ACCC taking on merger rules, tech giants and renewed focus on aviation and travel

The competition regulator’s merger law reform options could affect the fundamental shape of the economy for decades.

ACCC chief Rod Sims. Picture: Sean Davey.

The competition regulator wants to overhaul rules surrounding mergers, arguing the current regime needs to be “rebalanced” with the legal bar too high when it comes to proving the future ­impact on competition from takeovers.

At the same time, Australian Competition & Consumer Commission chairman Rod Sims warned that COVID-stressed companies looking for a fire sale to their rivals might not get the competition approval needed for a deal.

The comments came as Mr Sims flagged a full agenda for the ACCC this year, including more action against the tech ­giants and a renewed focus on areas where consumers were vulnerable, including aviation, travel and the funeral industry.

But work will begin on merger law reform options, a move that could have far-reaching effects on the fundamental shape of the economy for decades to come.

In recent years the ACCC has challenged a string of big-name mergers, but have seen these decisions overturned in legal challenges. Notably, the $15bn tie-up between telcos TPG and Vodafone was waived through by the Federal Court in 2019.

Elsewhere, Mr Sims expressed concern over the volume of acquisitions in the technology sector, which has seen entrenched players gain an edge over rivals. Banks are also expected to come in focus for their acquisition of fintechs. Currently, NAB is planning to buy neobank 86 400 in a $220m deal.

The ACCC is also reviewing the move by supermarkets major Woolworths to acquire wholesale food distributor PFD Food ­Services.

More recently, the ACCC has rejected a series of undertakings by Google in its proposed acquisition of smartwatch company Fitbit and the regulator continues to investigate the $3bn deal.

In his speech delivered to the Committee for Economic Development, Mr Sims said insufficient weight was given to considerations about the consequences to competition from mergers.

Critical role

“Merger control plays a critical role in ensuring that competition is not eroded via mergers,” he said.

“However, in recent years we have become increasingly concerned as to whether Australia’s merger control regime remains fit for purpose and, in particular, whether it is achieving the balance required to ensure good outcomes for consumers and the economy.

“Merger parties and the courts are focused on what is likely to happen in the future without the acquisition, which is challenging to ‘prove’ in court. While this is a relevant issue to be considered, it is also open to manipulation.”

Mr Sims said the regulator was looking to take a much stronger position in the coming months and would put forward proposals to reform merger laws.

“When we find laws are deficient in our view we advocate for change,” he said.

More than $90bn in proposed mergers and acquisitions involving an Australian business took place last year, according to Bloomberg figures. So far this year more than $10bn of deals have been launched.

The looming end of COVID-linked government programs is set to be the next pressure point for the economy, with Mr Sims warning that the regulator would not look kindly on deals by stressed businesses seeking to sell themselves to rivals.

“Companies that are distressed and want a quick sale, don’t sell it to your nearest competitor because that may see us looking very closely at the acquisition and slowing down your exit,” he said.

Ahead of the game

Mr Sims said the regulator was aware of many deals where another buyer was clearly an option, but rivals were willing to pay more because of the “anti-competitive benefits” that could be gained.

“We’ve got to make sure we can get ahead of the game, as best we can, so that it works for community benefit,” he said.

Elsewhere, Mr Sims pinpointed airline competition as a particular priority for the ACCC as the sector begins to recover from the pandemic.

“The COVID-19 Enforcement Taskforce will be actively monitoring forward sales practices by travel businesses due to concerns about misrepresentations in advertising and marketing material, particularly given the huge uncertainty around the imposition and lifting of travel ­restrictions,” he said.

“The impacts of the pandemic are particularly evident in the aviation sector, as evidenced by the direction received from the Treasurer on June 19, 2020 for the ACCC to monitor and provide a quarterly report to government on prices, costs and profits of the domestic aviation sector.”

Mr Sims said competition in the aviation industry remained fragile, and the watchdog would remain focused particularly on the ability of smaller players including Rex to compete in the market.

“The ACCC will, for example, be closely monitoring the plans by the regional operator Rex to enter the major domestic routes, including those connecting Sydney, Melbourne and Brisbane, with a particular focus on Rex’s ability to access slots at Sydney airport,” he said.

Despite avoiding discussion of the media bargaining code in his speech, Mr Sims said the establishment of the ACCC’s permanent Digital Platforms Branch last year had already led to a number of high-profile court actions against tech giants including Google, and that more similar cases would follow.

“Also in progress are studies looking at the ‘adtech’ and ‘apps’ markets, which address fundamentally important and controversial issues. We are working closely with our overseas counterparts and consulting widely with stakeholders,” he said.

“With current commercial arrangements in place until December 2022, a key priority this year will be to set up a regulatory framework for the multi-technology NBN network that allows the very significant public investment to be most efficiently utilised.

“Given the importance and long-term nature of this work, we will give ample opportunity for industry and other stakeholders to discuss their views. We are aware of the strongly held but opposing views among stakeholders.”

Elsewhere Mr Sims said the ACCC has an active list of criminal prosecutions in the pipeline for 2021 including a CFMEU prosecution in Canberra, and a criminal cartel trial against Country Care that is set to start in the Federal Court in Melbourne next week.

“Our market economy needs a growing ‘pie’, but world events show that it also needs an equitable sharing of the ‘pie’. Our current focus and advocacy will, in my view, help us to achieve both, Mr Sims said.