Beefed-up competition watchdog to sink teeth into big mergers

A beefed-up competition watchdog will be given more powers and financial support to vet and block planned mergers under the largest business reforms since the 1970s that Treasurer Jim Chalmers says will strengthen the economy and lift living standards for ordinary people.

The overhaul of the nation’s merger laws will also prevent companies from gradually buying up parts of another firm without having to prove the “creeping acquisition” won’t reduce overall competition and end up in higher prices for customers.

The competition watchdog will get more powers and financial support to target large mergers that could slow the economy.Credit: Steven Siewert

But a proposal from the Australian Competition and Consumer Commission that would have effectively allowed the institution to stop almost all mergers without strong proof it was in the economy’s interests has been rejected.

The government, which has launched a two-year inquiry into ways to boost competition across the economy, has been investigating the nation’s merger laws which have remained largely unchanged since the late 1970s.

Chalmers, in a speech in Sydney on Wednesday, will argue Australia’s competitiveness has been falling since the early 2000s, delivering a hit to the overall economy and living standards.

There has been an increase in the market share by large businesses in that time, with the concentration of major players up by at least 5 per cent in sectors such as mining, utilities and retail trade.

There has also been a fall in the number of new companies entering particular sectors while markups on goods and services have also increased.

Chalmers will argue the proposed changes would give the ACCC more power to examine and stop those mergers that posed the greatest risk to the overall economy. But the changes would also allow small-level mergers to move ahead much more quickly.

“Most mergers have genuine economic benefits. They attract capital, re-tool businesses and improve the uptake of new technologies,” he will say.

“But some mergers can cause serious economic harm. This happens when players are not interest in improving profitability by lifting productivity. When they’re solely focused on squeezing out competitors to capture a larger percentage of the market.”

Under his proposals, which need approval by federal and state parliaments before starting in 2026, the ACCC will have to be notified of planned mergers. Australia is just one of three developed nations where regulatory authorities are voluntarily informed of mergers and acquisitions.

Small mergers, below a threshold that has yet to be determined, will have to be vetted within 30 working days by the ACCC.

But larger proposals will be given more attention by the commission which will be joined by merger expert Philip Williams who is a former professor of law and economics from Melbourne University.

Currently, the ACCC examines about 330 mergers a year, from very small proposals to industry-changing ones. Treasury expects under the changes, the commission will vet around 300 proposals but they will have much more economic significance.

Businesses will have to pay between $50,000 and $100,000 to the ACCC to have their merger plans scrutinised under a system that will produce an extra revenue stream for the commission to help it increase its expertise. Small businesses will be exempt from the fees.

Treasurer Jim Chalmers says stronger competition powers will improve the economy and overall living standards.Credit: Alex Ellinghausen

A long-term complaint by the ACCC about so-called “creeping acquisitions”, under which a company buys up a small share of a competitor over time until it has effective control, will be addressed. The commission, when considering if a merger will substantially reduce competition in a particular sector, will be able to consider any merger activity by involved companies over the previous three years.

Companies that merge without approval by the ACCC could have their entire transaction voided by the commission.

All mergers and acquisitions will be put on a public register.

But the ACCC failed to win over the government on its plan to reverse the onus of proof on companies looking to merge. Long-standing competition law allows the commission to block a merger where it believes it will “substantially lessen” competition in a particular sector.

The ACCC had wanted it changed so companies would have to prove there would not be a substantial reduction in competition from a merger.

But many business organisations warned such would become a de facto ban on mergers, introduce “systemic bias” into the ACCC against mergers and impose huge costs on firms that sought to prove their plans would not reduce competition.

Commission chair Gina Cass-Gottlieb said the changes would strengthen the country’s merger laws and improve the national economy.

“Higher prices, less choice and less innovation can result from weakened competition.
Stronger merger laws are critical to ensure anti-competitive mergers do not proceed,” she said.

“These proposed changes are significant and will reinforce public confidence in Australia’s
competition laws.”

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