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Mergers: Prohibition


Core prohibition

Section 50 of the Competition and Consumer Act 2010 prohibits the direct or indirect acquisition of shares or assets where the acquisition would have, or be likely to have, the effect of substantially lessening competition in any market.


Acquisitions of shares or assets

There is no requirement that a controlling interest be acquired and asset acquisitions alone are sufficient where it will produce an anti-competitive effect. Consequently, for example, acquisitions of land, intellectual property rights or other non-controlling interests which produce the necessary anti-competitive result may be caught.


Substantial lessening of competition and the counterfactual

The current substantial lessening of competition test has applied since 1992. There have, however, only been two Federal Court decisions applying the provision and there is no High Court authority. The necessary level of proof required to demonstrate a proposed merger would substantially lessen competition is unclear following the Full Federal Court's decision in Metcash.

Before an assessment can be made about whether a merger is likely to substantially lessen competition, it is necessary to assess what is likely to happen in the future both with and without the merger (the counterfactual or “future without” and “future with” tests). At trial in Metcash Justice Emmett considered that it was necessary for the ACCC to establish 'on the balance of probabilities' what the 'future state of the market will be, both with and without the proposed acquisition' (para 145), but that if this can be established then it is sufficient to demonstrate that there is a 'real chance' that the proposed acquisition would result in a substantial lessening of competition (para 146). Relying on the decision in AGL at [348] Justice Emmett noted that (at para 136) 'does not encompass mere possibility' but requires assessment 'at a level that is commercially relevant or meaningful'. In Metcash the ACCC had argued multiple counterfactuals and Justice Emmett concluded they were not entitled to succeed unless the Court finds (para 146):

  • that it is more probable than not that one of the Commission’s counterfactuals will come to pass if the proposed acquisition does not proceed; and
  • that there is a real chance that, if the proposed acquisition does proceed, that would result in a substantial lessening of competition compared to the scenario in which one of those counterfactuals comes to pass.

On appeal to the Full Federal Court, Justice Buchanan disagreed with the trial judge, noting that, in his view, the 'real chance' test should not be applied at all to the application of s 50 [at para 25], instead expressing the view that it is necessary to establish likely substantial lessening of competition 'on the balance of probabilities' (para's 35 and 40). In separate judgments, the two other Federal Court judges did not reach a concluded view on the matter.

Matters to consider

Section 50(3) requires the court to consider a non-exhaustive list of factors when assessing whether or not a proposed acquisition is likely to substantially lessen competition. They are:

(a) the actual and potential level of import competition in the market;

(b) the height of barriers to entry to the market;

(c) the level of concentration in the market;

(d) the degree of countervailing power in the market;

(e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;

(f) the extent to which substitutes are available in the market or are likely to be available in the market;

(g) the dynamic characteristics of the market, including growth, innovation and product differentiation;

(h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor;

(i) the nature and extent of vertical integration in the market.



Subsection 50(6) provides that:

market means a market for goods or services in:

(a) Australia; or

(b) a State; or

(c) a Territory; or

(d) a region of Australia.

In addition, section 4E states:

For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first‑mentioned goods or services.

Although territorially defined, there is case law in relation to other competition law provisions that suggests a global or regional market may be a market for purposes of section 4E: Singapore Airlines Ltd v Australian Competition and Consumer Commission [2009] FCAFC 136 (2 October 2009). Given the existence of s 50(6) it is unclear whether or not such a broad market may be defined for purposes of the merger provision. However, even if a global market is artificially contained to Australia, the competition analysis will enable this to be assessed in the broader global context.

The Courts have recently emphasised the need for market definition to 'reflect commercial reality, rather than be driven by economic theory' (Justice Buchanan in Metcash para 10)


International mergers

Section 50A applies where the acquiring corporation is foreign and does not carry on business in Australia. However, asthe extraterritorial breadth of s 50 is wide enough to capture more mergers involving foreign corporations. s 50A is not used in practice.


Penalties and remedies for contravention

Application may be made to the Court for the following:

  • Injunction (ACCC only; not private parties) (section 80)
  • Pecuniary penalties for breach (section 76)
  • Divestiture (section 81)
  • Damages (by persons who suffer loss and damage as a result) (six year limitation period) (section 82)
  • Disqualification from directorship (section 86E)
  • Non-punitive orders (such as community service order) (section 86C)
  • Other orders (Court may make 'such orders as it thinks appropriate' (section 87)

In addition, the ACCC may accept enforceable undertakings pursuant to s 87B. These are utilized by the ACCC to alleviate competition concerns in some merger cases.

Note that the ACCC has no power to block a merger; this power resides solely with the Federal Court of Australia.