As Australia moves to reform merger laws to introduce a mandatory and suspensory notification regime, significant interest has surrounded the thresholds that would be used to trigger mandatory notification to the Australian Competition and Consumer Commission (ACCC).
Treasury has released a consultation paper on the Government’s proposed mandatory notification thresholds. This is the start of the final stage of the consultation process on the exposure draft legislation which sets out the legal framework for the new merger regime and some key elements. Once Government has settled its approach to the thresholds, further consultation will be undertaken on the relevant subordinate legislation.
Under the new merger regime, the focus is on acquisitions that give rise to the capacity to control or influence the competitive behaviour of the target business. The proposal defines “control” as the capacity to directly or indirectly determine the policy of the body corporate in relation to one or more matters. In such transactions, to trigger mandatory notification, a complex set of both monetary (turnover and value of transaction) and market concentration (market share or share of supply) economy-wide thresholds are being proposed for consultation.
Monetary thresholds
Limb 1: Turnover plus transaction value
- Combined Australian turnover of the merger parties (and the acquirer’s group) is at least $200m; and
- Either the Australian turnover for at least 2 of the merger parties – ie. acquirer and seller – is at least $40m for each party or the global transaction value is at least $200m.
Implication: For deals between parties with a combined Australian turnover at or above $200m, where each party has a $40m turnover, all transactions are notifiable as there is no "transaction value" requirement.
If the acquirer has a large turnover at or above $200m but the target is small with an Australian turnover less than $40m, the transaction is only notifiable if it is part of a global transaction with a value at or above $200m.
Limb 2: Large acquirers
Alternatively, if the acquirer group’s Australian turnover is at least $500m and either the Australian turnover of each of at least 2 merger parties is at least $10m or the global transaction value is at least $50m.
Implication: Acquisitions by large acquirers will be notifiable in cases where the merging parties each have an Australian turnover of $10m or more irrespective of transaction value, or where the deal is part of a global transaction with a value at or above $50m.
Cumulative turnover thresholds
In addition to the foregoing requirements, and in line with the focus on serial/creeping acquisitions, all acquisitions by the acquirer or acquirer’s group in Australia within the last three previous years within the same product/service market (but irrespective of geographic location) are proposed to be aggregated for the purposes of assessing if the monetary threshold is met only, regardless of whether these were individually notifiable transactions.
The consultation paper also floats the prospect of market share type notification requirements combined with turnover despite flagging these can create considerable uncertainty in practice.
Proposed market share/concentration thresholds
Limb 1: The combined share of the merger partes is at least 25%, where the Australian turnover of at least 2 of the merger parties (including the acquirer group) is at least $20m; or
Limb 2: The combined share of the merger parties is at least 50%, where the Australian turnover of at least 2 of the merger parties (including the acquirer group) is at least $10m.
Market share vs share of supply
Treasury has invited specific consultation on whether the market concentration test should be based on market share (combined parties' portion of total market size by sales/volume) or share of supply (combined parties’ share of supply in the goods/services they operate in). The consultation paper provides some analysis of the benefits and drawbacks to either method.
Treasury notes that:
"using market share thresholds may create some uncertainty in a mandatory merger control system. .......they are not clear and objective notification criteria. Calculating market share depends on how the product and geographic dimensions of the affected market is defined. Different market definitions can give different market shares, which could create uncertainty over whether a merger should be notified."
Businesses with mergers below the notification thresholds have to ability to voluntarily notify and opt in to the system, allowing them to obtain regulatory certainty. Businesses will also be able to apply for a "notification waiver" from the ACCC, which if granted, removes the obligation to notify the merger and can be particularly useful if there is uncertainty as to whether the notification thresholds are met.
Market concentration administrative approach
The consultation paper outlines a potential alternative administrative approach to address compliance costs and uncertainty associated with applying market concentration thresholds. Such an approach would identify certain goods or services in certain local or regional areas – eg. rural, remote or very remote areas – where prior registration is required. The consultation paper says this would balance compliance costs with the objective of preventing anti-competitive mergers in concentrated or smaller markets. It proposes that a simple administrative form could be used to register such acquisitions with the ACCC. There would be no requirement to notify acquisitions in those areas unless the ACCC requests notification within a short period of time, such as within 5 or 10 business days of registration.
Targeted notification requirements for specific sectors
The consultation paper notes that small acquisitions on specific sectors or local markets that may be considered high-risk could also be required to be notifiable to the ACCC under a Ministerial determination. This approach would allow high-risk sectors to be captured under the new merger regime without the need to lower the economy-wide notification thresholds.