January 2009
COMPETITION LAW UPDATE: ACCC Releases Revised Merger Guidelines
Outline
At a joint Stephens Lawyers-American Chamber of Commerce business luncheon, ACCC Chairman Mr Graeme Samuel, announced the release of the revised Merger Guidelines 2008 (" the revised Guidelines"). [1]
The revised Guidelines aim at providing information to corporations contemplating mergers and acquisitions, on the general principles behind the ACCC's approach to reviewing mergers under s 50 of the Trade Practices Act 1974 (Cth) (" TPA "). Section 50 prohibits acquisitions that would have the effect, or likely effect of substantially lessening competition in a substantial market in an Australian state or territory.
Key changes to the revised Guidelines include a new 'notification threshold' and a new approach to evaluating the 'merger factors' that the ACCC utilises to assess the competition consequences of a merger.
Background
The revised Guidelines replace the original Merger Guidelines released by the ACCC in 1999. [2] In February this year, the ACCC released a draft of the revised Guidelines for public consultation. The revised Guidelines include numerous changes made in response to that consultation process.
The ACCC has indicated that the revised Guidelines should supplement the Merger Review Process Guidelines [3] for informal merger reviews (issued in 2006) and the Formal Merger Review Process Guidelines (issued in 2007). [4]
Whilst the approach taken in the revised Guidelines does not radically depart from the framework outlined in the 1999 Guidelines, Mr Samuels stated that the new provisions "have been developed with a greater emphasis on the competitive theories of harm...and provide a better a better reflection of the approach that has developed in recent years in line with international best practice and contemporary views on anti-trust analysis." [5]
Key Areas of Review
Notification Threshold
A key change in the revised Guidelines is the simplification of the notification threshold.
Notification of a merger to the ACCC remains voluntary, however the Guidelines recommend that parties notify the ACCC in advance of completing a merger when:
- the products of the merger parties are either substitutes or complements; and
- the merged firm will have a post-merger market share of greater than 20 per cent in the relevant market/s. [6]
This is a departure from the original guidelines which had stated that the ACCC would be likely to review a merger if the merged firm would have a market share of 40% or more or if the 4 largest firms would have a combined market share of 75% following a merger.
By notifying the ACCC, parties can obtain informal or formal clearance of the merger; [7] this guards against the potential consequences that can eventuate if a merger is found to contravene s 50 of the TPA for raising competition concerns. Section 50 of the TPA, prohibits acquisitions by corporations which may substantially lessen market competition. The Guidelines indicate that mergers outside the notification threshold will rarely require investigation by the ACCC. [8]
Merger Factors
The revised Guidelines also include new information on the relevant factors the ACCC will consider in assessing whether a merger is likely to result in a significant and sustainable increase in market power. The ACCC will consider the merger factors set out in s 50(3) of the TPA alongside other relevant factors. The merger factors are intended to provide information on the likely competitive constraints that the merged firm will face post-merger. [9]
The Guidelines provide a detailed outline of the ACCC's approach to the following merger factors:
- Concentration and market shares;
- Height of barriers to entry;
- Actual and potential import competition;
- Availability of substitutes;
- Countervailing power;
- Dynamic characteristics of the market;
- Removal of a vigorous and effective competitor;
- Vertical integration;
- Ability to increase prices or profit margins.
The ACCC has adopted a new approach to assessing the affect of a merger on market concentration. The revised Guidelines use the 'Herfindahl-Hirschman Index (HHI)', [10] a market concentration calculation used in the US and the European Union to evaluate market competition.
The HHI will be used as a preliminary indicator of the likelihood that the merger will raise competition concerns requiring more detailed analysis. [11] The ACCC indicated that it would be less likely to identify horizontal competition concerns when the post-merger HHI is:
- less than 2000; or
- Greater than 2000 with a change (delta) less than 100. [12]
The Guidelines stress that the HHI threshold is not interchangeable with, or a substitute for, the notification threshold. [13]
Summary
The revised guidelines provide reliable, comprehensive and detailed information that the business community should utilise before initiating a merger.
The ACCC will continue to assess mergers on a case-by-case analysis, and has indicated that the new guidelines may be revised periodically to allow the ACCC approach to evolve with new legal precedent and best practice. [14]
Stephens Lawyers & Consultants have a high level of expertise in trade practices and competition law.
Our lawyers represent leading companies in both litigious and commercial matters, and have significant experience in writing submissions to government on behalf of clients.
For further information contact:
Stephens Lawyers & Consultants Level 3, 530 Lonsdale Street Melbourne VIC 3000 Phone: (03) 8636 9100 Fax: (03) 8636 9199 Email: stephens@stephens.com.au Website: www.stephens.com.au All Correspondence to: PO Box 13286 Melbourne Law Courts Melbourne VIC 8010To register for newsletter updates and to send your comments and feedback, please email stephens@stephens.com.au
Disclaimer: This newsletter is not intended to be a substitute for obtaining legal advice.
© Stephens Lawyers & Consultants, January 2009.
Researched and written by Colette Downie, edited by Katarina Klaric.
[1] Australian Competition & Consumer Commission, Merger Guidelines November 2008.
Available from the ACCC website at: http://www.accc.gov.au/content/index.phtml/itemId/809866 .
[2]Merger Guidelines 1999 are still available from the ACCC website at: http://www.accc.gov.au/content/index.phtml/itemId/304397 .
[3]Merger Review Process Guidelines 2006: available from the ACCC website at: http://www.accc.gov.au/content/index.phtml/itemId/740765 .
[4]Merger Review Process Guidelines 2007: available from the ACCC website at: http://www.accc.gov.au/content/index.phtml/itemId/776055 .
[5] ACCC Chairman, Mr Graeme Samuels, ACCC News Release: Revised Merger Guidelines Issuedhttp://www.accc.gov.au/content/index.phtml/itemId/850140 .
[6]Merger Guidelines November 2008, pg 9.
[7]Merger Guidelines November 2008, pg 8.
[8]Merger Guidelines November 2008, pg 8.
[9]Merger Guidelines November 2008, pg 35.
[10] For an explanation of the HHI calculation process, see Merger Guidelines November 2008, pg 37 [7.13].
[11]Merger Guidelines November 2008, pg 37.
[12]Merger Guidelines November 2008, pg 37.
[13]Merger Guidelines November 2008, pg 38.
[14]Merger Guidelines November 2008, pg 6.