Bring it on, ACCC chair says as Transurban hints at a court sequel to EastLink block

ACCC chair Gina Cass-Gottlieb has blocked Transurban’s bid for EastLink, and says she is ready to fight a court case over the decision.

The competition regulator “is ready to go to court” over a decision to block Transurban’s bid for a majority stake in the operator of Melbourne’s EastLink toll road, warning both the transport giant and vendors of the EastLink stake needed to take objection to the deal seriously.

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb said the reasons it to step in and knock out Transurban’s proposal to buy a majority and controlling stake in Horizon Roads has been clearly set out for all parties, adding the ACCC believed in the strength of its competition case.

“We are ready to go to court if that is what is going to take place,” Ms Cass-Gottlieb told The Australian. That followed Transurban in its own statement argue it believed it would win a court case to approve the acquisition if it decided to take that route.

“We have set out our decision here very clearly, that decision is being communicated to both Transurban and to the vendors and we hope they take it seriously,” she added.

It is the first time the regulator has blocked an acquisition by Transurban as it gobbled up other toll roads across the country.

Transurban believed a court would not find that competition would be lessened, raising the prospect incoming boss Michelle Jablko may appeal to strike out the regulator’s decision.

“We are confident that if this transaction were legally considered by a court, the court would find no substantial lessening of competition,” a Transurban spokesman said on Thursday.

Meanwhile, the views of the Victorian government that raised competition concerns with the ACCC looks to have greatly influenced the competition regulator’s decision to block the deal and might have dealt the killer blow to the whole deal.

Ms Cass-Gottlieb said she couldn’t discuss the nature and content of the submissions from the Victorian government, but that it did outline concerns and she “placed significance” on those issues.

Transurban is Australia’s largest toll road operator. In Melbourne, Transurban operates the CityLink toll road and is constructing and will operate the West Gate Tunnel toll road. Horizon Roads operates the EastLink toll road in Melbourne, a 39km road which connects the Eastern, Monash, Frankston and Peninsula Link freeways, and is the only other private toll road operator in Australia.

The Burnley on ramp next to the Burnley Golf Course. Picture: Michael Klein

Another toll road, the North East Link, which is set to be operational by 2028, is being built and will be operated by the Victorian government.

“The proposed acquisition would result in Transurban entrenching its position in Victoria, and prevent the entry of a rival operator which could compete closely for future toll road concessions in Victoria. Transurban would operate every single private-sector controlled toll road in Australia,” Ms Cass-Gottlieb said.

“The ACCC received submissions expressing strong concerns from stakeholders. We also received a submission from the Victorian government outlining its concerns. The ACCC placed some significance on the concerns expressed by the Victorian government.

“We have concluded that if Transurban doesn’t acquire Horizon Roads, it would likely be acquired by a potential long-term rival and could be used as a platform to develop the capabilities needed to compete more strongly for other toll road concessions,” Ms Cass-Gottlieb said.

Incoming Transurban CEO Michelle Jablko faces her first challenge after the ACCC blocked the toll road operator’s bid for a controlling stake in EastLink.

“We therefore found that Transurban acquiring Horizon Roads would likely deter the emergence of a key rival for future toll road concessions.”

Ms Cass-Gottlieb said Transurban had competitive advantages particularly in relation to future private toll road bids, especially in terms of creating and using traffic models to guide a competitive offer, and buying a controlling stake in EastLink would entrench those competitive advantages.

She said the deal would also prevent the entry of a rival to compete with Transurban in the future on other local private toll roads.

In a statement to the market following the decision, a Transurban spokesman said the toll road operator was disappointed with the ACCC’s determination that Transurban should not compete for a stake in the EastLink toll road in Melbourne, and it clung to its argument the deal would not have lessened competition.

“It remains our view that there would be no lessening of competition if Transurban were to own a majority stake in the asset – largely because the Victorian government sets the tolls, determines who the operator is and controls the contract.

“Regardless of the ownership of the asset, no party has the power to increase prices or reduce services due to the nature of the contract and the Victorian government’s ultimate control over the asset.

“We are closely reviewing the determination and considering our options, including a potential challenge to the decision.

“We expect it will be disappointing for Horizon Roads, the current owner of EastLink, not to be able to generate maximum competitive tension for their asset, having previously purchased it from the Victorian government.”

But the ACCC has a different opinion. Transurban’s scale and in-house modelling provide it with a material advantage over rival bidders for toll roads, and the proposed acquisition will further entrench this advantage, the ACCC said in a statement.

While there is a pool of traffic modelling experts in Australia and globally, Transurban has developed recognised expertise in preparing high quality traffic models in Australia that use detailed datasets, and can model options more quickly and cost-effectively than its rivals.

The ACCC’s investigation also considered the extent to which the Victorian Government has the ability to constrain Transurban and would be able to level the playing field for future sales of toll road concessions in Victoria.

“We acknowledge that the Victorian government can run open tender processes, but where one party has material incumbency advantages compared to other firms who may be considering bidding there is less likely to be effective competition for future sale processes,” Ms Cass-Gottlieb said.

In June, the competition regulator put up a substantial roadblock to the grab by Transurban for a majority stake in Melbourne’s EastLink toll road, releasing an issues paper stating that it had “competition concerns” about the proposed acquisition.

It raised competition fears over Transurban’s entrenched position as the largest toll road operator, its access to traffic data and modelling as well as lower cost finance which all flows from its market power.

Previously, Mr Charlton had said he would “love to be a part” of the Horizon Roads toll roads business with a stake in the EastLink operator, helping to broaden Transurban’s portfolio.