Reports
Cooney Report 1991
Mergers, Monopolies and Acquisitions
Senate Standing Committee on Legal and Constitutional Affairs
Adequacy of the existing legislative controls in the Trade Practices Act over mergers and acquisitions
Length: 150 pages
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Terms of reference
Committee was to inquire into
(a) the adequacy of the existing legislative controls in the Trade Practices Act 1974 over mergers and acquisitions, with particular reference to:
(i) the appropriate test that should apply; and
(ii) whether compulsory, pre-merger notification should be introduced and, if so, in what circumstances.(b) whether, in situations of existing market dominance, the Trade Practices Commission should be able to examine conduct in addition to that already covered by s 46, and, if so, what action (including divestiture) might be taken as a result of such examination.
(c) the extension of section 52A (unconscionable conduct) to all commercial dealings;
(d) any other matters (including review mechanisms) considered by the committee to be relevant to any or all of these matters.'
Key Recommendations
Mergers - Misuse of Market Power - Unconscionable Conduct - Penalties
Recommendation 1
Section 50 (mergers) should be amended to prohibit mergers which substantially lessen competition in a substantial market for goods and services.
[implemented by the Trade Practices Legislation Amendment Act 1992 (effective 21 January 1993)]
[Senator Kemp wrote a dissenting report on this issue, recommending that the dominance test be retained.]
Recommendation 2
Guidelines should be incorporated into the TPA to make clear the ambit of the new merger test.
Recommendation 3
Guidlines should contain certain criteria
[note, these are now reflected in s 50(3) TPA. See Trade Practices Legislation Amendment Act 1992]
Recommendation 4Authorisation should be possible for mergers that are to the benefit of the public
Merger notification
Recommendation 5
Pre-merger notification should be compulsory 'where mergers or acquisitions of a substantial nature are proposed' - notice requirements shoudl be limited so as not to case an 'undue burden' on those required to comply
[not implemented]
Recommendation 6
Proposals for what a pre-merger notificatin must contain should be drawn up by the AG's department and released for public comment
Mandatory authorisation and sensitive industries
Recommendation 7
Section 50 shoudl continue to be aimed at the protection of competition generally. Non-economic structural or ownership issues should be dealt with by specific legislation.
Pre-notification authorisation and the Trade Practices Tribunal
Recommendation 8
Parties to merge 'should have the option of either approaching the [Commission] for authorisation, with a right of appeal to the [Tribunal], or or approaching the [Tribunal] directly.'
[not implemented - but see also Dawson Report and Trade Practices Legislation Amendment Act (No 1) 2006]
Recommendation 9
Strict time limits should be imposed on the Commission and Tribunal for the determination of authorisations and appeals (45 days for authorisation determination by Commission; Appeal to Tribunal within 45 days and direct application to Tribunal within 60 days)
Recommendation 10
Adequate funding should be provided to the Commission and Tribunal to ensure they can meet these time limits.
[in relation to mergers see also recommendation 18 re: injunctions]
Recommendation 11
Section 46 should be amended by adding a further section providing that although the Commission 'has the overall onus of proving a breach of that section, when it has brought forward evidence which makes it as likely as not that one has occurred then one will be taken to have occurred unless the corporation in question shows otherwise'.
[Senator Kemp wrote a dissenting report on this issue, recommending that s 46 be retained in existing form.]
Recommendation 12
Section 46 should be amended to 'provide that where persons engage in conduct for the purpse of eliminating form or harming a class of persons in a market they shall be taken to be doing so in respect of a specific member of it.'
[See Trade Practices Legislation Amendment Act 1992]
Recommendation 13
'Serious and persistent misuse of market power' should be dealt with by increased monetary penalties (and not by divestiture)
[Senators Spindler and Schacth wrote a dissenting report on this issue, claiming that there was a need for a 'remedy of divestiture, in the case of serious and persistent misuse of market power' (p 135). They also recommended that the 'courts should have the power to make wide discretionary orders in cases where breach of the misuse of market power provision has been shown' (p 139)]
Recommendation 14
Section 52A of the TPA should be repealed and legislation introduced giving the Commission the ability to bring proceedings 'on behalf of a person who has a right of action at common law arising from the unconscionable conduct of another'.
Recommendation 15
Appropriate funds should be given to the Commission to enable them to bring such actions.
Recommendation 16
Pecuniary penalties for contraventions of Part IV should be substantially increased.
Recommendation 17
Pecuniary penalties for contraventions of Part V should be substantially increased.
Private right to injunctive relief
Recommendation 18
The private right to injunctive relief in relation to mergers should not be re-introduced.
Enforceability of undertakings
Recommendation 19
The TPA should provide remedies for breach of undertakings made with the Commission.
Other remedies
Recommendation 20
Consideration should be given by the AG to introducing a 'range of appropriate remedies for contraventions of Part IV'/
Implementation of recommendations
Recommendation 21
Details of proposed amendments should be 'developed by the [AG's] Department following consultation with all relevant parties and released by way of Exposure Draft Bill for public comment [to occur] over a reasonable time of not less than three months.'
Key statements
On the issue of merger analysis
Noted (at pp 18-19) Prof Michael Porter's analysis of what is necessary for international competitiveness, in particular, his questioning of common view that domestic firms must be large to gain sufficient economies of scale to compete internationally. Quoting from his book, 'The Competitive Advantage of Nations': 'A strong antitrust policy - especially for horizontal mergers, alliances and collusive behaviour - is fundamental to innovation. While it is fashionable today to call for mergers and alliances in the name of globalization and the creation of national champions, these often undermine the creation of competitive advantage. Real national competitiveness requires governments to disallow mergers, acquisitions and alliances that involve industry leaders ... Companies should, however, be allowed to acquire small companies in related industries when the move promotes the transfer of skills that could ultimately create competitive advantage.' (Porter, Michael E, The Competitive Advantage of Nations (1990))
The Committee concluded that "the empirical evidence on the effects of mergers is conflicting and not conclusive. The economic evidence that mergers actually result in productive efficiencies remains equivocal. Nor is it clear that efficiencies, where they have occurred, have improved the international competitiveness of Australian firms, or resulted in demonstrable benefits to consumers." (p 20 and 48) They continued at p 21 and 48-49: "The Committee notes the growing body of economic theory which suggests that international competitiveness is achieved not through mergers but through the encouragement of competition ..."
On the issue of compulsory notification
Benefits
[para 4.12] 'A compulsory pre-merger notification scheme would give the TPAC adequate time to deal with those mergers against which it should proceed, thereby enabling optimal use of its resources; it would ensure that 'midnight mergers' do not occur; would reduce the likelihood of costly litigation; and it woud support the principle that it is preferable to prevent the completion of a merger rather than attempt to later unwind it through the use of forced divestiture.' [fn: Attorney-General's Department submission (9.8.91), p 16]
[para 4.14] 'Professor Clarke considers it 'axiomatic' that the TPC should be informed of any proposed merger which may have the effect of substantially lessening competition in a significant market, and should be given time to consider its response. He contends that 'to leave the Commission in the position of having to discover such mergers for itself pays scant regard to its role as guardian of the public interest in this area.' [fn Evidence p 66] These views are shared by Professor Baxt.' [fn Evidence p 15]
Detriments
[para 4.21] 'The Victorian Employers' Chamber of Commerce and Industry [fn Submission p 3] summarises the key arguments in opposition to compulsory pre-merger notification as:
* increased resource demands placed on the TPC
* increased delays and compliance costs for business
* interference and adverse impact on the merger process itself
* depresed business activity as a consequence of increased regulation and the TPC is, in any event, already aware of imminent significant mergers.'
Cost to administration and compliance cost for business also discussed.
Membership
Senator Barney Cooney (Chairman)
Senator Amanda Vanstone (Deputy Chair)
Senator Giles
Senator Kemp
Senator O'Chee
Senator Schacht
Senator Spindler
Senator Walsh
Submissions and meetings
62 written submissions
Witnesses appearing at public hearings included:
Individual
Prof Robert Baxt
Mr Peter Bobeff
Senator Ron Boswell
Prof Philip Clarke
Mr W R McComas
Dr Warren Pengilley
Organisations
Business Council of Australia
(Mr Clive Randolph Speed)
Cth A-G's Department
(Mr Stephen Skehill, Mr James Dick, Mr Anthony Wing)
Confederation of Australian Industry
(Mr Robert Gardini, Mr John Martin)
Department of Treasury
(Mr Richard Murray, Mr Rodney Shogren, Mr David Imber)
Franchiser's Association of Australia
(Mr Alan Atchison, Mr Michael Ahrens)
Law Council of Australia
(Mr Roger Featherston, Mr Richard St John, Mr Anthony Kelly)
Trade Practices Commission
(Prof Alan Fels, Prof Brian Leslie Johns, Mr Alan Asher, Mr Hank Spier, Mr John O'Neil, Mr Timonthy Holland, Mr Howard Hollow)