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Recent trends in ACCC merger decisions
Following the concentration of many Australian sectors and the Australian Competition and Consumer Commission’s (ACCC) calls for merger reform, the watchdog will, moving forward, take a more cautious approach to transactions that involve access to data sources, a new report has revealed.
Lauren Croft
Johnson Winter Slattery (JWS) has released its annual merger report: Recent trends in complex ACCC informal merger clearance decisions, providing a statistical analysis of ACCC informal merger clearance decisions where a statement of issue (SOI) has been published.
The seventh edition of the JWS report examines the likelihood of transactions being opposed or not opposed (with or without remedies) depending on the seriousness of the preliminary competition concerns identified in an SOI. It also analyses the time taken by the ACCC to make those decisions.
According to the report, an SOI provides a strong indication of the ACCC’s views as to whether a transaction is likely to be granted informal clearance. Within the report, those views are classified as issues of concern (red light), issues that may be of concern (orange light) and issues unlikely to be of concern (green light).
The research showed that red light SOIs are not fatal to a deal, but they are becoming much harder to resolve — in 2022, six of the seven SOIs had red lights, and in all of these, merger parties either ended up withdrawing their deals altogether or offering remedies to alleviate ACCC competition concerns.
“While red light SOIs have traditionally not been fatal to a deal, they are now a clear signal to merger parties that the ACCC will block the deal unless new information can be provided or suitable remedies can be agreed,” the report stated.
“Faced with a red light SOI, merger parties continue to withdraw their deals rather than wait for a final decision from the ACCC or proceeding to court. The ACCC is also taking significantly longer to consider SOI transactions than was ever the case.”
This trend in the last five years has increased sharply, with almost 50 per cent of red light deals now withdrawn (compared to an annual average of 30 per cent since 2006). This suggests, the report noted, that merger parties are deciding that they cannot alleviate the ACCC’s competition concerns and they are not prepared to take the matter to court
Remedies may be the only way to overcome a red light, according to the report.
“Since 2006, 56 per cent of all cleared transactions with one or more red lights have required a remedy. Over 60 per cent of these deals involved structural remedies rather than behavioural remedies. In 2022, 100 per cent of cleared red light transactions (four of four) required remedies,” it stated.
“While this may be a consequence of the nature of the deals reviewed in 2022, we also think it signals the ACCC’s concerns with increased concentration across all sectors of the economy and the desire to maintain the competitive state of the market without the deal (especially in respect of the number of competitors in the market).”
In terms of different remedies for transactions, the ACCC continues to prefer structural rather than behavioural remedies — in 2022, all cleared red lights involved divestments.
The ACCC also takes five to six months to make a final decision for transactions where an SOI is issued, but the time taken to consider red light transactions in 2022 was much longer at eight months. Orange lights continue to be cleared by the ACCC at a high rate.
In terms of what the firm is expecting to see in the coming year, more rigorous investigations of all transactions mean the ACCC will take longer to assess, and it will be a more costly process for third parties.
For example, the report noted that it would be over 10 months from the time the ACCC commenced examining Qantas’ proposed acquisition of Alliance to when it proposes to make a decision. This is on top of the three-year investigation it had done previously for the 19.9 per cent acquisition.
“A number of recent cases continue to demonstrate that the ACCC is prepared to undertake a full merger review assessment of transactions involving the acquisition of minority interests. While traditionally these cases have not been considered overly problematic from a competition law perspective, they are now being viewed no differently than full acquisitions,” the report stated.
Finally, the report stated that although merger reform was not a recently announced 2023 priority, it is clearly on the ACCC agenda and involves sweeping changes to the regime. If implemented, it should provide more certainty for parties, but deals by bigger companies will be harder to get through, and parties will need to factor in ACCC clearance for all deals above the proposed threshold.
Lauren Croft
Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.
