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Merger Control 2011Published by Global Legal Group withcontributions from:Ashurst LLPBorden Ladner Gervais LLPBrasil, Pereira Neto, Galdino, Macedo Advogados BPGMBullard, Falla & Ezcurra AbogadosELIG, Attorneys-at-LawElvinger, Hoss and PrussenFreehillsGeorgiades & Pelides LLCGide Loyrette NouelHomburgerHunton & Williams LLPKallel & AssociatesKalo & AssociatesKoep & PartnersLiedekerke Wolters Waelbroeck KirkpatrickMatheson Ormsby PrenticeMichael Shine & Co.Morais Leito, Galvo Teles, Soares da Silva & AssociadosNagashima Ohno & TsunematsuNielsen NragerOlivares & Ca., S.C.PRA Law OfficesPUNUKA Attorneys & SolicitorsSchoenherrSetterwallsSJ BerwinStudio Pirola Pennuto Zei e AssociatiTamme Otsmann Ruus VabametsUGGC & AssociesVan Doorne N.V.Vasil Kisil and PartnersVogel & VogelWebber WentzelWikborg, Rein & Co.uri i Partneri
The International Comparative Legal Guide to:A practical cross-border insightinto merger control
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WWW.ICLG.CO.UKCLG TO: MERGER CONTROL 2011 Published and reproduced with kind permission by Global Legal Group Ltd, London
Chapter 4
Freehills
Australia
1 Relevant Authorities and Legislation1.1 Who is/are the relevant merger authority(ies)?The Australian Competition and Consumer Commission (ACCC)
administers the Trade Practices Act 1974 (the Act), which amongst
other things, prohibits mergers which have an anti-competitive
effect and provides mechanisms for review of potentially anti-
competitive mergers. The ACCCs approach to the substantive
assessment of potential anti-competitive effects of mergers is set
out in the 2008 Merger Guidelines (Merger Guidelines).
The Federal Court also has a role in merger control, since the ACCC
must take enforcement action in the Federal Court and does not
have direct power to prevent a merger occurring.
The Australian Competition Tribunal (the Tribunal) is the body
which considers merger authorisations and can grant declarations inrelation to mergers which occur outside Australia under Section
50A of the Act (see question 1.2 below). The Tribunal may also
review decisions by the ACCC in relation to formal merger
clearance decisions.
The Foreign Investment Review Board (FIRB) considers proposals
by foreign interests to undertake investment in Australia (discussed
at question 1.3 below).
1.2 What is the merger legislation?The primary legislation is the Trade Practices Act1974 which, from
1 January 2011, will be renamed the Competition and Consumer
Act 2010. In this chapter, we refer to the existing and renamed
legislation as the Act.
Section 50 of the Act prohibits mergers and acquisitions which have
the effect, or would be likely to have the effect, of substantially
lessening competition in a substantial market in Australia. Section 50
applies to both direct and indirect acquisitions of shares or assets.
Subsection 50(3) of the Act sets out a non-exhaustive list of merger
factors that are to be considered in evaluating whether a proposed
merger has the effect or likely effect of substantially lessening
competition in a market:
the actual and potential level of import competition in themarket;
the height of barriers to entry to the market;the level of concentration in the market;
the degree of countervailing power in the market;
the likelihood that the acquisition would result in the acquirerbeing able to significantly and sustainably increase prices or
profit margins;
the extent to which substitutes are available in the market orare likely to be available in the market;
the dynamic characteristics of the market, including growth,innovation and product differentiation;
the likelihood that the acquisition would result in the removalfrom the market of a vigorous and effective competitor; and
the nature and extent of vertical integration in the market.
Section 50A of the Act specifically deals with acquisitions that
occur outside Australia. Where an acquisition outside Australia
results in the acquirer obtaining a controlling interest in a
corporation in Australia, an application for review can be made to
the Tribunal. An application to the Tribunal can be made by the
Attorney General, the ACCC or any other person. (Most commonly
however, foreign mergers are considered by the ACCC on the basis
of the informal clearance process described at question 3.6 below.)In Australia, there is no mandatory requirement to notify the
competition regulator, the ACCC, about a proposed merger or
acquisition. However, even if the ACCC is not notified, it can
investigate any merger that it considers may raise competition issues.
The available clearance processes are discussed at question 3.6 below.
The Federal Court is the ultimate arbiter of whether a merger
contravenes section 50. Where the ACCC considers that an
acquisition contravenes section 50 of the Act, it can apply to the
Federal Court for an injunction, divestiture or penalties. Third
parties can apply for declarations and/or divestiture (including
setting aside the acquisition in certain cases). Any person suffering
loss or damage as a result of a merger that breaches section 50 can
apply for damages. Conversely, the merger parties themselves mayseek a declaration from the Federal Court relating to the validity of
a merger (whether proposed or completed).
1.3 Is there any other relevant legislation for foreign mergers?Foreign investments are regulated by theForeign Acquisitions and
Takeovers Act 1975 (FATA) and Australias Foreign Investment
Policy (Policy). The Foreign Investment Review Board (FIRB)
considers proposals by foreign persons (including corporations and
governments) to undertake investment in Australia and makes
recommendations to the Federal Treasurer (i.e. the Federal
Government minister responsible for fiscal and economic matters).
The Treasurer may prohibit or impose various conditions on foreigninvestment proposals where they are contrary to Australias national
interest. The impact of the proposed transaction on national security,
competition, other Australian Government policies (including tax),
impact on the Australian economy and the community and the
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character of the investor will be considered. As of June 2010, the
Policy expressly states that FIRB will consider competition issues as
part of its examination of investment proposals.
The following transactions are subject to the FATA:
1 acquisitions of an interest in an existing Australian business
or corporation, which is valued above AU$231 million,including:
acquisitions of shares where a single foreigner (andany associates) has not less than 15% of the votingpower/issued shares;
acquisition of assets resulting in control of the business (where the assets are valued at more thanAU$231 million); and
any other type of arrangement resulting in control ofthe business;
2 a takeover of an off-shore company the value of whoseAustralian subsidiaries or gross assets exceed $231 million(or whose Australian assets account for more than 50% of thetarget companys global assets);
3 any direct investment by a foreign government or theirrelated entities (including companies in which foreigngovernments have a 15% or greater interest) in Australianbusinesses or corporations; and
4 an acquisition of an interest in Australian urban land(including acquisition of shares in an urban land corporationor trust, an interest in residential real estate or vacant land oran interest in commercial real estate valued at AU$50 million(or AU$5 million where the property is heritage listed)).
The monetary thresholds are subject to yearly indexation. An
increased threshold of AU$1,004 million applies to US investors,
except in relation to investments in prescribed sensitive sectors
(which include media, telecommunications, transport, military,
security and nuclear extraction and nuclear power generation)
where the AU$231 million threshold applies.
It is compulsory for a foreign person or corporation to notify FIRB
where they are acquiring an interest in an Australian company
through an acquisition of shares (either shares of that company or
of a parent, Australian or foreign) or acquiring an interest in any
Australian urban land. Failure to do so is an offence attracting a
fine not exceeding $55,000, imprisonment of up to 2 years or both
for individuals and a fine not exceeding $55,000 for corporations.
Other transactions may be voluntarily notified under the FATA.
In addition to submitting the prescribed notification form, FIRB
may also require the acquirer to provide certain details of the
agreement and other relevant transaction details. No fees or charges
apply to notifications or applications.Notification to FIRB under the FATA will commence a 30-day time
period within which the Treasurer may decide to prohibit the
proposal, impose conditions or raise no objections. The 30-day
period may be extended by up to a further 90 days. The Treasurer
has 10 days to notify the parties of the decision and publish the
decision in the Government Gazette.
Breach of conditions imposed by the Treasurer is a criminal offence
- individuals may be subject to a fine not exceeding AU$55,000,
imprisonment of up to 2 years or both and corporations may be
fined up to AU$275,000.
Where a transaction which falls within the FATA is not notified and
it is subsequently found that it is not in the national interest, the
Treasurer may order the divestment of the shares or unwinding ofthe investment.
The applicability of FATA has not been considered in relation to
subsequent questions. Further information relating to the foreign
investment regime in Australia can be found at www.firb.gov.au.
1.4 Is there any other relevant legislation for mergers inparticular sectors?Yes. There are also specialised regimes, regulating foreign
investment in various sectors, including media, banking, aviation,
shipping and telecommunications.
2 Transactions Caught by Merger ControlLegislation2.1 Which types of transaction are caught in particular, howis the concept of control defined?The focus of section 50 of the Act is on how the proposed
acquisition will impact competition in the relevant market, rather
than the issue of control.
The Act does not prescribe a threshold shareholding for the
purposes of section 50 and all acquisitions of shares or assets are
therefore subject to the Act. Accordingly, the acquisition of acontrolling interest, or lower shareholdings with or without other
non-shareholding interests, are sufficient to attract competition
review.
Nonetheless, the focus of the ACCCs competition analysis will
differ depending on whether the acquisition does amount to a
controlling interest, or if the acquisition is of a lower shareholding.
The ACCCs Merger Guidelines identify the following possible
anticompetitive effects of shareholdings that are below a level
delivering control:
horizontal acquisitions may increase interdependencebetween rivals and lead to muted competition or coordinatedconduct (see chapter 6);
joint acquisitions of assets by rivals may have coordinatedeffects;
vertical or conglomerate acquisitions may increase theacquirers incentive to foreclose rival suppliers;
acquisitions may provide access to commercially sensitiveinformation in relation to competitors; and
acquisitions may block potentially pro-competitive mergersand rationalisation.
2.2 Can the acquisition of a minority shareholding amount toa merger?
Yes. See question 2.1.
2.3 Are joint ventures subject to merger control?Yes. Under the Act, joint ventures may be the subject to section 50,
where the joint venture involves the acquisition of shares or assets.
2.4 What are the jurisdictional thresholds for application ofmerger control?As noted above, section 50 of the Act applies to any acquisition of
shares or assets which has the effect, or would be likely to have the
effect, of substantially lessening competition in a substantial market
in Australia.Apart from the relatively low threshold of needing to affect
competition in a substantial market, there is no jurisdictional
threshold for application of merger control. That said, as discussed
below at question 3.1, the Merger Guidelines encourage parties to
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notify the ACCC well in advance of completing a merger where the
products of the merger parties are either substitutes or complements
and the merged firm will have a post-merger market share of greater
than 20% in the relevant market/s.
2.5 Does merger control apply in the absence of asubstantive overlap?The focus of section 50 of the Act is on how the proposed
acquisition will impact competition in the relevant market (which
itself must be a substantial market). Thus, where no substantive
overlap occurs, parties need to consider whether other features of
the merger could give rise to a substantial lessening of competition.
2.6 In what circumstances is it likely that transactionsbetween parties outside Australia (foreign to foreigntransactions) would be caught by your merger controllegislation?
Section 50 of the Act will apply to acquisitions made outside
Australia where the acquisition is made by:
bodies corporate incorporated in Australia or carrying on abusiness in Australia;
Australian citizens; or
persons ordinarily resident within Australia,
where the acquisition would have the effect or be likely to have the
effect of lessening competition in a market in Australia.
In addition, foreign acquisitions for which an acquirer is not
considered to be carrying on a business within Australia may fall
under section 50A of the Act for consideration. See question 1.2.
2.7 Please describe any mechanisms whereby the operationof the jurisdictional thresholds may be overridden by otherprovisions.
Not applicable.
2.8 Where a merger takes place in stages, what principlesare applied in order to identify whether the various stagesconstitute a single transaction or a series of transactions?
The Act does not provide guidance on how to assess multiple
acquisitions between the same parties since section 50 applies to
any acquisition of assets or shares. Accordingly, while the ACCC
will not aggregate a number of acquisitions, it will consider any
separate acquisition in the context of its overall impact on
competition.
There has been discussion of potential amendments to the Act to
address the distinct but related issue of creeping acquisitions. In
Australia, creeping acquisitions refers to a series of small-scale
acquisitions by a single purchaser of different competitors. The
concern is that such acquisitions may not individually substantially
lessen competition in a market in contravention of section 50, but
may collectively have that effect over time. There have been a
number of proposed attempts to deal with this issue by draft
legislation since 2007, but at the current time, it appears unlikely
these will proceed.
3 Notification and its Impact on the TransactionTimetable3.1 Where the jurisdictional thresholds are met, is notificationcompulsory and is there a deadline for notification?While there is no compulsory pre-notification requirement for
mergers in Australia, the ACCC Merger Guidelines encourage
parties to notify the ACCC well in advance of completing a merger
where the products of the merger parties are either substitutes or
complements and the merged firm would have a post-merger
market share of greater than 20% in the relevant market/s.
The Herfindahl-Hirschman Index (HHI) can also be used to
determine whether the ACCC will likely identify competition
concerns and therefore may assist in making a decision to notify. The
HHI is calculated by adding the sum of the squares of the post-merger
market share of the merged firm and each rival firm in the relevant
market. The ACCC emphasises in the Merger Guidelines that the HHI
should not be viewed as interchangeable with, or a substitute for, thenotification threshold set out above. The ACCC will generally be less
likely to identify horizontal competition concerns when the post-
merger HHI is either less than 2,000, or greater than 2,000 with a delta
(the change in HHI pre- and post-merger) less than 100.
Note that the FATA does contain compulsory notification
requirements as described at question 1.3.
3.2 Please describe any exceptions where, even though thejurisdictional thresholds are met, clearance is notrequired.
Not applicable, given there is no mandatory clearance requirement.
3.3 Where a merger technically requires notification andclearance, what are the risks of not filing? Are there anyformal sanctions?
As there is no requirement to notify the ACCC, there are no formal
sanctions for failure to notify.
The decision whether or not to notify a merger is a commercial
decision for the merger parties and will depend on the parties
assessment of the competition risk (and the consequent risk of
intervention by the ACCC). As discussed at question 3.1, the
ACCC has indicated a combined market share threshold of 20% as
guidance for notification, but this is not a definitive rule.
If the ACCC initiates an investigation of a merger that was not
notified, it will ordinarily approach the parties and seek information
regarding the merger. Where concerns of a substantial lessening of
competition in a relevant market are identified, the ACCC may
initiate court proceedings to seek a range of remedies discussed
further in question 3.7 below.
Given the risks of regulatory intervention, where competition
concerns are likely, most parties tend to approach the ACCC in
advance.
3.4 Is it possible to carve out local completion of a merger toavoid delaying global completion?
In theory yes, although the carve out would need to address the root
cause of the potential competition concerns in Australia (and for
multinational organisations this may not be limited to activities of
Australian subsidiaries, or Australian-based assets).
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Where competition issues are identified in Australia, the merger
parties may negotiate a remedy with the ACCC (see question 5.2)
in order to obtain clearance so that the global merger can complete.
3.5 At what stage in the transaction timetable can thenotification be filed?
As prior notification is not mandatory in Australia, the timing for
any approach to the ACCC is a commercial decision.
The merger parties are able to approach the ACCC for an advance
view on a potential merger, even on a confidential basis, although
the ACCC states that there needs to be sufficient certainty around
the proposed acquisition such that there is a real likelihood that the
merger will proceed.
3.6 What is the timeframe for scrutiny of the merger by themerger authority? What are the main stages in theregulatory process? Can the timeframe be suspended bythe authority?
There are three potential routes for obtaining regulatory certainty or
comfort for a proposed merger (although in practice only one of
them is used regularly). Parties can choose to seek:
1 informal clearance from the ACCC (a form of regulatorycomfort letter which is not legally binding but remainsoverwhelmingly the most popular form of clearance formerging parties);
2 formal clearance from the ACCC (a statutory based clearanceintroduced in January 2007, which is binding on the ACCC);or
3 authorisation directly from the Tribunal on the basis thatpublic benefits outweigh any anti-competitive detriment.
Different processes and timeframes apply for each mode of
clearance.
1 Informal merger clearance (most commonly used)
Informal clearance typically involves:
Initial (phase 1) review: The parties typically provide theACCC with written submissions which the ACCC willanalyse in accordance with the factors set out in section 50(3)of the Act. On review of the submissions, the ACCC willusually set an indicative timeline for its review (typically 6 8 weeks initially) and publish this on the merger register onthe ACCC website.
Market inquiries: In most cases where competition issuesarise, the ACCC will seek further information from the
merger parties and conduct its own market inquiries,consulting customers, suppliers and other market participantson the competitive impact of the proposal. Marketparticipants will usually have a period of approximately 2weeks to make submissions to the ACCC.
Once market inquiries have been completed the ACCC willusually require between 2 - 3 weeks to undertake its internalassessment.
Two outcomes are likely to result from the ACCCsassessment:
competition concerns have been resolved throughmarket inquiries and informal clearance is granted; or
competition concerns have not been resolved throughmarket inquiries and assessment to date, and appear
incapable of being resolved without furtherinformation from the marketplace.
Statement of Issues (phase 2 review): If the proposal raisescompetition concerns or if the ACCC wishes to test some ofits assumptions in considering the merger, it will usually
publish a Statement of Issues seeking further publicconsultation on the proposal. The Statement of Issues willoutline the basis and facts on which the ACCC has made itsinitial assessment (after a first round of market inquiries),indicate the preliminary competition concerns and ask forfurther market comment.
In this case, a secondary timeline will be established, whichthe ACCCs Merger Guidelines suggest a usual period of 12weeks from the start of the public review process, althoughthis will depend on the particular case at hand.
Timeframes: A phase review 1 is typically 6-8 weeks. If aStatement of Issues is released, up to a further 6 weeks may be added to the timeline. However, these timelines areindicative only and the timeframe can be suspended orextended at any stage. The parties may request that thetimeframe be suspended for commercial reasons, or theACCC may suspend the timeframe if it is awaiting additionalinformation from the parties. The ACCC will communicateany intention to suspend the timeframe to the merger parties.
Decision by the ACCC: At the conclusion of the review
process, the ACCC will advise the parties of its final decisionwhich will either be:
not to oppose the proposed acquisition; or
not to oppose the proposed acquisition subject toundertakings (section 87B of the Act, discussed infurther detail at question 5.2); or
to oppose the proposed acquisition.
Public Competition Assessment: In substantive matters, theACCC usually publishes a Public Competition Assessmentoutlining its analysis after the assessment has beencompleted (see further at question 5.1 below).
Confidential views and courtesy contacts: 2 variations ofthe informal clearance process are worth a mention. Partiesmay wish to approach the ACCC confidentially to seek a
view on a prospective merger without the ACCC conductingmarket inquiries. The ACCC will entertain such approachesand will typically express a view as to whether thetransaction may substantially lessen competition in a market,but that view will be subject to the ACCC conducting marketinquiries once the transaction is public. Timing and thedepth of a confidential review are a matter for discussionbetween the ACCC and the party approaching it. The ACCCalso encourages courtesy contacts, where parties are notexpressly seeking informal clearance (for example becausethey do not consider competition concerns arise), but informthe ACCC as a matter of courtesy of their transaction orproposed transaction. In such cases, the ACCC may conductits own review (essentially adopting the informal clearanceprocess, with market inquiries etc. as above).
2 Formal merger clearance
Although available since January 2007, this is yet to be used (as at
October 2010). Formal clearance, if granted, confers immunity
from legal challenge under section 50. The ACCC must not grant a
clearance unless if it is satisfied that the acquisition would not have
the effect, or be likely to have the effect, of substantially lessening
competition.
Formal clearance involves:
The clearance application: The acquiring party mustsubmit a Form O application to the ACCC, accompanied bya filing fee of AU$25,000 and a formal statutory undertakingnot to proceed with the acquisition while the ACCC isconsidering the application.
The ACCC has expressed a strong preference that partiesconsult with it before the application is filed. This will assistparties to ensure their application is complete and valid.
The ACCC will advise the acquiring party within 5 businessdays if its application is invalid. Once a valid application is
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lodged, it cannot be amended and the filing fee will not bereturned.
Timeframes: The ACCC is required to issue its determinationon a formal clearance application within 40 business days ofreceiving a valid application. If additional information isrequested by the ACCC, the applicant must provide the
information within the timeframe specified by the ACCC.If no decision is made within the 40-business-day period, theACCC is deemed to have refused to grant the clearance. TheACCC may extend the time for its review of the formalapplication by agreement with the acquiring party. In acomplex and/or contentious matter, the ACCC may extendthe period by a further 20 business days.
Confidentiality: The formal merger clearance is more publicthan the informal process (confidential applications for formalclearance will not be entertained). Submissions of both themerging parties and interested third parties (including oralsubmissions) will form part of the public record and will beavailable on the mergers register on the ACCC website. Partiescan request that confidential information be excluded (and
should in such circumstances provide the ACCC with anadditional redacted version of the document).
Review by the Australian Competition Tribunal: A keydifference of the formal clearance process is the appellate process, if the ACCC rejects or is deemed to reject anapplication for formal clearance. In these circumstances, theapplicant may seek a review by the Tribunal. Third parties,including the target, do not have this right of review.
The Tribunals review is limited to the papers lodged with theACCC. However, the Tribunal may, in its discretion, seekrelevant information, and consult with persons, as itconsiders reasonable and appropriate for the purposes ofclarifying that information.
The Tribunal has 30 business days to make its decision.
3 Authorisation (on public benefit grounds)
Authorisation confers immunity from legal challenge on public
benefit grounds for mergers which might otherwise contravene
section 50.
In making its decision to grant or refuse an authorisation, the
Tribunal will weigh the public benefits of the proposed acquisition
against any lessening of competition.
Authorisation is only available for proposed acquisitions. Since 1
January 2007, applications must be made directly to the Tribunal
and the ACCC has a right to appear and provide a report. As at
October 2010, no applications have been made to the Tribunal for
authorisation of a merger on public benefit grounds.
To obtain authorisation for a proposed merger, the acquiring party
must submit an application directly to the Tribunal, accompanied by
a filing fee of AU$25,000 and a statutory undertaking to the ACCC
not to proceed with the acquisition while the Tribunal is considering
the application.
The Tribunal will advise the acquiring party within 5 business days
if its application is invalid. Once a valid application is lodged, it
cannot be amended and the filing fee will not be returned.
3.7 Is there any prohibition on completing the transactionbefore clearance is received or any compulsory waitingperiod has ended? What are the risks in completingbefore clearance is received?
Informal clearance
Where an informal clearance process has been initiated, parties
ordinarily await the ACCCs decision prior to completion. The
ACCC (although not private parties) can seek interim and final
injunctions from the Federal Court to prevent acquisitions from
proceeding. If an acquisition has completed and the ACCC is of the
view that there will be a substantial lessening of competition, the
ACCC may institute proceedings seeking pecuniary penalties,
divestiture of the shares or assets acquired or an order/declaration
that the transaction is void.
The ACCC will sometimes request that parties undertake not to
complete the transaction while the ACCC completes its review
process (a standstill undertaking), particularly where the ACCC has
identified competition concerns or perceived a risk of a substantial
lessening of competition arising. The standstill undertaking provides
that the parties will not complete the merger or take steps to complete
the merger without giving the ACCC prior notice.
Formal clearance and authorisation
As set out at question 3.6, in relation to formal merger clearance and
merger authorisation, the acquirer must give a statutory undertaking
stating that it will not make the acquisition while the application is
being considered. Where the acquirer acts in breach of the
undertaking, remedies may be sought.
3.8 Where notification is required, is there a prescribedformat?
Informal clearance
There is no prescribed format for a notification for informal
clearance. Merger parties ordinarily provide information to the
ACCC in writing and request clearance. The length of the initial
submission to the ACCC will depend on the complexity of the
matter, and would typically include information addressing section
50(3) factors, including:
information about the parties, including their history,
operations, commercial rationale for the acquisition anddetails of the proposal;
a discussion of relevant market definition;
the market shares of the parties;
the level of imports; and
details of barriers to entry to the market, substitutability anddynamics of the market.
Formal clearance
For formal clearance, the acquiring party must lodge the Form O
application for merger clearance with the ACCC.
Authorisation
Applications for authorisation must be made by completing and
lodging Form S - Application for merger authorisation with theTribunal.
3.9 Is there a short form or accelerated procedure for anytypes of mergers?
No.
3.10 Who is responsible for making the notification and arethere any filing fees?
Informal clearance
The informal merger clearance process is relatively flexible. Either
the acquiring party, or both parties jointly, can lodge an initial
submission to the ACCC. If the ACCC does not consider it has all
necessary information in the initial merger submission (either from
the acquirer or both parties jointly), the ACCC may request further
information. No filing fees apply for informal merger clearance.
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Formal clearance
In relation to formal merger clearances, the Form O must be
completed by the acquirer. A filing fee of AU$25,000 is payable for
a formal merger clearance.
Authorisation
In relation to authorisations, the acquirer must complete the FormS and a AU$25,000 filing fee is payable.
4 Substantive Assessment of the Merger andOutcome of the Process4.1 What is the substantive test against which a merger will
be assessed? Are non-competition issues taken intoaccount?
Informal and formal clearance by the ACCC
The relevant test is set out in section 50 of the Act. Section 50
prohibits mergers and acquisitions which have the effect, or wouldbe likely to have the effect, of substantially lessening competition
in a substantial market in Australia. Further information about
section 50 is discussed at question 1.2. Non-competition issues are
not considered in formal and informal clearance.
Efficiencies will be considered by the ACCC but only to the extent
they impact competition in the market. The ACCC will not in this
context look to see if efficiencies for the merging firms justify the
lessening of competition.
Authorisation by the Tribunal
In relation to applications for merger authorisation, the Tribunal will
weigh the public benefits of the proposed acquisition against any
lessening of competition. Non-competition issues (e.g. employment,
environmental and social issues) may be relevant to the Tribunalsassessment of any public benefits of the proposed acquisition.
The concept of public benefits is not defined in the Act, although
the Tribunal has defined it to be anything of value to the community
generally, the achievement of economic goals of efficiency and
progress, and as something that increases the well-being of
members of society as a whole. Benefits that accrue only to a
limited group will probably be private benefits rather than public
benefits. It is possible for efficiencies to constitute public benefits,
although the weight given to them in the weighing process will
depend on how broadly the benefit of them is spread.
4.2 What is the scope for the involvement of third parties (orcomplainants) in the regulatory scrutiny process?
As discussed at question 3.6, all merger clearance processes have
scope for involvement of third parties.
Informal clearance
The ACCC will conduct market inquiries by consulting market
participants on the competitive impact of the proposal. This
includes customers, competitors and suppliers of the merger parties.
As noted above, the ACCC may also publish a Statement of Issues
in relation to some acquisitions. The Statement of Issues invites
public comment on specific areas of concern.
The level of involvement of third parties will vary depending on the
complexity of the competitive issue and the level of interest. Thirdparties may make written submissions or may be consulted orally,
or by in-person interviews.
Recent practice at the ACCC now sees the ACCC summarising in
general terms the concerns expressed by market participants, to
facilitate the merger parties response to those concerns. The
ACCC however will not reveal confidential information as to the
identity of any participant raising concerns in the informal process.
Formal clearance
The ACCC will write to potentially interested parties requesting
submissions and place a notice on its website inviting submissions.Any submission made to the ACCC in respect of an application for
authorisation will (subject to confidentiality) be placed on the
mergers register on the ACCC website.
Authorisation
The Tribunal will conduct a process of consultation with market
participants, including the target and customers, competitors and
suppliers of both the applicant and the target in relevant markets.
Any submission made to the Tribunal in respect of an application
for authorisation will (subject to confidentiality) be placed on the
mergers register.
4.3 What information gathering powers does the regulatorenjoy in relation to the scrutiny of a merger?
In addition to issuing voluntary information requests, the ACCC
also utilises its mandatory information gathering powers in a
merger context. Section 155 of the Act allows the ACCC to issue a
compulsory notice to a person (including a corporation) if the
ACCC has reason to believe that the person is capable of furnishing
information, producing documents or giving evidence relating to a
matter that constitutes, or may constitute, a contravention of the
Act. In contentious matters, the ACCC uses its compulsory powers
under section 155 to interview individuals under oath, or to compel
the production of documents or other information.
It is an offence to knowingly or recklessly supply false or
misleading information to the ACCC.
4.4 During the regulatory process, what provision is there forthe protection of commercially sensitive information?
Informal clearance
Submissions and documents provided by the merger parties and
interested third parties are not published. In addition, parties are
able to identify commercially sensitive information in their
submissions and request that the information be kept confidential.
The ACCC has a strong track record on protection of confidential
information.
Note that the ACCC may disclose confidential information in
limited instances, for example, the provision of such information to
other regulators, both in Australia and overseas.
Formal clearance and authorisation
The formal clearance process and the authorisation process are
public. All information formally submitted (including oral
submissions) will form part of the public record and will be
available on the respective regulators website, although parties can
request that confidential information be excluded.
5 The End of the Process: Remedies, Appealsand Enforcement5.1 How does the regulatory process end?The regulatory process comes to an end when the ACCC or the
Tribunal (as relevant) reaches its decision (or is taken to have reached
a decision) or the matter is withdrawn by the merger parties.
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Informal clearance
The ACCC will typically notify the merger parties by letter of its
decision. In many cases, it will issue a press release detailing its
decision shortly after informing the parties and will also update its
merger register to provide a short explanation of its decision,
including the market definition and competition analysis.
Where a merger is opposed, subject to undertakings, merger parties
seek disclosure or the merger raises important issues that the ACCC
considers should be made public, the ACCC may release a Public
Competition Assessment, which provides further detail regarding
the ACCCs reasoning. Public Competition Assessments are
ordinarily released some weeks or months after the ACCCs
decision is announced.
Formal clearance
The ACCC is required to issue a determination on a formal
clearance application within 40 business days of receiving a valid
application. If no decision is made within the 40business-day
period (or any appropriate extensions), the ACCC is deemed to
have refused to grant the clearance.Authorisation
The Act requires that the Tribunal issue a determination on an
authorisation application within 3 months of receiving a valid
application. If no decision is made within this period, the Tribunal
is taken to have refused to grant the authorisation.
5.2 Where competition problems are identified, is it possibleto negotiate remedies which are acceptable to theparties?
Yes. Merger parties can provide the ACCC with a court enforceable
undertaking under section 87B of the Act to implement structural,
behavioural or other measures that address the competitionconcerns identified by the ACCC.
The provision of undertakings is at the discretion of the party giving
the undertaking. The structure and content of any undertakings is
therefore a matter for the party offering the undertaking to
determine, although the ACCC will discuss its views on the
acceptability of any proposed undertaking.
The ACCC will ordinarily consult the market on a proposed draft
undertaking. The ACCC will not accept undertakings if it is not
satisfied they address its competition concerns.
The Merger Guidelines indicate a preference for undertakings that
include structural rather than behavioural remedies. Structural
remedies generally change the structure of the merged firm and/or
the market, typically through divestiture of part or all of a business.
Behavioural remedies are normally ongoing remedies designed to
modify or constrain the behaviour of the merged firms. Where a
divestiture is offered pursuant to an undertaking, it is the ACCCs
strong preference that the divestiture provides for a viable,
independent and competitive business capable of competing with
the merged entity and that it be completed up front (i.e. to an
appropriate purchaser prior to the acquirer taking control).
In its Merger Guidelines, the ACCC has stated that, prior to
accepting an undertaking, it will need to be satisfied that:
the proposed undertaking is customised to the particularnature of the relevant merger, the competition concernsraised, and the industry or industries involved;
the core obligations in the proposed undertaking (forexample, a divesture) specifically, comprehensively andeffectively address the ACCCs competition concerns;
the proposed undertaking would impose clear andunambiguous obligations on the party giving the
undertaking, including clear delineation of assets andbusinesses covered by the remedy, the terms under which theremedy is to be carried out, timeframes for actions to becompleted, and the consequences of non-performance withinthose timeframes;
the party offering the undertaking is capable of meeting its
obligations as set out in the undertaking, and the remedycannot be frustrated by the actions (or inaction) of thirdparties (for example, there may be matters where minorityshareholders remain following the acquisition of a firm, whomay be able to prevent the acquirer from meeting itsobligations under a proposed undertaking); and
for international mergers involving firms operating injurisdictions other than Australia, any remedies provided tothe ACCC are capable of being enforced by the ACCC andcoordinated with any of the other relevant jurisdictionsinvolved.
In its Merger Guidelines, the ACCC also states that it will be
unlikely to accept an undertaking when, in its view:
there are risks that the undertaking will not be effective in
preventing a substantial lessening of competition as a resultof the merger; and/or
there are risks that the undertaking cannot be implemented inpractice and (where necessary) properly monitored and/orenforced.
5.3 At what stage in the process can the negotiation ofremedies be commenced? Please describe any relevantprocedural steps and deadlines.
As noted at question 5.2, the provision of undertakings is at the
discretion of the party offering the undertaking. Accordingly, the
negotiation of remedies can be commenced at any stage in the
process.Where the potential competition issues are clear from the outset, it
may be helpful to offer an undertaking early in the process.
Conversely, in more complex matters, it may be helpful to wait until
the ACCC has more clearly defined its concerns with the proposed
merger (e.g. through a Statement of Issues) before offering an
undertaking, so that the remedy can be targeted at the specific areas
of concern. An undertaking can even be offered after a decision
from the ACCC to oppose the proposed merger.
There are no mandated procedural steps or deadlines and the
development of an undertaking is an iterative process with the
ACCC.
The ACCCs Merger Guidelines state that in accepting an
undertaking the ACCC does not seek to improve competitionbeyond the pre-merger level of competition, but the remedy needs
to adequately address the potential harm identified.
Where the package is sufficient, the parties and the ACCC will
discuss the detailed provisions of the undertaking. The refinement
of the undertaking can take several weeks, depending on the
complexity of the arrangements.
Once the undertaking is in a form that is capable of being accepted
by the ACCC, the ACCC will release the draft undertaking (save for
confidential information) and seek comment from interested
parties. After the market inquiries regarding the draft undertaking
have concluded, the ACCC may require further adjustments to the
undertaking.
Where the undertaking is accepted, it will be signed by the parties
and the ACCC and a non-confidential version will be placed on the
ACCCs undertakings register on the ACCC website. The ACCC
will also issue a press release indicating its decision to accept or
reject the undertaking.
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5.4 If a divestment remedy is required, does the mergerauthority have a standard approach to the terms andconditions to be applied to the divestment?
The ACCC has a strong preference that the divestiture provides for
a viable, independent and competitive business capable of
competing with the merged entity. The ACCC has a preference forup-front divestiture (fix it first) and mechanisms for oversight
(e.g. an independent auditor). Where up-front divestiture is not
possible, ring fencing obligations such as an independent manager
will usually be required.
In the early stages of the discussion of a proposed undertaking, the
ACCC will ordinarily provide the party offering the undertaking
with information regarding the expected structure of the
undertaking and some standard clauses (such as interpretation etc.).
Recent undertakings that have been accepted by the ACCC can
provide guidance on acceptable language for the operative clauses
in the undertaking.
5.5 Can the parties complete the merger before the remedieshave been complied with?Under the Act, where undertakings have been accepted and signed
by the ACCC and clearance granted on the basis of the
undertakings, completion can usually take place. Whether parties
can complete the merger before the remedies have been complied
with will ultimately depend on the specific terms of the
undertaking.
5.6 How are any negotiated remedies enforced?Where a party breaches an undertaking, the ACCC can seek a court
order to enforce the undertaking (pursuant to section 87B(4)). Thecourt may:
direct the party to comply with the undertaking;
direct the party to pay an amount equal to a financial benefitobtained from the breach;
make any order that the court considers appropriate directingthe person to compensate any other person who has sufferedloss or damage as a result of the breach; or
make any other order that the court considers appropriate.
The ACCC may also seek an interim injunction to ensure that the
effectiveness of its eventual order is not prejudiced.
In addition, the ACCC will generally not cede the legal right to take
action against the parties even where it has accepted anundertaking. An undertaking accepted by the ACCC does not
preclude the ACCC from taking legal action under section 50,
particularly if the undertaking is not properly implemented or the
decision to accept the undertaking was based on inaccurate
information.
5.7 Will a clearance decision cover ancillary restrictions?Informal clearance
The ACCC has the ability to consider ancillary restrictions in the
context of the informal merger clearance, but as the clearance
provides no immunity as such, parties need to consider the
application of other provisions in the Act to their ancillaryrestrictions and satisfy themselves no contravention occurs.
Formal clearance
Applications for merger clearance and authorisation can only be
made for acquisitions covered by section 50. Any ancillary
arrangements or non-merger aspects of a transaction cannot be
granted clearance under the formal merger clearance provisions.
Authorisation
A decision by the Tribunal to provide authorisation for a merger
will not cover ancillary arrangements. According to the ACCCs
Formal Merger Guidelines, any ancillary arrangements may need tobe separately authorised by the ACCC, as part of a separate process
to the merger authorisation.
5.8 Can a decision on merger clearance be appealed?The potential avenues for appeal differ depending on the type of
merger clearance which was sought by the parties. As set out at
question 1.2 above, due to separation of powers, only the Federal
Court in Australia may determine whether a merger contravenes
section 50.
Informal clearance
There is no right of appeal in relation to the ACCCs decision in an
informal merger clearance process. If the ACCC chooses to oppose
a proposed merger, the parties could offer an undertaking (as
discussed at question 5.2), defend any proceedings initiated by the
ACCC or themselves institute court proceedings seeking a
declaration that the proposed acquisition does not contravene
section 50.
Federal Court proceedings can take several months, though the
court will seek through case management procedures to progress
the case expeditiously. There are very few examples of parties
instituting proceedings against the ACCC.
Formal clearance
If the ACCC rejects an application for formal clearance, or does not
make a decision (which is taken to be a rejection of the application
for formal clearance), the applicant may seek a merits review by the
Tribunal. Third parties, including the target, do not have a right of
review to the Tribunal.
The Tribunals review is limited to the evidence before the ACCC.
However, the Tribunal may, in its discretion, seek relevant
information, and consult with persons, as it considers reasonable
and appropriate for the purposes of clarifying that information.
The Tribunal has 30 business days to decide.
Authorisation
There is no formal right of appeal in relation to the Tribunals
decision where authorisation for a merger has been sought.
5.9 Is there a time limit for enforcement of merger controllegislation?
Post-completion remedies include a declaration that the merger
contravenes section 50, divestiture and pecuniary penalties.
Different time limits apply for each:
no time limit exists for a declaration of contravention;
an application for divestiture may be made by the ACCC orany other person and must be made within 3 years of themerger; and
the ACCC may institute proceedings in the Federal Court forpecuniary penalties within 6 years after the contravention.
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6 Miscellaneous6.1 To what extent does the merger authority in Australialiaise with those in other jurisdictions?The ACCC shares information and co-operates with a number ofinternational enforcement authorities, including the Commerce
Commission of New Zealand, the US Department of Justice and
Federal Trade Commission, the Canadian Commerce Commission,
the Fair Trade Commissions of Korea and Taiwan, the Commerce
Commission of Fiji and the Papua New Guinea Consumer Affairs
Council.
6.2 Please identify the date as at which your answers are upto date.
29 October 2010.
AcknowledgmentWe acknowledge the considerable assistance of Emily McConnell,
Solicitor, in preparing this chapter.
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Karen GibbonsFreehills
101 Collins StreetMelbourne, Victoria 3000
Australia
Tel: +61 3 9288 1583
Fax: +61 3 9288 1567
Email: [email protected]
URL: www.freehills.com
Karen advises on all aspects of the competition rules including
merger control, cartels, misuse of market power and general
compliance.
Karen joined Freehills in 2006 after several years working with a
major Irish law firm where she specialised in EC and Irish
competition law.
Karen has a particular interest in merger control advice and has
advised clients on mergers and acquisitions in many sectors,
including financial services, consumer goods, health, media andothers. She has represented clients seeking clearance from the
ACCC, the European Commission and the Irish Competition
Authority, and has negotiated remedies including divestments in
a number of matters.
Karen is a regular speaker at conferences, contributing on
Australian, EC and Irish competition law topics.
Paul HughesFreehills
MLC Centre 19-29 Martin PlaceSydney, NSW 2000
Australia
Tel: +612 9225 5697
Fax: +612 9322 4000
Email: [email protected]
URL: www.freehills.com
Pauls experience combines the disciplines of law, economics
and accounting in both regulated and unregulated industries. He
has advised across a range of industries and transaction
structures.
Paul advises clients seeking ACCC clearance for mergers in
industries such as petrol, consumer goods, financial services,
food ingredients, financial services and many others,
representing both Australian and multi-national clients.
He also advises on the competition issues which arise from jointventure structures. Paul assists clients in respect of antitrust
investigations and provides general competition law advice.
Paul has also represented clients before the Australian
Competition Tribunal, the Australian courts, and the ACCC.
Paul joined the competition law group of Freehills in 2001 and is
currently head of the competition group. He was a partner at
another firm from 1992 and previously worked in London.
Freehills is an Australian-based international law firm. We back up our commitment to providing innovative, commercial legal
advice to clients around the world, with the resources and expertise of around 1000 lawyers, including more than 200 partners
across offices in Australia and South-East Asia.
Our solid track record means you can be confident in our ability to deliver first class commercial results for your business. This
confidence is demonstrated by the quality of our client base. We act for more than 75 per cent of Australias top 100-listed
companies. We undertake high-level legal work for leading corporations on every continent across the globe. These companies
are involved in some of the largest and most complex commercial transactions being undertaken. Our ability to provide clients with
legal, commercial and strategic solutions is built on vast experience and knowledge of local markets, and a keen understanding
of the commercial context in which your business operates.
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