ACCC’s new powers to influence takeovers and acquisitions must be put into practice

Is federal Treasurer Jim Chalmers unwinding red tape or tightening it? Opinion is divided. Picture: Dan Peled

ACCC chair Gina Cass-Gottlieb’s new merger regime will change some takeover tactics because the increased transparency means intended bidders will either have to out themselves or run the risk of failing to complete.

Practitioners say this will increase deal risk because it will add time to get deals cleared.

Then again, rules aimed at blocking mergers to boost competition are not overly fussed by such concerns.

Cass-Gottlieb acknowledges the new rules are complicated, noting change often is, but also stresses there is now a trial; thresholds will be reviewed in 12 months and the whole scheme in three years.

The ACCC wanted the regime because it argued it was necessary to block anti-competitive mergers, but undue complexity threatens to overwhelm practitioners and the ACCC when simpler rules with higher thresholds would work better.

Contrary to practitioner fears, Cass-Gottlieb is confident the ACCC will be able to manage the new regime.

The mandatory notification regime officially starts in January next year, but began on a voluntary basis this week. Intended deal makers are now encouraged to notify of their plans to seek clearance – especially from October, after which time deals not cleared may have to go through the hoops all over again next year.

ACCC chair Gina Cass-Gottlieb. Illustration: Sturt Krygsman

The regime’s trial formally started on Tuesday, after more details were released on Monday. Not surprisingly at last glance no one has lodged an application for clearance of what Treasury expects will be 450 deals a year (compared with the 300 a year considered up until now).

The ACCC has doubled its merger division staff to 140 to handle the expected influx.

The new regime will also hit the intended corporate marriage partners with a long list of new fees, which Treasury estimates will raise around $20.5m a year; but a quick back-of-the-envelope calculation came closer to $35m – well short of the $400m-plus-a-year taxpayers now spend on the ACCC.

The fees also fall well short of the loot deal advisers pocket, especially bankers who are on success fees.

The Foreign Investment Review Board also now costs applicants, so foreign bidders are up for double charges.

In most company auctions intending bidders who may have ACCC issues are encouraged to seek prior clearance before entering the auction.

But if in doing so you publicly reveal your interest, potential bidders may baulk at being named, which means the sellers may have to take the risk of running through the auction to maximise bidders before clearance is given.

Potential bidders won’t have to notify until they win the auction, but if the winner is a private equity firm it – along with other merger parties – will have to name other recent deals in the sector to check against concerns about multiple small deals that collectively boost market share.

The new merger regime is aimed at increasing transparency, and to make it easier for the ACCC to block mergers through the process of compulsory notification and limiting court challenges until after final decisions are made.

The government, in its efforts to reduce industry concentration, is effectively eliminating competition for the ACCC by removing court oversight.

It is also, as noted last week, massively increasing red tape by creating complicated new procedures at the same time as federal Treasurer Jim Chalmers is on record as running a war against red tape.

The mandatory scheme means no one avoids the fees and just what you will pay depends on your size and how big a risk you are to reducing competition.

Competition policy enforcement is subjective and the ACCC is infinitely more powerful in setting the rules under the new regime.

It will cost $8300 to seek a waiver, $56,800 to comply with the mandatory notification, $1.6m if the deal moves into stage two for companies worth more than $1bn, and $401,000 if you want to claim public benefits for an anti-competitive merger.

In round terms the fees will raise $35m for the ACCC. This assumes 450 merger notifications, 10 of which go into stage two, two seek public benefits, 150 seek waivers and 300 formally notify.

There is a lot of detail around merger thresholds but essentially most companies big and small will be required to notify. The thresholds will be reviewed after 12 months and should be raised.

Former ACCC commissioner Liza Carver effectively advertised her renewed role as a partner with Herbert Smith Freehills by this week in an interview elsewhere, publicly slamming the complexity of the regime.

Most legal practitioners contacted backed Carver’s comments on Treasury’s drafted rules.

But as she quit the ACCC just five weeks ago, the timing of the comments at the start of the regime’s trial run was not great for former colleague Cass-Gottlieb who one assumes signed off on the scheme’s details.

If she didn’t the issue is worse.

In notifying the ACCC of an intended deal the acquirer will have to tell the ACCC who its competitors are, their contact details, its Australian revenue, market share, industry sector, major customers and their medium spend.

In all, a comprehensive view of the market some of which will be published for all to see.

Some argue mandatory notification is a waste given the most effective weapon against anti-competitive behaviour are competitors, who are quick to raise the red flag when they smell trouble.

The new regime effectively spreads the net further but at the end of the day the ACCC has to make the call to block a deal, and the fact is that amid all the noise in the past financial year it didn’t block any mergers after public review.

It has publicly rejected just six merger deals in Cass-Gottlieb’s three years at the helm.

A further seven were withdrawn after concerns were raised, and 16 were accepted after undertakings and other modifications.

Some deals of course don’t get past dreams because companies worry they will be blocked.

Time will tell whether a massive increase in complexity and red tape helps to free the Australian economy of more anti-competitive mergers and whether the increased bureaucratic control is justified.

The ACCC has the power it wants now it needs to use it.

Digital platform regime nowhere to be seen

The federal Treasurer has stated the government plans to pursue the ex ante digital platform regime but, three years after Jim Chalmers accepted the regime and after two full years of consultation, there is no sign of action.

The regime will target Google, Apple, Meta and Amazon which will be forced to comply with company specific codes of conduct.

At a time when President Donald Trump is targeting countries which attack US companies, perhaps the government thinks the timing is not right to start the regime before a trade deal is finalised.

Another scenario says the government agenda won’t be set until after the August 19 productivity roundtable.

Either way, government inaction continues but sources say US concerns will not prevent the lodging of the long promised case against Google locking out competitors by reaching deals with Samsung.

The case is promised this month after Telstra, Optus and TPG agreed to undertakings preventing such deals for the their phones.

Conserve your energy as hydrogen’s not the answer

Former ACCC chair Rod Sims argues that the lucky country was blessed with mineral wealth and now “we have an almost endless supply of low-cost solar and wind, and only a small population”.

This said, he argues the debate on hydrogen is misplaced. Hydrogen is deemed as too expensive as an energy source and too costly to export.

But Sims says that right now “the best use of hydrogen will not be as an energy source but for its chemical properties as an input to make green transport fuel, green iron and other green products”.

Pizza run

Timing is everything in the market as Hyperion Asset Management learned on June 26 when it offloaded $88m worth of Domino’s stock at $18.75 a share. The sale of around 5 per cent of the stock took the manager off the substantial shareholder list just before the July 2 announcement that Mark van Dyck was stepping down as CEO. Domino’s sold down as low as $15 before closing Friday at $17.68 a share.