The ongoing merger reform debate: where is it likely to land?

Earlier this year, the Federal Government announced sweeping reforms to Australia’s merger rules.

The proposed reforms will introduce a mandatory and suspensory merger control regime in Australia. In an apparent attempt to give the business community clarity and confidence about filing requirements and timelines, the proposed law is highly detailed and prescriptive.

The Australian Competition and Consumer Commission (ACCC) has also been at pains to emphasise that it envisages clearing the vast majority of deals on a proposed expedited timeline. However, too much discretion to extend review timelines is given to the ACCC and the new regime seems likely to capture many more deals, involve generally longer reviews on average for all but the simplest deals, and substantially increase the up-front process complexity of seeking ACCC clearance.

More substantially, there remain real concerns about the extent to which the ACCC’s decision-making under the new process will be insulated from thorough and effective judicial review. Finally, administering the new regime effectively will require a substantial increase in ACCC resources and, perhaps just as importantly, cultural change.

Overview of proposed changes

Treasury released exposure draft materials on 24 July 2024, which are likely to be further revised before implementation. In brief, the exposure drafts propose that:

• On 1 January 2026, a new mandatory and suspensory merger control regime will commence.

• Acquisitions of shares or assets that meet prescribed monetary or market concentration thresholds will require notification.

• The combined effect of all acquisitions within the previous three years by all parties will be aggregated to determine if notification thresholds are met and can be considered as part of a review.

• Significant penalties will apply for failure to comply with the requirements to notify and suspend completion, and for providing false or misleading information.

• Indicative timeframes of 30 working days and 90 working days for ‘Phase I’ and ‘Phase II’ reviews respectively, and fast-track determinations after 15 working days, be introduced. If the ACCC does not make a determination in those time periods, a transaction is cleared.

• The ACCC may 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 substantially outweigh that lessening of competition after a ‘Phase III’ review (50 working days).
  
  
• Review by the Australian Competition Tribunal will be available, based only on the information before the ACCC – 90 calendar days (extendable by 90 calendar days). ‘Fast-track’ review (60 calendar days) may be sought.

Legislative proposals are unclear and incomplete

A number of features of the drafts would undermine the main benefit of a mandatory regime – increased certainty – and the regime as drafted would be problematic in practice.

Monetary thresholds

It is proposed that transactions will require notification if they meet either of the following monetary thresholds (and there is a ‘material connection’ to Australia):

• If the combined Australian turnover of the merger parties (including the acquirer group) is greater than A$200 million, and either the Australian turnover of at least two merger parties is greater than A$40 million or the global transaction value is greater than A$200 million.
  
  
• If the acquirer group’s Australian turnover is greater than A$500 million, and either the Australian turnover of at least two merger parties is greater than A$10 million or the global transaction value is greater than A$50 million.

The circumstances in which a target business or asset has a material connection to Australia would include where it is registered or located in Australia, supplies goods or services to Australian customers, or generates revenue in Australia.

All acquisitions by an acquirer and its corporate group within the previous three years in relation to the same product or service market/s (irrespective of geographic location) would be aggregated for the purposes of assessing whether an acquisition meets the turnover threshold, regardless of whether those acquisitions themselves would have individually required notification.

Market concentration thresholds

It is also proposed that transactions will require notification if they meet either of the following market concentration thresholds:

• A share of 25% of any ‘affected’ or ‘adjacent’ market, where Australian turnover of at least two of the merger parties (including the acquirer group) is greater than A$20 million.
  
  
• A share of 50% of any ‘affected’ or ‘adjacent’ market, with a lower turnover requirement of greater than A$10 million.

Treasury’s proposal appears to be that the bare acquisition of a greater than 25% or 50% market position would require notification and that no increment to an existing market position would be required. That seems to be designed to capture both horizontal overlaps in merger parties’ products or services (i.e. overlaps at the same level of the supply chain), and vertical or conglomerate acquisitions where merger parties have moderate to large positions in ‘adjacent’ markets.

Treasury’s objective is “to ensure the ACCC is informed of mergers most likely to be anti‑competitive, while minimising the overall compliance burden on businesses”. However, our initial view is that the monetary thresholds are likely to over-capture transactions for review and the market concentration thresholds will be challenging to apply in practice, leading to conservative over-reporting from merger parties.

Treasury estimates that between 300-500 acquisitions would be caught each year. 500 reviewable mergers annually is substantially more than previously estimated, but in our view is likely still understated. It would represent a 52% increase in the ten-year average, and the extra administrative burden on the ACCC and parties will likely result in substantial delays. It will be critical for the ACCC to provide greater detail about how the jurisdictional nexus test would apply including the amounts of goods or services supplied to Australian customers or revenues generated in Australia that will indicate a ‘material connection’ to Australia.

While there are a small number of regimes that use market concentration thresholds, they are challenging to apply if they are based on ‘share of supply’ rather than principled and conventional market definition principles. ‘Share of supply’ is a substantially broader and more fluid concept that in the United Kingdom can include the numbers of workers employed or even IP rights held. If market share is to be used, it will be critical to develop a significant bank of ACCC precedent on market definitions in a variety of industries, which will take time.

Treasury has proposed that the ACCC would be able to grant parties a “notification waiver” within 30 business days if there is uncertainty as to whether the notification thresholds are met. However, the notification waiver regime is unwieldy and uncertain – it will take almost as long as a first-phase decision on notification to obtain a waiver and there is no clarity as to how the ACCC will exercise its discretion to grant a waiver.

Further, proposed ‘high-risk’ acquisitions would require notification based on separate, sector-specific notification requirements. This raises the prospect of multiple layers of thresholds for parties to consider and further uncertainty.

Control test

Only acquisitions of ‘control’ will require notification. There will be a rebuttable presumption that acquisitions of more than 20% of the voting power of a target will confer control, but control may be inferred from “any practice or pattern of behaviour affecting the policies” of a target. This is concerningly broad and is inconsistent with comparable control tests in overseas jurisdictions and the Corporations Act 2001 (Cth), which refers to practical control over financial or operating policies and not broader ‘patterns’ or ‘behaviours’.

Too much procedural discretion to the ACCC

Statutory timelines provide some procedural certainty and discipline. However, significant uncertainties remain:

• The ACCC will have a ‘reasonable period’ to confirm that a notification, with stringent information requirements, is complete before starting a review. That is out-of-step with other jurisdictions’ tight timeframes to determine application validity. While the ACCC reasonably needs to be satisfied that an application is in an acceptable form before commencing a review, a broad discretion as to when a review is able to commence will simply allow the ACCC to extend pre-notification consultation periods to alleviate pressure created by statutory review timelines. The ACCC will consult on the notification form and procedure further in 2025. Until then, we cannot gauge how difficult, involved or lengthy pre-notification discussions with the ACCC as to complete notifications will be. Overseas experience suggests multi-month processes with multiple drafts.

• The ACCC has significant discretion to control the timing of reviews. There are multiple options for the ACCC to extend reviews, including by issuing requests for information, if ‘material’ (rather than substantial or competitively significant) changes in facts occur, or if the ACCC delays providing certain analytical material to parties. The flexibility in the process is heavily and disproportionately weighted in favour of the ACCC.
  
  
• The ACCC’s current practice is to deal with between 80-90% of transactions in a confidential pre-assessment period (of around 3-6 weeks). It is likely that the significant majority of notifications under the new regime will be similarly unproblematic and could be ‘fast-tracked’, but there is no clarity as to how the ACCC will exercise its discretion to make a decision within the 15-working day fast-track determination process. Any transaction that does not result in a material market share increment should be ‘fast-tracked’ and subject to much more limited information requirements (which is the position in the European Union). That would focus and shorten pre-notification discussions.

Review rights

On an application for review, the Australian Competition Tribunal can only consider information before the ACCC and new information not in existence during the ACCC’s review. This limitation substantially constrains the scope of appeal rights under the new regime, particularly in circumstances where the parties may not have full access to all information that is before the ACCC during the review. Parties should be permitted to file new evidence if its importance only becomes apparent on review of the ACCC’s determination and there should be effective ‘access to file’ provisions to permit parties to comprehensively review all information before the ACCC (as there is in the European Union).

Without explanation, the threshold for obtaining a clearance based on net public benefits has been increased. ‘Phase III’ approval can only be obtained if a net public benefit substantially outweighs any public detriment. The current test requires public benefits to simply outweigh public detriments. This change would appear to jettison a broad range of merger and non-merger authorisation precedent, increasing uncertainty and permitting the ACCC yet more discretion.

Changes in substantive assessment

The current ‘substantial lessening of competition’ test is proposed to be expanded via the addition of the words ‘creates, strengthens, or entrenches substantial market power’. That expansion of a long-established and well-understood definition is also intended to apply to other provisions of the Competition and Consumer Act 2010 that utilise the same test, including the prohibitions on misuse of market power and anticompetitive agreements. It is unclear how that change will apply in practice. This proposed change would call into question whether businesses in leading market positions can engage in competitive conduct (including conduct in which their smaller rivals engage) that may enhance their market position, even to a degree that is not necessarily substantial or meaningful to the competitive process. This needs further thought before adoption and should be fully consulted on.

Transitional arrangements

The new regime commences on 1 January 2026. Provision is made for parties to voluntarily notify under the new rules from 1 December 2025. No provision appears to have been made for transactions notified under the current informal regime where the ACCC has not made a decision by 31 December 2025. Requiring parties to re-apply or engage in parallel processes would be impractical as different tests would apply, and this should be urgently clarified.

What next?

Due to the mandatory nature of the regime, the breadth of the control test, and the substantial penalties for getting it wrong (including multi-million-dollar penalties), it is inevitable that parties will take cautious positions. As a result, more acquisitions will be subject to notification, suspension and ACCC conditions even if they raise no or limited competition concerns.

In the interim, it will be important for the business community to continue to advocate for sensibly set notification thresholds, clearer definitions of what types of transactions are required to be notified, transparency as to timing, and effective and practical due process and review.