Behind the ACCC’s call for a bigger say in mergers

New proposals could change the way businesses approach deal making in Australia, says competition boss Gina Cass-Gottlieb.

ACCC chair Gina Cass-Gottlieb is seeking an overhaul of merger rules. Picture: Sam Ruttyn

The way Gina Cass-Gottlieb sees it, the competition watchdog needs to be part of the merger process from the start and not be forced into a position where it is deciding on critical deals after it’s too late.

That’s the thinking behind the ACCC’s push to have Australia operate under a mandatory regime of reviewing mergers. Indeed this should be an uncontroversial move and is one that would benefit the broader economy by preventing anti-competitive outcomes before they happen, the ACCC boss tells The Australian.

A frenzy of merger deals in recent weeks including a $5bn-day of announced transactions earlier this week, means Cass-Gottlieb will have a shortened summer break with a pile of M&A to consider in the new year.

But she is urging the Albanese government to adopt a system of mandatory reporting of mergers to bring Australia in line with most other advanced economies. This will also stop deals emerging before it’s too late, she says.

The comments form part of the ACCC’s feedback on options Treasury is considering as part of a broader review of merger rules under its once-in-a-decade review of competition policy.

Under the current informal merger regime, companies are not required to inform the ACCC of a transaction – although the regulator says it is best practice for them to do so. And most ASX listed companies do.

This still means the ACCC operates under an enforcement model, which means it is taking action after the event. Cass-Gottlieb wants to turn this on its head and tilt the mergers system toward an administrative decision-making model – with a mechanism for a merits review.

The current model also means that just like law enforcement, some deals fly under the radar, or only come to the attention of the ACCC before it’s too late and it may be too difficult to unwind.

The pace of deal-making has picked up in recent weeks. Picture: NCA NewsWire / Jeremy Piper

“We encourage that there be notification and also it gives comfort to companies,” Cass-Gottlieb says in an interview. “Because if there hasn’t been notification and the ACCC later become aware, the ACCC does have the ability to go to court to seek an injunction to stop the transaction.”

Option one in the Treasury paper is business as usual with the current informal reporting regime of planned mergers remaining in place. Option two is having the Federal Court become the final arbiter in all mergers with the ACCC making its case to the court. Option three – the ACCC’s preferred path – is moving to a mandatory regime where all mergers over a yet-to-be determined size have to be reviewed by the ACCC.

‘Onerous review’

For now business is asking why is there a the need to move to a compulsory reporting regime, arguing the current system works well as it is and it is only likely to substantially increase workload and potentially add to delays in decisions. There are questions on whether a move to a formal or mandatory reporting regime would provide only incremental benefit to the economy and whether this justifies a more onerous review process.

It will also come down to what the threshold will be set at for a mandatory review and while this is yet to be determined, Cass-Gottlieb says it should be considered material in terms of size of the transaction and impact on the economy.

Cass-Gottlieb also points out speed shouldn’t be an issue with more than 90 per cent of transactions put to the ACCC currently approved in a “very short time frame”, which is less than a month.

Pet retailer Petstock has been held up as showing the limitations to the current informal regime. Here, Petstock undertook a string of acquisitions between 2017 and 2022 without notifying the ACCC, allowing it to become the second largest speciality pet retail chain in Australia. It managed to achieve this without any scrutiny at the time about the effects these acquisitions may have had on concentration, competition or pricing.

It only came onto the radar of the ACCC earlier this year when Woolworths outlined plans to buy a 55 per cent stake in Petstock and notified the regulator. This prompted a review and while Woolworths was not involved in the earlier expansion, the supermarket operator agreed to sell a portfolio of 41 retail stores as part of approval for the Petstock acquisition. There have been similar examples in healthcare and agriculture.

Elsewhere, it is understood the ACCC has become increasingly frustrated it is being bypassed by foreign companies with operations in Australia that are undertaking global acquisitions. A mandatory reporting regime would force greater scrutiny of deals with local implications.

Cass-Gottlieb says while there would be a bigger caseload for the ACCC she is confident most deals will be put on a fast track and will continue to be signed off in a short period of time.

“Then for the small proportion that need a proper review, we would have confidence and the community would have confidence that the right matter has come before us.”

A formal regime too would come with greater transparency and greater certainty on time to review a deal, she says.

The bigger debate yet to come could really change how mergers are considered in Australia, and that’s the ACCC’s own proposal to overhaul the longstanding test it applies to approve mergers – whether a deal stands to “substantially lessen competition”.

In short, the ACCC wants to switch the burden of proof so the companies making the merger proposal will instead have to prove their transaction won’t lead to a substantial lessening of competition.

Treasury last month put forward three options around a competition test including whether the test should also be expanded to ensure mergers don’t “entrench, materially increase or materially extend a position of substantial market power”.

The ACCC plans to deal with these proposals in a separate paper in coming weeks. Feedback on Treasury’s merger proposals are due later next month.

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Block trade

The near 90 per cent jump in locally listed shares of Jack Dorsey’s Block Inc since the start of November should deliver a nice boost to one of its biggest local backers, the $13.3bn growth manager Hyperion Asset Management.

Headed by stock picker Mark Arnold, Hyperion’s skew towards tech in its Australian and global portfolios means it has been tough going for the fund manager over the past two years as interest rates were being ramped up.

With sentiment fast changing around the outlook for rates – mostly in the US where bets are building of cuts early next year – this has propelled Wall Street and put tech in the frame again. Hyperion inherited its Block stake through its former holding of buy now, pay later major Afterpay. This was rolled into Block through 2021’s bumper all-stock merger, which retained a dual Wall Street-ASX listing.

Jack Dorsey’s locally listed fintech Block has surged almost 90 per cent in the past two months. Picture: AFP

Block represents the biggest holding of Hyperion’s Australian growth fund and the performance of the fintech has been turbocharged since the end of October.

Block touched a low of $60.71 at the end of October when the rates outlook was bleaker. On Wednesday its ASX-listed shares were tracking near $115 each.

Hyperion’s latest market update to the end of November, sent to investors this week, shows the fund also counts Xero, Wisetech and CSL as big local holdings and all have piled on double-digit gains over the past two months. Hyperion’s Aussie growth fund delivered 13.7 per cent for November. That is running ahead of the benchmark ASX/S&P 300 at 5.1 per cent. For the year to end-November, Hyperion’s returns are 7.3 per cent, ahead of the benchmark of 1.1 per cent.

For its global fund the big exposures are Tesla, Microsoft and Amazon – that’s three of the so-called Magnificent Seven.

The returns might be improving, but one reason Arnold’s Hyperion has fallen in love with Block again is the prospect of “improved management execution”. At the same time, Block has made a stronger commitment to control costs, including capping global employee headcount.

Latest US filings show Hyperion has been adding to its Block stake picking up $US11m ($16.3m) worth of stock through the September quarter. The shifting outlook for interest rates is now swinging behind the fund, Hyperion told investors. The headwinds of recent years are in the process of ending and have “the potential to become tailwinds in future years”, Hyperion told clients.

Originally published as Behind the ACCC’s call for a bigger say in mergers