Trade Practices Act 1974 (Cth)
Section 50
Prohibition of acquisitions that would result in a substantial lessening of competition
The provision
(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.
Note:The corporation will not be prevented from making the acquisition if the corporation is granted a clearance or an authorisation for the acquisition under Division 3 of Part VII: see subsections 95AC(2) and 95AT(2).
(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.
Note:The person will not be prevented from making the acquisition if the person is granted a clearance or an authorisation for the acquisition under Division 3 of Part VII: see subsections 95AC(2) and 95AT(2).
(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
(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.
(4) Where:
(a) a person has entered into a contract to acquire shares in the capital of a body corporate or assets of a person;
(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 person has been granted a clearance or an authorization to acquire the shares or assets; and
(c) the person applied for the grant of such a clearance or 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 clearance or authorization is disposed of; or
(e) the contract ceases to be subject to the condition;
whichever first happens.
(5) For the purposes of subsection (4), an
(a) in a case to which paragraph (b) of this subsection 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 clearance; or
(b) if an application is made to the Tribunal for a review of the determination by the Commission of the application for the clearance—at the expiration of 14 days after the date of the making by the Tribunal of a determination on the review.
(5A) For the purposes of subsection (4), an application for an authorisation is taken to be disposed of 14 days after the
(6) In this section:
market means a substantial market for goods or services in:
(a) Australia; or
(b) a State; or
(c) a Territory; or
(d) a region of Australia.
Legislative history
Substituted by Trade Practices Amendment Act 1977 (Act 81 of 1977)
Amended by Trade Practices (Transfer of Market Dominance) Amendment Act 1986 (Act 8 of 1986)
Amended by Trade Practices Revision Act 1986 (Act 17 of 1986)
Amended by Statute Law (Miscellaneous Provisions) Act (No 2) 1986 (Act 168 of 1986)
Amended byTrade Practices Amendment Act 1991 (Act 49 of 1991)
Amended by Trade Practices Legislation Amendment Act 1992 (Act 222 of 1992)
Amended by Trade Practices Amendment Act (No 1) 2001 (Act 63 of 2001)
Amended by Trade Practices Legislation Amendment (No 1) Act 2006 (Act 131 of 2006)
Commentary
Overview
In Australia mergers are prohibited if it can be demonstrated that they will have the effect or likely effect of substantially lessening competition in a market (section 50 TPA). It is possible to obtain clearance (formal or informal) or authorisation for proposed mergers, but there is no mandatory notification process. Clearance will be granted only if the ACCC does not believe the merger will SLC (s 95AN). Authorisation, on the other hand, may be granted by the Australian Competition Tribunal even where the merger will SLC if it can be demonstrated that the merger would lead to such a benefit to the public that it should be allowed to occur (s 95AZH).
Section 50A deals with mergers occurring outside Australia.
History
The original Trade Practices Act 1974 applied a substantial lessening of competition test - specifically, it prohibited the acquisition of assets and shares, which resulted in a substantial lessening of competition in a market for goods or services.
In 1977 the substantial lessening of competition test was replaced with a market dominance test by the Trade Practices Legislation Amendment Act 1977. As a result, acquisitions were only prohibited where they resulted in or substantially strengthened a ‘position to control or dominate a market’. This was (generally) considered a higher threshold so that less mergers were captured.
In 1989, the House of Representative Standing Committee on Legal and Constitutional Affairs (the Griffiths Committee) recommended retaining the dominance test in its report ‘Mergers, Takeovers and Monopolies: Profiting From Competition?’.
Shortly thereafter, however, the Senate Committee on Legal and Constitutional Affairs (the Cooney Committee). It recommended that the test in s 50 be lowered to prohibit acquisitions or mergers that substantially lessen competition in a market. This change was introduced by the Trade Practices Legislation Amendment Act 1992 which also intorduced a provision for the substantial lessening of competition test in relation to trans-Tasman mergers and introduced a non-exhaustive list of matters to be considered by the Courts when determining if a merger substantially lessened competition (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. This was accepted by the government and no legislative change has been made to the substance of the prohibition.
The Dawson Committee did, however, make recommendations relating to merger clearance and authorisation processes that were introduced by the Trade Practices Legislation Amendment Act (No 1) 2006. For more details on the Committee's discussion of mergers and the submissions made to the Committee relating to mergers see: Julie Clarke, 'The Dawson Report and Merger Regulation' (2003) 8(2) Deakin Law Review 245
There is a current push for the introduction of provisions to deal with creeping acquisitions.
Cases relating to mergers
Australian Gas Light Company v ACCC (No 3) [2003] FCA 1525
Articles relating to s 50
Australia
Julie Clarke, 'The Dawson Report and Merger Regulation' (2003) 8(2) Deakin Law Review 245
Reports relating to s 50
Dawson Committee Report - Chapter on Mergers (2003)
Cooney Committey Report (1991)
Mergers, Monopolies & Acquisitions
Griffiths Committee Report (1989)
Mergers, Takeovers and Monopolies: Profiting from Competition?
Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs
Guidelines
Click here for an overview of the merger guidelines in Australia.
ACCC Merger Guidelines (November 2008)
Final Guidelines released 21 November 2008 and replace the 1999 Guidelines
ACCC Formal Merger Process Guidelines (June 2008)
ACCC Merger Review Process Guidelines (July 2006)
