The competition regulator says Australia’s merger and acquisition laws are out of step with global standards and without reform will harm competition, innovation, and productivity.
Competition tsar Rod Sims laid out his vision for more effective merger laws on Friday, saying he wanted to see a wider debate on the best approach.
Mr Sims has for some time now agitated for an overhaul of M&A law to deal with consolidating markets and aggressive acquisitions by digital platform giants.
Experts have welcomed the proposal as a way to align Australia with international norms but say any implementation is likely years away.
The Australian Competition and Consumer Commission (ACCC) proposal has been designed to curb what Mr Sims said is a worrying trend of anti-competitive takeovers that benefit large corporations but harm consumers and small businesses.
It would also help the regulator tackle large digital platforms through a dedicated regime with tougher approval requirements and consideration of their potential power entrenchment as well as competition harm.
In Australia, the ACCC doesn’t “approve” mergers and acquisitions as is required in other advanced economies. Instead, the regulator relies on an enforcement model where it needs to prove in Federal Court that the proposed deal would substantially lessen competition in the future to stop it going ahead.
Mr Sims said the approach makes clearance “the default”, putting Australia “out of step” with merger regimes internationally where regulators must be notified as part of assessment and obtain clearance to proceed.
The ACCC now wants a single formal merger review process to consolidate the current multiple methods of seeking clearance. The new approach would also require mandatory notifications for transactions over certain thresholds, which Mr Sims did not reveal, and “standstill” provisions to stop companies closing a transaction before a review is completed.
“The reason we are proposing change is not because we are worried about losing court cases; it is because we have serious concerns about the level of competition in our economy and our ability under the current law to prevent further consolidation via anti-competitive acquisitions,” Mr Sims told the Law Council of Australia’s Competition and Consumer Workshop on Friday
“Unless something is done, these concerns will only intensify in the years ahead.”
Of the acquisitions considered by the ACCC, only between one and two per cent are considered contentious and may ultimately be opposed. But Mr Sims said even a small amount of anti-competitive acquisitions can have significant impacts for consumers and other businesses.
The current approach has also seen the ACCC not oppose some acquisitions despite the regulator being “uncomfortable” with them, and an increase in companies completing transactions before the ACCC completes a review, he said.
Mr Sims also identified a “clear gap” in Australian merger law in relation to digital giants as one of the four areas in need of particular attention in any reforms.
Digital platforms like Facebook, Amazon, Apple and Google’s acquisitions may not pose a large direct threat to lessening competition but the impact can still be “very substantial and long-lasting” because they can entrench market power, according to the ACCC Chair.
“…it is beyond debate that acquisitions have taken place that have contributed significantly to the substantial market power of the digital platforms. With the benefit of hindsight, they should not have been allowed to proceed,” he said.
The regulator wants a new “tailored test” for acquisitions by digital platforms which are deemed to have significant market power, significant Australian operations, or are a “gateway” firm able to control how consumers interact with other businesses.
The nature of the test is still being determined by the ACCC, but the regulator is leaning towards lowering the threshold for the probability of competitive harm compared to mergers and acquisitions in the wider economy.
The greater scrutiny may also be accompanied by new regulator-developed rules for large digital platform companies to “govern their conduct” in specific sectors, Mr Sims announced. The ACCC will now consider whether these rules are necessary and would likely develop them through its ongoing Digital Platform Services Inquiry, due in September next year.
Mr Sims and the ACCC are also proposing changes to the merger test to account for structural conditions of competition, firms with substantial market power, and to clarify definitions.
While the ACCC can contribute to the formulation of any changes, merger and acquisition law reform rests with Treasury and the federal government.
Writing on the proposal, MinterEllison lawyers Alice Waterston and Miranda Noble said merger parties, dealmakers, and their advisers will need to stay across the reform debate and potential consultations for what would be sweeping reforms to the Australian merger regime.
“These proposals will kickstart a heated debate around the future of Australia’s merger regime. While implementation of any changes is some way off, the reforms would (if implemented) see a fundamental and significant change to the merger and acquisition landscape in Australia.”
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