Fears new merger laws ‘could be costly’ for smaller firms

An overhaul of the country’s merger regime will make it harder for deals to go ahead in markets dominated by a handful of corporate giants, but could also be costly for smaller companies, experts say.

Treasurer Jim Chalmers announced merger reforms on Wednesday that include requiring the country’s competition watchdog be notified of planned mergers and removing the Federal Court from the review process.

Treasurer Jim Chalmers, ACCC chair Gina Cass-Gottlieb and assistant minister Andrew Leigh on Wednesday. The Treasurer said the proposed reforms would strengthen the economy and lift living standards.Credit: Dominic Lorrimer

Gilbert + Tobin partner Simon Muys said the reforms would give the Australian Competition and Consumer Commission more power at a time when it was already blocking many deals.

“In the 12 months to last December, the ACCC blocked six transactions, which is the most it’s blocked in any year since 2006, when it blocked just as many” he said. “The reforms will make deals, particularly in markets where there are large players, or a degree of concentration, much harder to do.”

Former ACCC chair Rod Sims said the changes would give the watchdog greater power to block technology giants from buying out smaller rivals – an area of concern for the ACCC.

A key change Sims pointed to was the addition of a new legal test, under which the regulator can oppose a merger if it “creates, strengthens, or entrenches substantial market power”. Under the current regime, the key legal test for deciding if a merger goes ahead is whether it results in a substantial lessening of competition.

‘I think it has a huge impact for digital platforms.’

Rod Sims, former ACCC chair

“Now most of those digital platforms have got substantial market power, so now you’ve just to prove that it will entrench or extend it, which is a lot easier than proving a substantial lessening of competition,” said Sims, who strongly backed the changes.

The new regime will also allow the regulator to consider the cumulative impact of acquisitions over the last three years when it assesses a deal, in an attempt to deal with “creeping acquisitions”.

Sims said the overall effect on digital platforms would be significant: “I think it has a huge impact for digital platforms.”

However, the changes could also impact smaller companies. Muys said the proposed reforms could be costly for small and mid-cap firms in particular.

“It will increase the information requirements, and therefore the costs associated with merger clearance by potentially requiring parties to do a lot of work very early in the process,” he said.

“There is also an administrative filing fee of between $50,000 and $100,000 being introduced. That may not sound like a lot, but for small and mid-cap firms, that could be significant, although we are yet to see what exemptions are available.”

Muys said removing the Federal Court from the merger process would reduce transparency, and the watchdog’s accountability by limiting the scope of review available for parties who are unhappy with a decision.

“There’s some incremental improvements to transparency proposed in the reforms from the current ACCC process, but they’re a long way short of the robust transparency and testing that happens today in front of the Federal Court,” he said.

Business Council of Australia boss Bran Black.Credit: Alex Ellinghausen

ACCC chair Gina Cass-Gottlieb said the changes would better equip the regulator to identify and prevent anticompetitive mergers. She said if the ACCC couldn’t prevent anticompetitive deals, there was a risk of higher prices and less choice for customers.

“We will see more of the mergers that matter,” Cass-Gottlieb said. “We can assess them properly and act more quickly.”

Business Council of Australia chief executive Bran Black said the proposed reforms struck a balance between economic and regulatory needs, but the ACCC needed to be appropriately resourced.

“The average period for the ACCC to process merger authorisations has been 171 days, with the longest being 260 days – a long way from the existing 90-day statutory requirement,” he said, noting the need for adequate resourcing to avoid further bottlenecks.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said competition was a good thing but that it was important to get the balance right.

“For small businesses and consumers to get the best deal, we must be able to compete against global corporates and grow businesses in Australia that are at a global scale and competitive in taking on the global giants,” he said. “Mergers are healthy and have a significant benefit, so we have to be careful and about tying them in red tape.”

Clayton Utz competition partner Kirsten Webb said the threshold for parties needing to make a filing to the ACCC’s review process needed to be considered. “Most deals don’t raise competition issues,” she said. “The mandatory filing reform suggests a significant increase in the number of mergers the ACCC will review ... so the ACCC will need a certain and streamlined process to make sure it doesn’t bog down deals that don’t raise any issues.”

She also said it was disappointing that there was no recourse to the Federal Court when reviewing ACCC decisions. “It’s a significant departure from one of the fundamentals of our system,” she said. “That it is for courts to decide if the law has been breached, not an administrative body.”

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