Creeping Acquisitions - The Way Forward (2008-2009)
First Discussion Paper
Released 1 September 2008: closed for comment on 10 October 2008 (no report released)
Second Discussion Paper (Creeping Acquisitions: The Way Forward)
Released 6 May 2009; closed for comment on 10 July 2009 (no report released)
On 1 September 2008 the first discussion paper proposing to introduce laws banning 'creeping acquisitions' was released for comment. Nothing of substance was heard from the government on this issue until 6 May 2009 when it released a second discussion paper.
The second discussion paper was released on 6 May 2009 and expresses clear preference for a market power based test rather than an 'aggregation' model test.
No report was released on either discussion paper (although the second discussion paper made some references to feedback on the first). A bill was introduced by the Government on 27 May 2010 (the Competition and Consumer Legislation Amendment Bill 2010) which purported to deal with creeping acquisitions. It included the following key amendments:
(1) replacing the words 'a market' in section 50(1) with 'any market'
(2) Removing the requirement that a market, for purposes of the merger provision, be a 'substantial' market, by removing the word substantial from subsection 50(6)
The bill lapsed when the federal election was called on 19 July 2010. However, it was subsequently revived and passed in the form of the Competition and Consumer Legislation Amendment Act 2011.
The first discussion paper the government put forward two possible models; the ‘aggregation model’ (whereby the ACCC would be required to look at a series of transactions over time to determine whether, in combination, they would substantially lessen competition) and the ’substantial market power model’ (SMP) which would prohibit mergers by firms having substantial market power which would have any effect on competition.
The second model favours the SMP approach, but in modified form. Instead of banning mergers by parties with SMP where the merger would have an effect on competition, it proposes to ban them where they would increases in market power. The distinction is not immediately obvious.
The suggested format of the prohibition is set out in para 12 as follows:
(1) A corporation that has a substantial degree of power in a market must not directly or indirectly:
(a) acquire share 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 enhancing that corporation’s substantial market power in that market.’
Another approach suggested was to allow the Minister to unilaterally ‘declare’ a corporation or product/service sector where he/she has concerns about potential harm from creeping acquisitions and to give the Minister power to require notification of certain acquisitions by declared corporations etc. The test set out above would then apply to those notified transaction.
The government seeks views on:
1. The potential unintended consequences of a creeping acquisitions law that targets enhancements to a corporation’s substantial market power …
2. The potential unintended consequences of a creeping acquisitions law that targets ‘declared’ corporations or product/service markets.
3. how many potential unintended consequences may be addressed or minimised, particularly in the design of the law
4. the costs and benefits associated with the option of including a mandatory notification requirement, using thresholds unique to each particular declaration, determined by the Minister.
Two questions are asked (each of which contain multiple questions … who wrote this thing?):
(1) What are your views on the two regulatory options mentioned above? What potential unintended consequences need to be considered? How might these unintended consequences be addressed?
(2) Are there alternative regulatory or non-regulatory options …? How might these work in practice? what are the costs and benefits? The models suggested are seriously flawed; both are simply adaptations of the SMP model.
Submissions have closed in relation to the first discussion paper but are available for viewing
The second discussion paper was released on 6 May 2009 and expresses clear preference for a market power based test rather than an 'aggregation' model test. Submissions for the second discussion paper closed on 12 June 2010
What are your views on the two regulatory options mentioned above? What potential unintended consequences need to be considered? How might these unintended consequences be addressed?
Are there alternative regulatory or non-regulatory options that might be appropriate responses to creeping acquisitions concerns? How might these work in practice? What are the costs and benefits?
View submissions on the second discussion paper
No legislative changes based on the proposals in the discussion paper were made. However, the Government introduced the Competition and Consumer Legislation Amendment Bill 2010 in May 2010, which would have made some more modest amendments to the Act. Although a Senate Inquiry recommended that the bill be passed, the bill lapsed in July 2010 following the calling of a federal election. It it was subsequently revived and passed in the form of the Competition and Consumer Legislation Amendment Act 2011.
An independent members bill, the Trade Practices Amendment (Material Lessening of Competition - Richmond Amendment) Bill 2009, proposed changes directed toward creeping acquisitions, but the bill was heavily criticised and a Senate Committee recommended against passing the bill.
Alex Sundakov, 'The Economics of "Creeping Acquisitions"' (2010) 18 Trade Practices Law Journal 220-223
Frank Zumbo, 'The Dangers of Anti-competitive Mergers and Creeping Acquisitions: The Case for the Richmond Amendment' (2010) 18 Trade Practices Law Journal 106-113 (NB: Zumbo drafted the Richmond Amendment)
Frank Zumbo, 'Don't bank on bank competition: The case for effective laws against anti-competitive mergers and creeping acquisitions'' (2010) 18 Trade Practices Law Journal 26-33 (NB: Zumbo drafted the Richmond Amendment)
Freehills, 'Creeping Acquisitions: a non-solution in search of a non-problem?' (Freehills, 4 June 2010 - written by Karen Gibbons, Executive Counsel, Melbourne, Sarah Chubb, Solicitor and Jennifer Sing Key, Solicitor, Sydney)
Julie Clarke, 'No need for "substantial" markets for mergers?' (Australian Competition Law and Policy Blog, 22 January 2010)
Discussing the release of the Competition and Consumer Legislation Amendment Bill 2010
David Crowe, 'ACCC gets tough on creeping giants' (Australian Financial Review, 22 January 2010, page 5)