The Government has released exposure draft legislation for its proposed merger control reforms, the Treasury Laws Amendment Bill 2024 (Exposure Draft). We have previously covered these reforms in our article Generational Reforms to Merger Control: What you Need to Know. Broadly, the Exposure Draft is consistent with the Government’s previous announcements, and sets out a framework for the mandatory notification of transactions, the aggregation of serial or ‘creeping’ acquisitions, new review timelines, and changes to the substantive test for Australian Competition and Consumer Commission (ACCC) approval.
In this update, we focus on a handful of unexpected developments that have important implications for dealmaking.
Key developments:
- We still don’t know what the notification thresholds will be. The Exposure Draft does not set out what the transaction value, party turnover and/or market share thresholds for notification will be. Those thresholds will instead be subject to further consultation and then set by the Minister in regulation. The Minister will also have the power to set specific, lower thresholds for “high-risk” transactions.
- Only “control” transactions are notifiable, but the bar for “control” is low. The Exposure Draft makes it clear that an acquisition of shares is notifiable (subject to the notification thresholds, once set) only if it confers “control” of a body corporate. However, “control” is defined broadly as the capacity to directly or indirectly “determine the policy” of a body corporate, having regard to “practical influence” (rather than strict legal rights) and any pre-existing “practice or pattern of behaviour”. Further, a person with only 20% or more voting power in a body corporate is presumed to have “control”. While that presumption can be rebutted with evidence to the contrary, the broad definition of “control” may in practice leave an acquirer with little scope to do so. We expect that the application of Australia’s corporations legislation, which involves similar concepts of corporate policy determination, practical influence and patterns of behaviour, will come to inform the ACCC’s approach here.
- The ACCC will be calling the shots throughout. The ACCC will have the power to determine that a notification is materially “incomplete”, misleading or false. In those circumstances, the effective notification date – from which the statutory review timelines begin to run – becomes the date on which a notifying party provides the ACCC with the necessary further information or documents. More worryingly, a notifying party will be under an ongoing obligation to update the ACCC on any “material changes of fact”, in which case the ACCC may change the effective notification date and restart the review timeline from scratch. A material change of fact could include, for example, the exit of a major competitor that has nothing to do with the transaction itself, or a regulatory change that raises barriers to entry for third-parties. And of course, the ACCC will be able to “stop the clock” on the statutory timeline by issuing requests for information or using its compulsory information gathering powers. Overall, the process will be one in which the merger parties are constantly exposed to timing risks, many of which they will have little or no ability to control.
- The ‘substantial lessening of competition’ test is changing – and not just for mergers. The Government had previously announced that the existing “merger factors” in the legislation would be replaced with “principles” that focus on market structure, the conditions for competition, the market position(s) of the merger parties, and any entrenchment of market power. However, in seeking to reflect this approach, the Exposure Draft makes changes to the foundational “substantial lessening of competition” test used to prohibit various forms of anti-competitive conduct, including misuse of market power, exclusive dealing and concerted practices (e.g., information sharing between competitors). In particular, the Exposure Draft provides that a “substantial lessening of competition” can result from the mere “strengthening or entrenching” of existing market power, potentially giving the ACCC a new and broadly applicable hair-trigger for competition law breaches by market-leading businesses in concentrated industries.
- The consultation period is very short. The Exposure Draft and explanatory materials total over 180 pages of sometimes intricate detail. Nevertheless – and notwithstanding the importance of the reforms and possibly wide-ranging impact of changes to the foundational ‘substantial lessening of competition’ test – the Government’s latest consultation period will only run until 13 August 2024. A cynic would observe that the length of a consultation is often inversely proportional to the prospect of a government changing anything in response to feedback. It therefore appears likely that the legislation will be introduced in its current form with few, if any, substantive changes.
The Treasury will continue its consultation process – including on the notification thresholds and filing fees – over the remainder of 2024.
Stay ahead
To stay ahead of the curve, it’s crucial to understand these changes and how they will affect your transactions. For detailed advice tailored to your specific needs, contact Partner Alistair Newton.
