Mergers and acquisitions - Amendments to “market” to address creeping acquisitions

December 2011 Authors: Nick McHugh, Belinda Webster

Contacts

The Competition and Consumer Act 2010 (CCA) has again been amended with Federal Parliament passing changes which will affect the assessment of mergers and acquisitions under section 50. As reported by Norton Rose Australia in July 20111, the Competition and Consumer Legislation Amendment Bill 2011 seeks to address a perceived gap in Australia’s current law relating to creeping acquisitions. The amendments passed now subject mergers or acquisitions to an assessment of whether it is likely to result in a substantial lessening of competition in “any” market, with no requirement that the relevant market be a “substantial” market.

The Explanatory Memorandum notes that the amendments will “demonstrate more explicitly the importance of ensuring that the Australian Competition and Consumer Commission (ACCC) and the courts are able to consider the totality of the competitive effects resulting from an acquisition”. Further, the amendments will also “remove doubts regarding the ACCC’s or a court ability to examine markets, including local markets, which may be relatively small in geographic sense”. As raised in our July 2011 legal update, these amendments have the potential to expand the scope of section 50 and extend the reach of the CCA to mergers and acquisitions made by relatively small businesses that operate in local markets.

The CCA does not mandate the notification of a merger or acquisition to the ACCC. Rather, the CCA exposes parties to Federal Court orders such as injunctions and penalties for transactions which will, or are likely to, have the effect of substantially lessening competition. In practice, this places the onus on the merger parties to notify the ACCC of relevant transactions and, where appropriate, seek informal clearance.

The ACCC’s merger guidelines recommend notification of a transaction where:

  1. The products of the merger parties are either substitutes or complements; and
  2. The merged firm will have a post-merger market share of greater than 20% in the relevant market/s.

We will follow with interest whether these amendments result in an increase in the number of ACCC instigated assessments of merger activity by reference to a local market.

The amendments will come into effect no later than two months after the Bill receives Royal Assent.

1Creeping acquisitions back on the legislative agenda