ACCC & AER annual report 2016-17

Analysis of performance: Assessing mergers

Deliverable 1.2: Assess mergers to prevent structural changes that substantially lessen competition

Merger reviews

In reviewing mergers, the ACCC aims to work efficiently, transparently and effectively, taking account of the commercial needs of the parties involved. We take a scaled approach to merger assessments whereby merger proposals are triaged to ensure that non-contentious mergers are dealt with expeditiously and information required from merger or other parties is tailored according to the complexity of the issues raised. The ACCC also seeks to inform the public, businesses and their advisers about the merger review process. We publish indicative timelines for assessments of proposed mergers under public consideration on our online mergers register, unless the merger is cleared after an initial assessment (that is, ‘pre-assessed’) or subject to a confidential review. Our approach to informal merger reviews is outlined in appendix 6.

We considered 288 matters under s. 50 of the Act in 2016–17—a decrease of 10 per cent on the 319 matters in 2015–16. Of the 288 mergers considered:

  • 253 were assessed as not requiring a public or confidential review (pre-assessed)—a decrease of 12 per cent on the 287 pre-assessments in 2015–16
  • 33 mergers were subject to a public review—an increase of 6 per cent on the 31 public reviews in 2015–16
  • two mergers were subject to a confidential review.

Of the 33 public reviews and two confidential reviews that were conducted in 2016–17:

  • we did not oppose outright any mergers that underwent a public informal review
  • we expressed opposition to or concerns about two confidential mergers that did not ultimately proceed
  • we accepted court enforceable undertakings in relation to two mergers to address competition concerns, resulting in these mergers being cleared subject to undertakings
  • eight reviews were discontinued either because the transactions did not proceed or because the parties withdrew their request for clearance. In all eight of these matters we released a statement of issues identifying issues of concern or issues that may raise concerns
  • we did not oppose, unconditionally, 23 mergers that underwent a public informal review. Of these, two were reviews of completed acquisitions where we discontinued the investigations.

We unconditionally cleared 66 per cent of mergers that underwent a public or confidential review. This figure increases to 96 per cent when all mergers (including pre-assessments) are included. In 11 matters we used our formal information-gathering powers under s. 155.

Example of a significant merger review resulting in a decision not to oppose: News Corporation and APN Australian Regional Media

On 8 December 2016 the ACCC announced its decision not to oppose the proposed acquisition by News Corporation (News) of APN News & Media’s Australian Regional Media division (ARM). Before the proposed acquisition, News and ARM were the two largest newspaper publishers in Queensland.

Our review considered whether the proposed acquisition would be likely to substantially lessen competition for the supply of local news and local advertising opportunities in five areas where News and ARM supplied free publications. We also considered the supply of news and information to readers in regional areas where the paid daily newspaper The Courier Mail, published by News, overlapped with several paid daily regional ARM newspapers.

The ACCC contacted over 600 interested parties about the acquisition. Most of them expressed minor or no concerns.

Our analysis indicated that, although News would own the vast majority of print newspapers in Queensland after the acquisition and have a strong online news presence, there was limited competition between the parties before the proposed acquisition. Further, a number of non-print alternatives would exist in each relevant market following the proposed acquisition.

Our conclusions were also informed by the declining readership and reduced advertising revenues of hard-copy publications, as readers and advertisers increasingly access digital news and digital advertising opportunities.

Statement of issues

When the ACCC reaches a preliminary view that a merger raises competition concerns requiring further investigation, it releases a ‘statement of issues’. A statement of issues provides our preliminary views, drawing attention to particular issues of varying degrees of competition concern and identifying the lines of further inquiry that we wish to take. The purpose of the statement of issues is to provide guidance to the merger parties and other interested parties and to invite further information that may either alleviate or reinforce our concerns.

After public consultation on a statement of issues, we may decide that our concerns are valid. Where competition concerns remain, we may consider any undertakings put by the merger parties to resolve them.

In 2016–17 we released a statement of issues in relation to 13 mergers, all published on our online mergers register.

The ACCC released a statement of issues in the following matters:

Table 3.12: Statement of issues released

Statement of issues released 2016–17

APN Outdoor Group Limited—proposed merger with oOh!media Limited

Australian Grain Technologies Pty Ltd—proposed acquisition of InterGrain Pty Ltd

Tabcorp Holdings and Tatts Group—proposed merger

Caltex Australia Petroleum Pty Ltd—proposed acquisition of assets from Milemaker Petroleum

South32 Limited—proposed acquisition of Metropolitan Collieries Pty Ltd

PMP Limited—proposed merger with IPMG Group

DowDuPont Inc—proposed acquisition of EI du Pont de Nemours and Company and The Dow Chemical Company

Link Administration Holdings Limited—possible acquisition of Superannuation Corporation Administration (trading as Pillar)

Aurizon Operations Limited—proposed acquisition of Glencore Rail (NSW) Pty Ltd—statement of issues

Pacific National—proposed acquisition of certain assets and interests of Glencore Rail—statement of issues

News Corporation—proposed acquisition of APN News & Media Limited’s Australian Regional Media division

Seven West Media Limited—proposed acquisition of The Sunday Times publication and website from News Limited

The Borg Group—proposed acquisition of MDF manufacturing assets of Alpine MDF Industries Pty Ltd

Significant merger proposals withdrawn before reviews completed

A number of significant merger transactions were withdrawn from consideration by the merger parties following the release of a statement of issues and before we completed our review. These included:

  • DYWIDAG-Systems International Group—proposed acquisition of Jennmar Australia
  • The Borg Group—proposed acquisition of MDF manufacturing assets of Alpine MDF Industries Pty Ltd
  • Aurizon Operations Limited—proposed acquisition of Glencore Rail (NSW) Pty Ltd
  • Pacific National—proposed acquisition of certain assets and interests of Glencore Rail
  • Link Administration Holdings Limited—possible acquisition of Superannuation Corporation Administration (trading as Pillar)
  • Tabcorp Holdings and Tatts Group—proposed merger
  • South32 Limited—proposed acquisition of Metropolitan Collieries Pty Ltd
  • APN Outdoor Group Limited—proposed merger with oOh!media Limited.

Example of a significant merger review where the merger parties decided to terminate the transaction following preliminary competition concerns being raised

On 19 May 2017, the ACCC discontinued its review of the proposed merger between APN Outdoor Group Limited and oOh!media Limited (the proposed merger) following an announcement by the merger parties that they were terminating the transaction in the light of the concerns expressed by the ACCC. The ACCC had released a statement of issues on 4 May 2017 in which it identified preliminary competition concerns about the merger, which would combine the two largest providers of out-of-home advertising services in Australia.

The ACCC’s review focused on whether the proposed acquisition would be likely to substantially lessen competition in the market for out-of-home advertising. Out-of-home advertising reaches consumers on the move or in particular environments. It comprises various different categories, including large, high-impact banners and billboards; advertisements on bus shelters, in stations and on trains, taxis and buses; and advertisements at leisure centres, in public amenities and in shopping malls and supermarkets.

The ACCC took the view that out-of-home advertising has special characteristics that are not easily replicated by other advertising channels, including the fact that it has dominant visibility for its audience in their immediate location and is involuntary in the sense that it is ‘inescapable’ and cannot be switched off.

While recognising the significant recent growth in digital online advertising (such as on Google and Facebook), we concluded that the special characteristics of out-of-home advertising channels indicate that digital online advertising is not a close substitute.

The ACCC found that APN Outdoor Group and oOh!media are each other’s closest competitors in out-of-home advertising. We identified three major preliminary concerns in our statement of issues:

  • less competition in the market for the supply of out-of-home advertising services (leading to higher prices, reduced service levels and less innovation)
  • higher barriers to entry and expansion, because of scale and bundling
  • less competition in the market for leasing of out-of-home advertising sites (leading to lower site rents for landlords).

Other providers of out-of-home advertising focus on specific categories. The ACCC’s preliminary view was that they would not provide sufficient competitive constraint on the merged entity.

Public competition assessments

A public competition assessment is a document that gives a detailed summary of the issues that we considered when deciding whether a merger would substantially lessen competition or would be likely to do so.

  • We use public competition assessments to help the public to understand our analysis of the competition issues involved in certain merger reviews.

In 2016–17 we issued a public competition assessment for three merger reviews. We generally publish a public competition assessment on our online mergers register when:

  • we oppose a merger
  • a merger is subject to enforceable undertakings
  • the parties to the acquisition seek the disclosure
  • a merger is cleared but raises important issues that we believe should be made public.

Table 3.13: Public competition assessments issued

Public competition assessments issued 2016–17

Consortium comprising Brookfield, Qube and others—proposed acquisition of Asciano Limited

Metcash Ltd—proposed acquisition of Home Timber and Hardware Group

PMP Limited—proposed merger with IPMG Group

Merger remedies

The ACCC can accept court enforceable undertakings under s. 87B of the Act to resolve competition concerns raised by an acquisition.

In 2016–17 we accepted s. 87B undertakings to address competition concerns in relation to two mergers and enabled the acquisitions to be cleared subject to the undertakings.

Metcash Ltd—proposed acquisition of Home Timber & Hardware

On 21 July 2016 the ACCC announced it would not oppose a bid from Metcash to acquire rival hardware wholesaler Home Timber & Hardware (HTH) from Woolworths, after accepting a court enforceable undertaking from Metcash.

Woolworths conducted a sale process in respect of its HTH and Masters businesses, and Metcash was a bidder for HTH.

Metcash’s Mitre 10 business is a wholesaler of hardware and home-improvement products to independent retailers, including those trading under Metcash’s Mitre 10 and True Value Hardware brands. Metcash also offers support services to retailers trading under its brand banners. Metcash supplies products to about 325 Mitre 10 and True Value Hardware bannered retailers and about 500 non-bannered retailers.

HTH (previously operating as Danks) was a wholesaler of hardware and home improvement products to independent retailers, including those that operated under its brands Home Timber & Hardware, Thrifty-Link, Hardings Hardware and Hudson Building Supplies. HTH supplies over 400 bannered retail stores, comprising a mix of company-owned and independent businesses. It also supplies about 1000 non-bannered retailers.

The ACCC looked closely at the competition issues surrounding Metcash acquiring its only rival full-service wholesaler, and received a range of feedback from affected hardware retailers, many of which are small businesses. The review also took account of the indirect competitive constraint on Metcash’s wholesale activities from the large national retailer Bunnings.

The purpose of the undertaking we accepted is to give independent retailers the ability to bypass Metcash by using buying groups or negotiating directly with manufacturers. It also intends to facilitate entry by any new wholesaler that may emerge. Metcash also undertook not to discriminate against independent hardware retailers in favour of its own stores.

Retailers trading under the Home Timber & Hardware, Thrifty-Link, True Value Hardware or Mitre 10 banners can decide to leave those brands and establish themselves as unbannered independent retailers. The undertaking prevents Metcash restricting independent hardware stores from acquiring products from non-Metcash sources.

Public s. 87B undertakings are summarised in appendix 8.