Merger reform exposure draft proposes broad competition law reform

On July 24 2024, the Australian Federal Government released its long-awaited exposure draft legislation to amend Australia's current informal merger clearance process to a mandatory merger control regime (Exposure Draft). While the framework for the proposed mandatory merger control regime is consistent with expectations following previous Government announcements (see our previous alert), the Exposure Draft provides new details which will significantly shift how competition will be assessed under the Competition and Consumer Act 2010 (Cth) (CCA) not only for merger control but for doing business in Australia more broadly. 

What this means for you

If passed, the proposed amendments will make Australia one of the more stringent merger regimes in the world. Under the new regime:

• Transactions that previously would not have been notified will now be subject to mandatory notification obligations.  In particular, acquisitions of a 20% or greater interest in a target will be presumed to confer control and therefore trigger a notification. 
• The ACCC will be bound by legislated review timeframes. However, there are a number of circumstances in which timeframes can be extended. 
• Parties transacting in the second half of 2025 will need to closely monitor their likely closing date and determine whether they are caught by the new regime. 
• More complex transactions will potentially attracting separate fees, for a Phase I, Phase II and public benefits review, as well as where the applicant is required to provide additional information following a determination that the notification is materially misleading or incomplete.

The amendments also propose a significant shift in the substantial lessening of competition test to apply across the entire CCA, extending the prohibition to capture "creating, strengthening or entrenching a substantial degree of power in a particular market or in any market".

Notifiable transactions

The proposed framework will broadly apply to both direct and indirect acquisitions of shares or assets by corporations, capturing acquisitions that provide control or material influence over the acquired business.  Importantly, there will be a rebuttable presumption of control where a person holds 20% or more of the voting power in a body corporate. Acquisitions below a 20% voting power threshold (absent control), temporary holdings by financial institutions, intra-group restructures and ordinary business transactions will be carved out.

Critically, the rebuttable presumption of control will put Australia out of step with the majority of leading jurisdictions including the European Union. This will result in some transactions triggering a filing in Australia which do not meet the filing criteria in many other mandatory jurisdictions.

Notification thresholds

While the notification thresholds for filing remain unknown, the Exposure Draft indicates that the Minister will have powers to designate thresholds for certain industries or classes of acquisitions that are considered high risk. While other jurisdictions have introduced industry specific rules, such as the expanded powers of the UK Competition and Markets Authority in relation to digital platforms, this approach is rarely taken.

Review timeline

The timelines for review by the ACCC are consistent with previous announcements:

• Phase 1 Determination: up to 30 business days, or if no issues are identified, a 'fast-track' determination may be made after 15 business days. The fast-track process will likely be reserved for those technical filings which trigger the mandatory financial filing thresholds but are in unrelated industries or purely financial investments.
• Phase 2 Determination: if no decision is made in Phase I and the ACCC reasonably suspects that the notified acquisition would have the effect or likely effect of substantial lessening competition, it has an additional 90 business days for review.

These timelines aim to provide businesses with certainty on ACCC decisions. However, the ACCC can extend these periods under certain conditions:

• Extending Phase II if the ACCC has not provided a  ‘notice of competition concerns' by the 25th business day from the start of Phase II, or if the ACCC grants extensions for submissions in response to a notice of competition concerns are granted.
• Changing the notification date to the date the ACCC becomes aware of a material change in fact, with the determination due within a reasonable period thereafter.

The review periods also do not commence until the ACCC has received a complete notification, thereby giving the ACCC more flexibility as to when the ‘clock starts' for its review. The acquisition is deemed approved if the ACCC fails to make its decision within the legislated timeframes, with longer pre-assessment timeframes therefore likely, extending the overall review period.

Substantial lessening of competition test

The Exposure Draft proposes significant amendments to the meaning of substantially lessening competition to include "creating, strengthening or entrenching a substantial degree of power in a particular market or in any market". The intention, to target acquisitions by dominant firms of small or nascent competitors, capturing incremental changes in market power that may amount to a substantial lessening of competition. 

The extension of what constitutes a substantial lessening of competition as it applies to mergers was expected and will bring Australia more in line with the substantive tests for merger control in the EU and China.¹  What was not expected is the Exposure Draft proposal to apply this extended meaning across the entirety of the CCA. This means that unilateral conduct such as misuse of market power, exclusive dealing and other anticompetitive agreements and concerted practices will be subject to the broader test. This expansion has not previously been consulted on by the Federal Government or the Competition Review expert advisory panel. If passed, the proposed amendment will make it increasingly difficult for dominant firms to distinguish between lawful and unlawful conduct, potentially stifling their ability to engage in innovative and efficiency producing activities.

Filing fees

Filing fees are still to be determined and will be set on a cost recovery basis. Fees may be charged at several points in the review process, namely at the time of the notification, upon provision of further information to the ACCC in response to a determination that the application was materially incomplete or misleading or contained false information, at commencement of a Phase II review and at the commencement of a public benefits review.

Transitional arrangements

At this stage, how transactions taking place during late 2025 will be affected remains unclear. The Exposure Draft provides that

• From 1 July 2025 the existing merger authorisation process (which applies the public benefit test) will be closed to new applications.
• From 1 December 2025 parties can voluntarily notify under the new regime. The ACCC can begin its examination but cannot make a determination until after 1 January 2026.
• From 1 January 2026 all transactions which meet the filing thresholds must be notified. In the absence of any other guidance, it is assumed that this includes transactions which have signed but not closed.

It will be critical for parties transacting in the second half of 2025 to closely monitor their anticipated closing date and determine whether they are caught by the new regime. Merger parties should also be aware of potential delays either prior to 1 January 2026 as a acquirers bring forward their transactions in order to obtain clearance under the current voluntary regime of shortly after 1 January in the event of any teething problems.

Conclusion

If passed, the proposed regime will, in principle, reflect the approach taken in other jurisdictions, such as the EU, China and USA. However, certain provisions go further than other major antitrust jurisdictions, including the 20% thresholds for presumed control, the power to designate certain industries or types of acquisitions as receiving special treatment, and the potential for multiple filing fees to be payable. 

Consultation is open until 13 August 2024. Businesses should consider the ramifications of the Exposure Draft, particularly the changes to the substantial lessening of competition test and submit to the consultation where there are likely adverse implications for its operations.

_{1 See our previous article here.} 

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2024 White & Case LLP}