Australian merger reform: proposed legislation provides much-needed clarity but regulatory over-capture remains likely

On 10 October 2024, the Australian Treasurer tabled the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (Bill) to reform Australia’s merger laws by introducing a mandatory and suspensory merger control regime from 1 January 2026 (with a transitional regime available from mid-2025).

The Bill represents a substantial improvement on previous proposals (see our previous analyses here and here), but it remains the case that the new regime is likely to capture many more deals, involve longer reviews on average, and substantially increase the upfront process complexity of seeking Australian Competition and Consumer Commission (ACCC) clearance. The latest changes include scaling back some of the legal complexity of the proposed regime, simplifying aspects of the proposed notification thresholds and addressing some of the discrete issues identified by the business community in the consultation process.

Several aspects of the regime require further clarification and consultation, including the upfront information requirements, forms, and fees. The ACCC will consult on its draft analytical and process guidelines, and transitional arrangements, in early 2025.

1. Clarity on captured acquisitions

The Bill has simplified and clarified the definitions of the acquisitions of shares or assets to which the merger rules will apply. Acquisitions of shares or assets are required to be notified if certain thresholds are met (see section 3 below). The Bill also clarifies that, subject to the thresholds, acquisitions of units in unit trusts or interests in managed investment schemes, acquisitions of any kind of property (including land and patents), and certain legal or equitable rights that are not property are also notifiable. The Bill does not address previously proposed exemptions relating to temporary holdings by financial institutions and authorised insurance companies, or insolvencies and inheritances, but has retained a carve-out for internal restructures and most transactions made in the ordinary course of business.

2. Simpler control test

Only acquisitions of shares that are capable of affecting competition by conferring ‘control’ are captured.

Under previous proposals, control could be inferred from ‘any practice or pattern of behaviour affecting the policies’ of a target and a rebuttable presumption of control would apply where an acquirer’s post-acquisition voting power was 20% or more. Sensibly, the definition of ‘control’ has now been modified to align with a definition in the Corporations Act 2001, with which most stakeholders will be familiar, being the capacity to determine the outcome of an entity’s financial and operational policies.

Acquisitions of shares in publicly listed companies or unlisted but widely held companies that do not result in the acquirer holding more than 20% of the voting power in those companies are exempted from mandatory notification through a ‘safe harbour’ provision, which is again sensibly aligned with another definition in the Corporations Act 2001.

3. Simplified notification thresholds (but broad Ministerial discretion)

One of the most significant changes is the simplification of the notification thresholds, with the Government abandoning the previously proposed market share-based concentration thresholds. Under the Bill, an acquisition must be notified if it meets any of the following thresholds:

Not proceeding with a share-based threshold reduces uncertainty and complexity, but the low levels of these proposed notification thresholds will inevitably significantly over-capture transactions. Further, in addition to the above thresholds, the Minister appears likely to use designation powers available in the Bill to:

• require notification of all acquisitions in the supermarket sector (and potentially certain acquisitions in the fuel, liquor and oncology radiology sectors);
  

• require notification of all purchases of an interest above 20% in an unlisted or private company where one of the companies involved in the deal has a turnover above $200 million; and
  

• exempt land acquisitions relating to residential property development and certain commercial property acquisitions from notification.

The proposal relating to unlisted or private company acquisitions based on only one party’s Australian turnover would capture an enormous number of transactions and be highly burdensome for a wide range of stakeholders involved in Australian and international M&A. It would also strain the limited ACCC resources allocated to managing the new regime. In effect, for the large part of the Australian economy represented by businesses with turnover above A$200 million, the designation would create a mandatory obligation to notify substantially all M&A activity to the ACCC regardless of the size or materiality of the acquisition, or its competitive effects.

The Government has said that designations like this are intended ‘to adjust and calibrate the thresholds to respond to evidence‑based concerns from the ACCC about high‑risk mergers’.[1] But there is no sense in which such a broad range of Australian private M&A could credibly be described as ‘high-risk’, and this designation would self-evidently not make the regime ‘more targeted’ as the Government claims.[2] In our view, the Government should urgently revisit this proposal.

4. Notification waiver system remains unclear

A notification waiver system is proposed, but it remains unclear and will likely be unwieldy. The Bill allows merger parties to request ACCC exemption from the notification requirements while remaining subject to the existing prohibition on anti-competitive mergers. However, the timing and information requirements remain unclear, and there is no clarity as to how the ACCC will exercise its discretion to grant a waiver. In practice, unless this process is administered pragmatically, it will be more attractive to simply file marginal deals with the ACCC rather than waste time in a preliminary process that could still result in a filing being required.

5. Sensible timing and process changes

As expected, timeframes of 30 working days and 90 working days for ‘Phase I’ and ‘Phase II’ reviews respectively, and 15 working days for ‘fast-track’ Phase I determinations, will be introduced. Upon a further and subsequent application by the merger parties, the ACCC may also permit an acquisition that would be likely to substantially lessen competition if it would be likely to result in a net public benefit that would outweigh likely public detriments (including any lessening of competition) after what could be described as a ‘Phase III’ review (lasting a further 50 working days).

Some process improvements have been made to limit the ACCC’s ability to ‘stop the clock’ on the statutory timelines. Subject to some exceptions, the ACCC’s ability to control the statutory clock is more confined under the Bill than under previous proposals:

• The ACCC will be permitted to prevent the statutory clock from starting if a notification is materially incomplete or misleading. Under previous proposals, the ACCC would have been permitted a ‘reasonable period’ to confirm that a notification was complete before starting a review.
  

• The ACCC can suspend the statutory clock until incomplete or misleading notifications are updated or its requests for information are complied with, whereas under previous proposals the ACCC could suspend the statutory clock without the consent of the merger parties if it had not provided certain analytical material to them, disproportionately weighting review timing in favour of the ACCC. There are some other limited circumstances in which the ACCC can suspend the statutory clock, but it can only reset the statutory clock if there are material changes of fact.

Despite the ACCC’s expectation that ‘about 80% of mergers will be cleared within 15-20 business days’,[3] we remain concerned about flexibility in the statutory timeframes and the ACCC’s ability to cope with the substantially increased volume of reviews compared to the current regime. In practice, the ACCC will retain a degree of discretion over review timing and the actual duration of reviews will depend on the ACCC’s approach in practice and its process guidance, on which it will consult in 2025. In particular, the need for enhanced ‘pre-notification’ discussions compared to the current regime by itself could be expected to lead to generally longer ACCC engagements on average (for all but the simplest deals), and substantially increase the upfront process complexity of seeking ACCC clearance. When confronted with a complex review or a heavy workload from reviews generally, the temptation will be strong for the ACCC to drag out pre-notification discussions to delay the start of the statutory timeframes or find faults in information provided to it.

6. More confined changes to substantive legal test

The Government has stepped back from the ACCC’s and Treasury’s proposal to expand the definition of ‘substantial lessening of competition’ (SLC) throughout the Competition & Consumer Act 2010 to include ‘creating, strengthening or entrenching a substantial degree of power in a market’ across Australia’s competition law. Instead, this change will only apply to the assessment of mergers – and not, for instance, in misuse of market power actions. While this change may prompt a sharper focus on incremental acquisitions by powerful businesses, it is unlikely to substantially change the application of the SLC test in practice.

Previous drafts sought to address the cumulative effects of serial acquisitions, but the ACCC’s powers to take those effects into account have been narrowed. The Bill will allow the ACCC to analyse the cumulative effect of serial acquisitions undertaken by the merger parties in relation to ‘goods or services that are the same, substitutable for, or otherwise competitive with, each other’, irrespective of geographical area. The practical consequence of this change is unclear, but the legal test is now sensibly based on accepted market definition concepts, rather than the looser concept of acquisitions in the same ‘industry’ used in previous proposals.

The Bill also reverts to the approach to assessing public benefits under the current merger authorisation regime of assessing (as part of a separate and subsequent review phase) whether the public benefit outweighs the public detriment, rather than substantially outweighs the detriment (as initially proposed by Treasury).

7. Enhanced transparency and greater access for third parties

All notified acquisitions will be published on an ACCC public register with the exception of a small range of acquisitions which will not be made public for a temporary period (such as surprise hostile takeovers). Surprise hostile takeovers will be able to be confidentially reviewed and listed on the public register after 17 business days. This will allow the ACCC to make a confidential decision if the transaction is not likely to raise concerns.

In contrast to the current regime, under which 93% of all reviews are completed confidentially and are not placed on a public register, the Bill will substantially restrict the ability to seek a confidential review only to a confined number of transactions. This will increase transparency of acquisitions under review and enhance the ability of third parties to comment. Reasons for final determinations and notices of competition concerns in ‘Phase II’ review will also be made public and will be available for third-party comment.

8. Strengthened review rights

Under previous proposals, on an application for review, the Australian Competition Tribunal (Tribunal) would have been permitted to consider only information before the ACCC and new information not in existence at the time of the ACCC’s review. That has now been expanded to permit merger parties to provide the Tribunal with new information or documents relevant to the grounds on which the ACCC made its determination where they were not given a reasonable opportunity to make submissions on those grounds to the ACCC. Unlike under previous proposals, the Tribunal may permit merger parties to seek information from, and cross-examine, technical experts.

A further welcome change is a power for the Tribunal not to allow a person to apply for a review of an ACCC determination in a range of circumstances, including where they do not have reasonable prospects of success.

These safeguards are critical in addressing significant procedural fairness concerns raised during recent merger authorisation applications considered by the Tribunal. A fast-track review mechanism previously proposed has been abandoned.

9. Better transitional arrangements

An extended transitional period is proposed, which is helpful for merger parties, practitioners and the ACCC. The transition to the new regime will occur in two stages. From 1 July 2025, merger parties will be able to voluntarily notify the ACCC of acquisitions under the new regime and can no longer seek merger authorisation. From 1 January 2026, the new regime will become mandatory.

In practice, it is likely that many merger parties seeking voluntary clearance in the second half of 2025 will notify under the new regime to avoid being required to re-notify if clearance is not granted before 1 January 2026. However, there is no specific provision for a range of foreseeable transition scenarios.

The ACCC will consult on transitional arrangements in early 2025.

^{[1] See The Hon Dr Andrew Leigh MP and The Hon Jim Chalmers MP (Treasurer), Historic reforms for a more competitive economy enter Parliament, 10 October 2024.}

^{[2] Ibid.}

^{[3] See ACCC, ACCC welcomes introduction of merger reform Bill, prepares for implementation, 10 October 2024.}