The Australian Competition and Consumer Commission has today issued revised guidelines on how it assesses mergers.
They reflect the ACCCs experience in assessing over 500 mergers since the publication of the draft Merger Guidelines in 1992, just before the substantial lessening of competition test was introduced (in place of the dominance test).
"Experience shows the basic approach, which follows overseas practice and Court and Tribunal decisions, to be sound," ACCC Chairman, Professor Allan Fels, said today. "There has been little or no change in the core analytical approach adopted in 1992. However, some changes have been made in the application of the guidelines in the light of experience in the past four years. There has been greater recognition of (a) the role of merger law in deregulatory sectors and (b) the increased exposure of business to global markets.
"Merger policy makes an important contribution to the achievement of a competitive and productive Australian economy. Regulation of anti-competitive mergers is an important part of National competition policy. Trade practices merger law conforms with the principles of natural competition policy agreed to by all Australian Governments when the Hilmer Review was established. These principles included:
1. No participant in the market should be able to engage in anticompetitive conduct against the public interest;
2. Conduct with anticompetitive potential said to be in the public interest should be assessed by an appropriate transparent assessment process, with provision for review, to demonstrate the nature and evidence of the public costs and benefits claimed. (See Hilmer Inquiry, Terms of Reference).
"The ACCC has not opposed any mergers in markets with substantial import competition in the past five years.
Merger policy is critical to ensure competitive input markets for trade exposed sectors. The ACCCs priorities remain with mergers in the non-traded goods and services sector.
"Merger policy is of special importance to sectors undergoing privatisation and deregulation.
It is essential that the pro-competitive effects of deregulation not be undone by anti-competitive mergers."
One hypothetical example would occur if an electricity generation monopoly is split up into a number of competing generating businesses. A subsequent merger of them could be anticompetitive and inefficient. Similarly if the monopoly is split up vertically so that generation, transmission and distribution are run as separate businesses, a vertical reintegration merger could be anticompetitive and inefficient.
There are potentially many examples where the positive effects of de-regulation could be undone through mergers, in sectors such as energy (electricity, gas et cetera), communications (telecommunications, broadcasting et cetera) transport (ports, airports, rail, et cetera), water, health, primary industry (agricultural marketing boards such as sugar, milk, eggs et cetera).
Increased exposure to global markets is placing pressure on domestic firms to reduce costs, improve quality and service and innovate in order to become more competitive in those markets. Mergers can play an important role in achieving such efficiencies. These factors are reflected in the revised Guidelines, which:
- provide clear guidance on the Commissions assessment of import competition; and
- place greater emphasis on the relevance of efficiency in merger assessments.
Specific steps taken by the ACCC include:
- greater emphasis on the relevance of efficiency considerations under section 50. Traditionally when firms argue that a merger may lead to greater efficiency this has been regarded as most relevant to applications for authorisation of mergers. The Guidelines now expressly recognise that in some circumstances a merger that reduces costs may contribute to improved competition and that this may be taken into account at the stage of considering whether or not a merger is likely to breach section 50 (which prohibits mergers likely to substantially lessen competition).
- adoption of an indicative position of not opposing mergers where a sustained and competitive level of imports exceeds ten per cent of the market.
- a review of other less direct impacts of internationalisation of trade and commerce on domestic competition to see whether any further general revisions should be made to the Guidelines.
- adoption of the Industry Commissions suggestion to consider the implications of liberalising the market share thresholds below which mergers will not be scrutinised. The ACCC will in 1996-97 review all mergers against both the current thresholds and those suggested for consideration by the IC and publish the results of that review.
- in the (many) cases where mergers are notified but fall below the existing thresholds (and possibly those suggested by the IC) there will be a fast track review process.
- the impact of deregulation and privatisation on market definition and the Commissions role in reviewing privatisations and mergers in deregulating industries, have been specifically dealt with in the revised Merger Guidelines.
- the impact of changes over time and functional dimensions of competition on market definition has been clarified.
- detailed guidance on the Commissions approach to accepting and enforcing section 87B undertakings.
- discussion of the circumstances in which the Act will apply to overseas transactions and partial share acquisitions.
- discussion of the extension of the Act to mergers in the non-corporate sector and the removal of State powers to exempt mergers, following the Hilmer review process
- clarification and further discussion of the Commissions approach to efficiency factors in the authorisation process.
Copies of the revised Guidelines are available from all ACCC offices.