The Australian Competition Tribunal last week granted authorisation for the proposed Tabcorp/Tatts merger.
Legal framework for mergers in Australia
The Competition and Consumer Act 2010 (s 50) prohibits acquisitions which would have the effect (or likely effect) of substantially lessening competition in any market (with market defined to mean a market for goods or services in Australia or in an Australian State, Territory or region). There is no obligation for parties to seek competition approval in advance of a merger/acquisition; however most mergers of interest will be notified to the Australian Competition and Consumer Commission (ACCC) and it will informally review the merger and provide an indication to the parties about whether it will or will not challenge the merger. The ACCC may also accept court enforceable undertakings from the parties to alleviate any competition concerns.
Separately, the parties may seek ‘authorisation‘ from the Australian Competition Tribunal. The Tribunal may grant authorisation in advance of a merger/acquisition (s 95AT), even if it is considered likely to substantially lessens competition, provided that the it is satisfied that the ‘proposed acquisition would result, or be likely to result, in such a benefit to the public that the acquisition should be allowed to occur’. The Tribunal must consider as public benefits:
- ‘a significant increase in the real value of exports
- ‘a significant substitution of domestic products for imported goods’; and
- ‘all other relevant matters that relate to the international competitiveness of any Australian industry’
Other benefits may also be considered public benefits for purposes of the authorisation.
If granted, the authorisation may be conditional or unconditional. Previously, authorisation applications were first made to the ACCC with the possibility of appeal to the Tribunal. In 2007 the power to grant merger authorisation was been removed from the ACCC, with applicants able to proceed directly to the Tribunal; since that time there have been three Tribunal authorisation decisions (AGL Energy Ltd 2014; Sea Swift 2016; Tabcorp 2017); authorisation has been granted in all cases. If proposed changes to the Act are passed, first instance authorisation decisions will revert back to the ACCC with possibility of appeal to the Tribunal.
The Tabcorp/Tatts case
In October 2016 Tabcorp Holdings Ltd (Tabcorp) and Tatts Group Ltd (Tatts), who both supply gaming services, announced that they proposed to merge. The estimated value of the transaction was AU$11.3 billion. The ACCC merger register page provides the following summary of the proposed merger:
‘Tabcorp Holdings Limited (Tabcorp) and Tatts Group Limited (Tatts) propose to merge. Tabcorp and Tatts both operate off-course totalisators and retail wagering networks (in different states and territories) and online wagering businesses. Tabcorp and Tatts both supply gaming and promotional management systems and services to gaming venues and gaming monitoring services to state governments.’
Tabcorp initially sought informal clearance from the ACCC in 2016, with the ACCC commencing its review on 25 November 2016. On 9 March 2017 the ACCC released a Statement of Issues outlining some preliminary competition concerns. Following the release of the Statement of Issues the Tabcorp withdrew its request for informal review and subsequently lodged an application for authorisation with the Tribunal.
At the request of the Tribunal the ACCC provided a report on the issues it had identified relating to the merger (see ACCC Authorisation page). A number of other parties were also granted leave to intervene in the procedings (including Tatts Group Ltd, CrownBet Pty Ltd, Racing Victoria Ltd, Harness Racing Victoria, Greyhound Racing Victoria and Racing.Com).
The matter was heard before the Tribunal (comprising Justice Middleton (President), Mr Grant Latta AM (Member) and Dr Darryn Abraham (Member)) from 16 May – 2 June 2017. On the final day of hearings the ACCC submitted that did not believe the public benefits claimed by Tabcorp were sufficient to justify approval of the merger (see, eg, John Stensholt, ‘ACCC ‘not satisfied’ Tabcorp Tatts merger in public interest’ (Australian Financial Review, 2 June 2017)).
The Tribunal decision
On 22 June 2017 the Tribunal announced it would grant authorisation, subject to a condition that Tabcorp sell its Odyssey gaming monitoring operations (which it had previously indicated it would divest to obtain regulatory approval). Reasons for this decision were published on 22 June 2017 and run to 142 pages, plus a primer of agreed facts (total of 255 pages). See Application by Tabcorp Holdings Limited  ACompT 1.
The Tribunal accepted there were sufficient public benefits to justify the merger, subject to divestiture of Odyssey gaming monitoring operations. The public benefits were predominantly in the form of cost synergies and improved efficiencies. In addition, the Tribunal did not consider there would be a substantial lessening of competition in any market. It concluded:
The benefits to the public which the Tribunal has found to exist, and which it has taken into account, are substantial. There are no material detriments weighed in the balance which are of significance or likely to arise that outweigh the benefits (para 539)
In particular, it concluded that the public detriments identified by the ACCC and others were either unlikely to arise or were not of significance (para 542).
For a good overview of the key findings and implications see: Clayton utz, ‘Groundbreaking Australian merger clearance – lessons from the Tatts/Tabcorp decision’ (Michael Corrigan, Ian Reynolds, Mihkel Wilding, 22 June 2017)
The ACCC has published an initial response indicating that it ‘will now consider the reasons for decision published by the Tribunal.’
Further detail on competition and public benefit decisions will follow on my Tabcorp case page (this page also contains case links and links to commentary on the decision)