Australia’s current merger laws are primarily governed by the Competition and Consumer Act 2010 (CCA). The Australian Competition and Consumer Commission (ACCC) assesses mergers and acquisitions to ensure they don’t substantially lessen competition. However, Australia’s merger laws have been criticised for being less stringent compared to some other jurisdictions, such as the United States and the European Union. Concerns have been raised about market concentration and the dominance of certain players has led to calls for reform.

The Australian Government has recently proposed a significant overhaul of the country’s merger review system. The proposed merger reform seeks to amend the CCA to strengthen the merger review process and enhance competition in the market, and to create a more robust, streamlined, and transparent merger control regime.

The reform seeks to strike a balance between promoting competition and ensuring the efficient operation of markets. It aims to prevent anti-competitive mergers that could harm consumers or restrict competition while facilitating mergers that enhance efficiency and benefit consumers.

However, the business community’s response to the proposed reforms varies. While some corporations might express concerns over increased regulatory burden and compliance costs, other businesses and consumer advocacy groups welcome the changes as a means to level the playing field and protect competition.

KEY FEATURES OF THE PROPOSED REFORMS

1.   Mandatory and suspensory merger control system

The cornerstone of the reform is the introduction of a mandatory and suspensory merger control system. This new system will replace the current voluntary “informal clearance” regime and the merger authorisation process. The proposed changes are expected to result in substantial modifications to the ACCC merger process.

2.   ACCC as the primary administrative decision-maker

Under the proposed reforms, the ACCC will serve as the primary administrative decision-maker for all mergers. This represents a fundamental shift from the current system, where merger parties have the right to have mergers determined by the Federal Court.

While the Federal Court will no longer play a role in initial merger decisions, parties will still have the right to seek merits review of ACCC decisions in the Australian Competition Tribunal. This review process will be similar to the current merger authorisation process.

3.   Mandatory notification and lowering of thresholds

The proposed reforms introduce a mandatory notification requirement for mergers that meet certain turnover-based and market-share based notification thresholds.

The specific thresholds will be confirmed following public consultation, but it is proposed that the thresholds will be substantially lowered. This means that more mergers will come under scrutiny, increasing the oversight on potential anti-competitive deals, which may lead to a more rigorous assessment process.

Additionally, all mergers within the preceding three years by the acquirer or the target will be aggregated to determine whether the merger triggers the notification threshold and therefore must be notified to the ACCC. The cumulative effect will be assessed regardless of whether individual mergers in the past three years were notifiable.

Mergers that fall below these thresholds may still be voluntarily notified to the ACCC. The ACCC may also investigate transactions which are not notified for breach of any other relevant provisions of the CCA.

4.   Suspensory regime

The proposed reforms also introduce a suspensory regime. Under this regime, mergers notified to the ACCC will be ‘suspended’ from completing while the ACCC undertakes its review, unless approved by the ACCC or the Australian Competition Tribunal.

5.   Guidance on factors considered

Merger factors under s50(3) of the CCA will be replaced by a list of principles. The Treasury has so far listed considerations such as the need to maintain and develop effective market competitions, market structure, conditions for competition, and the actual or potential competition from business in Australia. Further details will be developed in consultation with the ACCC and will be subjected to periodic updates of merger assessment criteria.

By providing clearer guidance and considering a broader range of factors, the reform aims to prevent mergers that could harm competition and consumers.

6.   Pro-competitive benefits

The reform explicitly considers pro-competitive benefits of mergers, such as efficiencies and innovation, while balancing these against potential anti-competitive effects. This explicit consideration of pro-competitive benefits aims to encourage mergers that enhance efficiency and innovation, ultimately benefiting consumers through lower prices and improved products or services.

7.   Transparency and accountability

There is a push for greater transparency and accountability in the decision-making process, ensuring that stakeholders understand the rationale behind the ACCC’s decision.

BENEFITS OF THE PROPOSED MERGER SYSTEM

The new merger system proposed in the merger reform report could offer several potential benefits for businesses:

1. Efficiency: The proposed system aims to make the merger process faster and more efficient. This could save businesses valuable time and resources.
2. Clarity: The increased transparency and upfront notification requirements could provide businesses with more clarity about the merger process and what is expected of them.
3. Fair competition: The new competition and public benefits tests could lead to a more competitive market, potentially creating more opportunities for businesses.
4. Predictability: The proposed system could make the merger process more predictable, helping businesses to plan more effectively.
5. Appeal mechanism: The possibility of review of ACCC determinations provides businesses with an avenue for appeal if they disagree with a decision, potentially leading to more fair outcomes.

CHALLENGES AND CRITICISMS

While the new merger system proposed in the merger reform report has several potential benefits, it could also present some challenges for businesses:

1. Increased compliance burden: The proposed changes, including upfront notification requirements and new competition and public benefits tests, could increase the compliance burden for businesses. Businesses may face increased compliance costs due to the expanded scope of merger reviews and the need to provide more detailed information to the ACCC. They may also need to invest more resources into ensuring they meet these requirements.
2. Uncertainty during transition: As with any significant change, there could be a period of uncertainty as businesses adjust to the new system. This could create temporary challenges, particularly for businesses that are in the process of planning or executing mergers.
3. Potential for delays: While the proposed system aims to be faster, the introduction of new tests and requirements could potentially lead to delays in the merger process. This could occur if businesses or the ACCC need additional time to assess the competition and public benefits of a proposed merger.
4. Risk of penalties: The proposed penalties for non-compliance could pose a risk for businesses. If they fail to comply with the new requirements, they could face significant penalties.
5. Increased scrutiny: The new system could lead to increased scrutiny of mergers and acquisitions. While this could benefit competition and consumers, it could also make the merger process more challenging for businesses.
6. Impact on innovation: There are concerns that overly stringent merger regulation could stifle innovation by discouraging mergers that could lead to efficient gains and technological advancements.

IMPLEMENTATION AND FUTURE STEPS

The proposed reforms are expected to come into effect from 1 January 2026. The effectiveness of the new merger control system will be subject to review by the Treasury three years after its implementation.

The Australian Government’s merger reform proposal represents a significant shift in the country’s merger control regime. The proposed changes are expected to drive improvements in productivity, put downward pressure on prices, and deliver more choice for Australians dealing with cost-of-living pressures. By broadening the evaluation criteria, strengthening regulatory oversight, and focusing on emerging issues like tech dominance, the reforms aim to promote competition, protect consumer interests, and ensure the long-term sustainability of Australia’s economy.

However, the success of these reforms will depend on effective implementation, stakeholder collaboration, and ongoing monitoring to address any unintended consequences.