A merger and acquisition (M&A) process can be expensive and risky. Even before important documents are passed across the boardroom table, there are considerations under s 50 of the Competition and Consumer Act 2010 (Cth) as to whether or not the M&A will “substantially lessen competition” in the market. Contravention of this provision by a company may result in penalties up to $10 million, as well as the unforgiving detangling of corporate assets. That doesn’t even touch on the millions of dollars that might have been spent in preparation, or fighting a costly injunction by the Australian Competition and Consumer Commission (ACCC). As a result, companies seeking to undergo such a process look for any protection that they can get.
There are three options for companies looking for such an assurance:
- formal review by the ACCC;
- informal review by the ACCC; and
- authorisation by the Australian Competition Tribunal.
There is also a growing fourth option, opened in the wake of Australian Gas Light Co v ACCC (No 3)  FCA 1525, where the company seeks a Federal Court declaration that their planned merger will not contravene the Act.
Most interesting, from a critical perspective, is the first option above. In the six years since the formal review process was introduced it has not once been used. By far the most popular is the second “informal” process. Indeed, the formal review was introduced to remedy problems identified in the informal process. Proponents of the formal review argued that it would guarantee that the ACCC would not oppose the M&A, increase transparency and accelerate the review process.
Unfortunately, the reality is far different.
The ACCC has only once opposed an informal review that they accepted, and then on other grounds. Even refusal by the ACCC can now be overcome by Federal Court declaration as above, if they choose to oppose it at all.
After the introduction of the formal process, changes were also made to increase transparency of the informal process.
Finally, the “acceleration” is only illusory: companies pay $25,000 to begin the formal review (unlike the free informal process) and if the ACCC runs out of time the review is automatically considered unacceptable unless the applicant grants an extension, which negates the purpose of “acceleration”. With so much riding on the review outcome, it would be hard to find a company unwilling to grant one!
Further, the process is not confidential and requires a greater amount of preliminary information to begin. Meanwhile, the informal process has self-regulated its own identified issues, and those that remain are outweighed by its perceived benefits. In such a situation, it is easy to see why the formal process is likely to remain at the table, waiting for a liaison likely never to happen.
Merger review processes are examined in the updated The Laws of Australia Subtitle 4.6 “Company Takeovers”, while the wider impact of s 50 is given scope in the updated Subtitle 30.2 “Restrictive Trade Practices”.
For more information about The Laws of Australia click here.