumers from anti-competitive mergers.

The most notable feature of the reform will be the introduction of a mandatory notification requirement for all mergers that exceed certain notification thresholds. The mandatory regime will be supplemented by a prohibition on completion of notifiable mergers – or a suspensory effect – prior to having obtained approval from the ACCC. The ACCC will act as an administrative decision maker and have the power to determine whether a merger may or may not be put into effect, with or without conditions.

The notification thresholds will be both monetary and share of supply based. Monetary thresholds will be subject to consultation and set by reference to business metrics such as turnover (sales revenue), profitability or transaction value. Share of supply, or market share, thresholds will ensure that mergers that may harm competition despite being below the monetary thresholds will be notifiable.

To capture serial or creeping acquisitions, all mergers within the previous three years by the acquirer or the target will be aggregated for the purposes of determining whether the notification thresholds are met, irrespective of whether those mergers were themselves individually notifiable.

Mergers below the notification thresholds may be voluntarily notified to the ACCC, but the ACCC will not have the ability to ‘call-in’ mergers that do not meet the notification thresholds.

To enhance transparency and accountability, a public register for all mergers notified to the ACCC will be created and the ACCC will be required to provide written reasons including findings of material facts for all of its determinations.

The proposed reforms will introduce cost recovery fees that will be scaled to reflect the complexity and risks of a notified merger. At present, the Australian government expects that the fees will be between $50,000-$100,000 for most notified mergers, with an exemption for mergers notified by small businesses.

Under the proposed reforms, the Australian government has declined the ACCC’s proposal to shift the burden of proof regarding the competition test. The ACCC had argued that the onus should be on parties to satisfy the ACCC that a merger will not have the effect, or be likely to have the effect, of substantially lessening competition. As a result, the status quo will be maintained and the ACCC must approve a merger unless it is satisfied that the merger would have the effect or likely effect of substantially lessening competition.

However, the government plans to introduce a provision specifying that a merger could reduce competition if it strengthens or solidifies substantial market power. This amendment underscores the importance of evaluating market competitiveness when assessing potential merger impacts, particularly regarding acquisitions where leading firms acquire emerging competitors.

Additionally, the ACCC will be empowered to assess the collective impact of mergers conducted by the involved parties over the past three years to evaluate the potentially cumulative effects on competition.

While many of the proposals contained within the reform have been largely welcomed, there are some criticisms. The proposed provisions dealing with serial or creeping acquisitions are likely to have significant practical implications. They will make it harder for market-dominating firms to evade scrutiny by only incrementally increasing market share through a series of small acquisitions. The reforms will also improve the ACCC’s ability to oppose such incremental acquisitions.

The mandatory notification regime will necessitate extensive upfront information requirements and the review periods will only start to run once a ‘complete’ notification has been received by the ACCC.

In addition, the new approach to the limits proposed for the Australia Competition Tribunal’s review of ACCC determinations under the new regime, much like the existing rules for the review of ACCC merger authorisations, has been criticised as unnecessarily limiting the parties’ ability to argue their case on review. There had been a hope and perhaps even an expectation among competition lawyers and members of the business community that the government would take the opportunity to improve the rights of merger parties to challenge ACCC determinations opposing or imposing conditions on their merger proposal under the new regime.

Though the reforms are not due to come into force until the beginning of 2026, it would be prudent for organisations to take steps to prepare for any additional obligations they may face when engaged in M&A.

Companies should closely monitor further developments regarding the reforms to familiarise themselves with the amendments prior to enforcement. In particular, the regime will need to be factored into transactions signing in 2025.

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Richard Summerfield