Overview of mergers law

• Section 50 of the Competition and Consumer Act
• Merger law amendments post-Dawson review
• Types of merger reviews
• Application to the ACCC for informal merger clearance under section 50
• Application to the ACCC for formal clearance of a proposed merger
• Application to the Australian Competition Tribunal for merger authorisation

The Australian Competition and Consumer Commission (ACCC) administers and enforces the merger provisions under the Competition and Consumer Act 2010 (the Act).

We recognise that mergers perform an important role in the efficient functioning of the economy. They allow firms to achieve efficiencies such as economies of scale, synergies and risk spreading. They also provide a mechanism by which under-performing firms and managers are replaced by better performing ones.

However, in some cases mergers may also have anti-competitive effects by altering the structure of markets and therefore the incentives for firms to behave in a competitive manner. This is a concern of ours and the Act.

Section 50 of the Competition and Consumer Act

The merger and acquisition provisions fall within the competition provisions of Part IV of the Act. Section 50 of the Act prohibits acquisitions that would have the effect, or likely effect, of substantially lessening competition in a substantial market in an Australian state or territory.

Section 50 of the Act provides that:

• (1) a corporation must not directly or indirectly:
• (a) acquire shares in the capital of a body corporate or
• (b) acquire any assets of a person.
• If the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
• (2) a person must not directly or indirectly:
• (a) acquire shares in the capital of a corporation or
• (b) acquire any assets of a corporation.
• If the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Section 50 applies to the following types of acquisitions:

• acquisitions of shares or assets within Australia including (but not limited to) shares in Australian companies, domestic businesses, local intellectual property such as trademarks and local plant and equipment
• acquisitions of shares or assets wherever situated if the acquirer is incorporated in Australia, carries on business in Australia, is an Australian citizen or is an ordinary resident in Australia.

Merger law amendments post-Dawson review

The Trade Practices Act (1974), known as the Competition and Consumer Act (2010) from 1 January 2011, was amended in 2006 following the passage of the Trade Practices Legislation Amendment Act (No. 1) 2006 (the Amendment Act). The amendments to the Act were passed in response to recommendations by the Review of the competition provisions of the Trade Practices Act 1974 (the Dawson review). A number of the Dawson review’s recommendations related to the ACCC’s consideration of mergers and acquisitions and resulted in the introduction of formal clearance processes and ‘direct to Tribunal’ merger authorisation processes. Before the Amendment Act’s passage, the consideration of mergers and acquisitions was primarily through an informal review system and, to a lesser extent, application to the ACCC for merger authorisation. Most of the provisions in the Amendment Act, including the formal merger review provisions, became law on 1 January 2007.

The amendments do not change the test to be applied by us and the courts in assessing mergers—s. 50 continues to prohibit mergers that would have the effect or likely effect of substantially lessening competition in a market(s). However, a new voluntary formal clearance system was introduced into the Act. The formal clearance system enables an acquirer to apply to us for clearance of a proposed acquisition which, if granted, provides protection to the acquirer from legal action under s. 50. When an acquirer is dissatisfied with our decision regarding a merger clearance decision, application may be made to the Tribunal for review of the decision.

Amendments to merger authorisation provisions in the Act were also passed. Parties can continue to apply for exemption from legal action for acquisitions at risk of contravening s. 50 but, rather than making such an application to us, they must now apply directly to the Tribunal.

Merits review is not available for decisions by the Tribunal on merger authorisations.

No changes were made to the process of seeking authorisation of acquisitions at risk of contravening s. 50A of the Act and such authorisation applications will continue to be handled by us. Prospective applicants for s. 50A merger authorisation should contact us to discuss the requirements and obtain a copy of the relevant form.

Types of merger reviews

With the introduction of the formal clearance process in 2007, merger parties now have three main avenues available to have a proposed acquisition or merger considered and assessed under the Act—these are listed below.

In addition to the three options listed below, as there is no legislative requirement that parties notify us of a proposed acquisition, merger parties also have the option of proceeding with a merger without seeking any regulatory consideration. However, pursuing this option may put merger parties at risk of the ACCC or other interested parties taking legal action under s. 50 on the basis that the merger would have the effect or likely effect of substantially lessening competition in one or more substantial market.

Merger parties are encouraged to approach us on a confidential and informal basis as soon as there is a real likelihood that a proposed acquisition may proceed, to discuss possible competition issues and options for having the matter considered. It is imperative that parties choose from the outset whether to pursue either an informal or a formal merger clearance, not both. 

Application to the ACCC for informal merger clearance under section 50

Consideration of merger proposals on an informal basis provides the merger parties with the ACCC’s informal view on whether a particular proposal is likely to breach s. 50 of the Act and, by implication, whether we would challenge the merger in the Federal Court of Australia. An informal view by us not to oppose a merger or acquisition does not provide merger parties with protection from legal action by the ACCC or other parties under s. 50. There is no review mechanism available to the merger parties or third parties to appeal an informal merger clearance decision by the ACCC.

If we consider that an acquisition contravenes s. 50 of the Act and the parties do not agree to modify or abandon the acquisition, we can apply to the Federal Court for an injunction, divestiture or penalties.

For further details, see the ACCC’s Merger review process guidelines July 2006 at the bottom of this page.

Application to the ACCC for formal clearance of a proposed merger

Section 95AC of the Act provides that:

• We may grant a clearance to a person:
• (a) to acquire shares in the capital of a body corporate or
• (b) to acquire assets of another person.
• If we grant a clearance, s. 50 does not prevent the person from acquiring the shares or assets in accordance with the clearance.

We can grant clearance to a proposed acquisition only if it is satisfied that the acquisition would not have the effect or likely effect of substantially lessening competition in a market or markets. The onus is on the applicant to satisfy the ACCC that the acquisition will not have such an effect.

Where clearance is granted for an acquisition, protection is conferred on the person to whom clearance was granted from the operation of s. 50 of the Act. This protection means that neither the ACCC nor any other party may initiate legal action on the basis of an alleged contravention of s. 50 of the Act for an acquisition which has been granted clearance, so long as the acquisition takes place in accordance with the clearance. The ACCC may not grant clearance to acquisitions that have already taken place.

It is important to note that applications for merger clearance can only be made for acquisitions covered by s. 50. Any ancillary arrangements or non-merger aspects of a transaction cannot be granted clearance under the formal merger clearance provisions of the Act.

The ACCC may grant clearance subject to certain conditions where those conditions are designed to reduce or eliminate competition concerns.

Should clearance be rejected by us, s. 50 will apply to the acquisition. Contravention of s. 50 permits the Federal Court to make a range of orders under Part IV of the Act, including injunctions (s. 80), penalties (s. 76) and divestiture orders (s. 81 of the Act).

ACCC determinations in respect of clearance applications may be reviewed by the Tribunal only upon application by the applicant. Applications for review must be lodged with the Tribunal within 14 days of the ACCC making its determination. Our determinations may also be appealed to the Federal Court on administrative law grounds.

For further details, see chapter 5 of the ACCC's Formal merger review process guidelines 2007at the bottom of this page.

Application to the Australian Competition Tribunal for merger authorisation

Authorisation is the process of granting protection, on public benefit grounds, for mergers and acquisitions which would or might otherwise contravene s. 50 of the Act. Authorisation may only be granted for acquisitions that have not already taken place. Applications for s. 50 authorisation of merger proposals must be made to the Australian Competition Tribunal.

Section 95AT of the Act provides that:

• The Tribunal may grant an authorisation to a person:
• (a) to acquire shares in the capital of a body corporate or
• (b) to acquire assets of another person.
• If the Tribunal so grants an authorisation then s. 50 does not prevent the person from acquiring the shares or assets in accordance with the authorisation.

The Tribunal must not grant an authorisation for a proposed acquisition of shares or assets unless it is satisfied in all the circumstances that the proposed acquisition would result or is likely to result in such a benefit to the public that the acquisition should be allowed to occur (s. 95AZH).

Once authorisation is granted for an acquisition, neither the ACCC nor any other party may take action under s. 50 in respect of the acquisition. The protection is conferred once authorisation is granted and only for the period authorisation is granted.

Merits review is not available for decisions by the Tribunal on merger authorisations.

For further details, see chapter 6 of the ACCC's Formal merger review process guidelines at the bottom of this page.