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Mergers: History (and future)

 

Overview

There have been several reviews into Australian merger law and regulation.

The original 1974 Act prohibited the acqusition of assets and shares, which resulted in a substantial lessening of competition in a market for goods or services;

Only three years later, this test was replaced with a market dominance test; mergers were only prohibited where they resulted in or substantially strengthened a ‘position to control or dominate a market’.

In 1989 the Griffiths Committee recommended retaining the dominance test; shortly thereafter, in 1991, the Cooney Committee recommended a substantially lessen competition test. The Cooney Committee recommendation resulted in legislative change in 1992, returning the test to one of 'substantial lessening of competition' and introducing a non-exhaustive list of matters the Court must consider in making this assessment (s 50(3))

In 2002, numerous submissions were made to the Dawson Committee recommending that the substantive test for mergers change back to one of dominance, incorporate an ‘efficiency’ test or incorporate a public benefit test. The Dawson Committee recommended that the substantive test of ‘substantial lessening of competition’ be retained and this was accepted by the government; there has been no change to the substantive test since 1992 other than the following changes, which have had no demonstrable impact on the provision, in 2011:

  • changing the reference to 'a market' in section 50(1) with 'any market'
  • removing the requirement in subsection 50(6) that a market (for purposes of mergers) must be a 'substantial' market

Procedurally, the Dawson Committee made recommendations relating to merger clearance and authorisation processes which came into effect in 2007. In particular, the power to hear merger authorisation claims at first instance moved from the ACCC to the Tribunal and a formal merger clearance process was introduced, to operate in parallel with the successful informal process.

The Harper Committee (2015) recommended changes to process, but not the substance of the law.

 

Original prohibition (1974)

Section 50

(1) A corporation shall not acquire, directly or indirectly, any shares in the capital, or any assets, of a body corporate where the acquisition is likely to have the effect of substantially lessening competition in a market for goods or services.

(2) This section does not apply to an acquisition of assets of a body corporate in the ordinary course of business.

(3) Where-

(a) a corporation has entered into a contract to acquire shares in the capital, or assets, of a body corporate;

(b)  the contract is subject to a condition that the contract will not come into force unless and until-

(i)  the corporation is granted an authorization to acquire the shares or assets; or

(ii)  sub-section 94 (3) applies in relation to the acquisition of the shares or assets; and

(c)  the corporation applied for the grant of such an authorization, or gave a notice of the proposed acquisition to the Commission under sub-section 94 (1), before the expiration of 7 days after the contract was entered into or the expiration of 14 days after the commencing date, whichever was the later,an acquisition of the shares or assets shall not be regarded for the purposes of this Act as having taken place in pursuance of the contract before-

(d)  in a case where the corporation applied for the grant of an authorization-the application for the authorization is disposed of;

(e)  in a case where the corporation gave a notice to the Commission under sub-section 94 (1)-

(i)  the Commission gives notice to the corporation as mentioned in paragraph 94 (3) (a); or

(ii)  a period of 30 days elapses after the corporation gave the notice to the Commission; or

(f)  the contract ceases to be subject to the condition, whichever first happens.

(4) For the purposes of sub-section (3), an application for an authorization shall be taken to be disposed of-

(a)  in a case to which paragraph (b) of this sub-section does not apply-at the expiration of 14 days after the period in which an application may be made to the Tribunal for a review of the determination by the Commission of the application for the authorization; or

(b)  if an application is made to the Tribunal for a review of the determination by the Commission of the application for the authorization-at the expiration of 14 days after the date of the making by the Tribunal of a determination on the review.

 

Following 1977 amendments

Section 50 Mergers

(1) A corporation shall not acquire, directly or indirectly, any shares in the capital, or any assets, of a body corporate if-

(a) as a result of the acquisition, the corporation would be, or be likely to be, in a position to control or dominate a market for goods or services; or

(b) in a case where the corporation is in a position to control or dominate a market for goods or services-

(i) the body corporate or another body corporate that is related to that body corporate is, or is likely to be, a competitor of the corporation or of a body corporate that is related to the corporation; and

(ii) the acquisition would, or would be likely to, substantially strengthen the power of the corporation to control or dominate that market.

(2) If-

(a) a body corporate that is related to a corporation is, or two or more bodies corporate each of which is related to the one corporation together are, in a position to control or dominate a market for goods or services; or

(b) a corporation, and a body corporate that is, or two or more bodies corporate each of which is, related to that corporation, together are in a position to control or dominate a market for goods or services,

the corporation shall be deemed for the purposes of this section to be in a position to control or dominate that market.

(3) In this section-

(a) a reference to a market for goods or services shall be construed as a reference to a substantial market for goods or services in Australia or in a State; and

(b) a reference to controlling or dominating a market for goods or services shall be construed as a reference to controlling or dominating such a market either as a supplier or as an acquirer of goods or services in that market.

(4) Where-

(a) a corporation has entered into a contract to acquire shares in the capital, or assets, of a body corporate;

(b) the contract is subject to a condition that the provisions of the contract relating to the acquisition will not come into force unless and until the corporation has been granted an authorization to acquire the shares or assets; and

(c) the corporation applied for the grant of such an authorization before the expiration of 14 days after the contract was entered into, the acquisition of the shares or assets shall not be regarded for the purposes of this Act as having taken place in pursuance of the contract before-

(d) the application for the authorization is disposed of; or

(e) the contract ceases to be subject to the condition, whichever first happens.

(5) For the purposes of sub-section (4), an application for an authorization shall be taken to be disposed of-

(a) in a case to which paragraph (b) of this sub-section does not apply-at the expiration of 14 days after the period in which an application may be made to the Tribunal for a review of the determination by the Commission of the application for the authorization; or

(b) if an application is made to the Tribunal for a review of the determination by the Commission of the application for the authorization-at the expiration of 14 days after the date of the making by the Tribunal of a determination on the review.

 

Changes made by 1992 amendments

Trade Practices Legislation Amendment Act 1992 (Section 6)
Prohibition of acquisitions that would result in a substantial lessening of competition

Section 50 of the Principal Act is amended:

(a) by omitting subsections (1) to (3) (inclusive) and substituting the following subsections:

"(1) A corporation must not directly or indirectly:

(a) acquire shares in the capital of a body corporate; or

(b) acquire any assets of a person; if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

"(2) A person must not directly or indirectly:

(a) acquire shares in the capital of a corporation; or
(b) acquire any assets of a corporation;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

"(3) Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must be taken into account:

(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.";

(b) by omitting from paragraph (4)(a) "capital, or assets, of a body corporate" and substituting "capital of a body corporate or assets of a person";

(c) by adding at the end of the following subsection:

"(6) In this section:
'market' means a substantial market for goods or services in Australia, in a State or in a Territory.".

 

Future: Harper Recommendations

In 2014-2015 an independent review of Australia's competition law and policy (the Harper Review) recommended that the current substantive test for mergers be retained. However, it made significant recommendations in relation to process; in particular, it recommended combining the formal clearance process and the authorisation process (retaining the informal process) and giving the power back to the ACCC to make a determination on formal applications at first instance. The Government accepted these recommendations in 2015 and a bill to implement the change is currently before Parliament.

See my overview of the Harper Review final proposals (PDF).

 

Reports

See merger reports page for details of each of the Australian reports discussing section 50 (mergers) and for key international/foreign reports.