More power for watchdog in proposed merger reform

ACCC chair Gina Cass-Gottleib supports the proposed changes. Picture: Jane Dempster

Big business has won a key concession from the federal government on merger controls but the ACCC emerges more powerful, with limited review of its merger decisions, meaning it will be the final arbiter.

The changes, to be outlined on Wednesday by Treasurer Jim Chalmers, largely back most of the ACCC’s recommendations, including compulsory notification of mergers. This will hit private equity funds in particular, as they like buying small companies and rolling them into a larger entity.

Chalmers rejected the ACCC push to reverse the onus of proof so business would have to prove the deal didn’t substantially lessen competition. This happens now with authorisation applications. This loss for the ACCC is more than compensated by the limited merits review and changes to law to add the words “substantial market power”. These will empower the ACCC to take a tougher stance on mergers.

Where a company has market power any deal that entrenches that power or increases it will be knocked out under the proposed changes.

To block a deal the ACCC will have to prove a deal substantially lessens competition, but appeals against section 50 (merger control) will be limited.

This is a boost to the ACCC, which has long complained it is difficult to win cases because it ultimately must prove what may happen in the future after the merger, which is difficult without the evidence.

The changes effectively balance the bargaining power, with economists now having a greater say on which deals will be ­approved.

The ACCC only rejects a handful of deals each year, and some argue many of the big, contentious deals have already happened.

The proposed changes will be subject to a final review of the draft legislation, prior to being introduced into parliament in September.

Former ACCC chief Alan Fels welcomed the changes, saying “courts have struggled with the merger law because it requires decisions on the future rather than the normal court focus on the facts before it.”

The present impasse over Armaguard’s demands for increased fees has undermined the ACCC’s demands for law reform, given the decision was based on the authorisation provisions, which the ACCC wanted extended to all deals.

Months after Linfox was granted monopoly power over cash distribution, in return for promises to stay in the market for three years and not increase prices ahead of inflation, the Linfox-controlled company is threatening to walk unless it gets an extra $50m a year in fees.

The ACCC approved its takeover of Spain-based Prosegur in Australia on fear the latter may walk and disrupt the market, which is precisely what Linfox is threatening as it leverages its newfound power.

The increased requirement to notify about mergers will be a boon to competition lawyers, who will be required to fill in more paperwork.

Ironically, a recent test of the notification rules prior to Gina Cass-Gottlieb’s appointment to the ACCC chair, centred on her advice to infertility companies Virtus and Adora. She now firmly backs the proposed changes.

Increased competition is the best way to control prices, but the proposed changes will not have much short-term impact.