On 25 November Gilbert + Tobin hosted a virtual panel discussion with ACCC Chair Rod Sims and Gilbert + Tobin Competition, Consumer + Market Regulation partners Gina Cass-Gottlieb and Elizabeth Avery. The panel was moderated by the Managing Editor of the Australian Financial Review, Joanne Gray.
The panellists discussed the important questions for Australian merger control today, including: how has COVID-19 impacted merger clearance processes? Is our merger law fit for purpose? What should we consider when discussing proposals for reform?
We would like to thank Mr Sims and Ms Gray for their contributions to such an engaging and valuable discussion.
Here, we recap the key takeaways from the session.
The pandemic didn’t impact the ACCC as harshly as expected
While the initial impact of COVID-19 required significant diversion of resources to other teams within the ACCC (Mr Sims mentioned that at one stage the ACCC assessed 30 authorisation applications in 3 weeks, an effort which would normally take a year) and required the ACCC to adjust to working during lockdowns, the ACCC’s substantive merger clearance processes have not changed.
In fact, by G+T’s calculations, the ACCC’s decisions on informal reviews of mergers filed during or after March 2020 have actually taken less time than for reviews filed in the preceding 12 months. This is testament to the efficient reallocation of the ACCC team to the urgent work of the ACCC during COVID-19 including the authorisation applications and the COVID-19 taskforce and to the extended working hours of many ACCC staff.
Failing firm defence not a “Get Out of Jail Free” card
Mr Sims was straight to the point with his message to Australian businesses, stating that the ACCC would consider failing firm arguments very carefully and warning that businesses in trouble should not go straight to their biggest competitor:
“If your firm is in trouble and you want to merge with somebody, don’t merge with your biggest competitor… So a company gets into trouble, it goes to the dominant firm in the industry, it says ‘would you buy me out’ because they know they’ll pay the most because they’ve got most to gain through the reduction of competition and they don’t even offer the business to anybody else. Well, that’s not going to work, sorry. That’s not going to work. No matter how urgent you say it is, that’s not going to work.”
After discussion covering the processes that may be engaged with to demonstrate the steps taken to address business challenges and to conduct a sales process testing wider interest in the business to be sold, Ms Cass-Gottlieb observed that in cases where a merger between competitors could provide some public benefit (e.g. by saving jobs), an application for formal authorisation may be appropriate.
Expect reform proposals in 2021
Mr Sims mentioned that the pandemic has interrupted the ACCC’s internal work considering potential reforms to the merger law, but that we can expect proposals next year.
Mr Sims also commented that competition is hugely important for Australia’s economic recovery, and that although the contested merger cases are a small minority compared to the total number of mergers the ACCC assesses, how they are dealt with sends signals widely across the business community.
The panellists discussed what the ACCC considers its main difficulties with the current law to be, including:
- the weight the Federal Court gives to evidence from business executives of the merger parties;
- the Court’s approach to the evidence it requires from the ACCC in order to prove its case, e.g. that merger parties will not only gain market power but that they will use it;
- too much focus on the counterfactual scenario, particularly in cases where counterfactuals are viewed by the ACCC as potentially having been ‘constructed’ after the merger is announced; and
- whether the lack of mandatory pre-merger notification was out of step with the rest of the world.
Ms Cass-Gottlieb put forward the case for no change, submitting that the current test appropriately examines a merger’s effect on competition, and that the ACCC’s previous strong arguments that the substantial lessening of competition test should be the standard test for consumer welfare (submitted to the Harper Review for reforms to section 46) also apply to the merger law. She also noted that while the ACCC did not have a good record recently of winning the small minority of cases that are tested in Court, the ACCC was extremely effective in the vast majority of cases in achieving their desired result. Mostly, where the ACCC expresses serious concerns the parties either offered divestitures or withdrew their application for clearance and did not proceed with the proposed merger.
Nascent competition a tricky issue
The panel agreed that appropriately dealing with nascent or future competition is difficult, particularly in the case of start-ups where it is difficult to show that any one firm would grow up to be a strong competitor, but that a vibrant start-up culture is important for innovation.
For some start-ups the option of being bought by a larger competitor is also a part of their business case necessary to attract investment. Ms Avery pointed out that for such companies:
“If you create a barrier to exit, and say they can’t be bought by large players in the market, that’s also a barrier to entry.”
Mr Sims said that innovation can be lost when innovators are absorbed into large established competitors, and indicated that while there was no blanket prohibition on banks acquiring FinTechs,
“Wouldn’t it be a terrible outcome if all the FinTechs were bought by the big four banks.”
“[it] would be nice if new financial technology dislodged one of the [big] four.”
Ms Avery closed the panel by commending the ACCC’s efficient work through very trying times, and looking forward to the competition law and policy debate continuing under better circumstances in 2021.
For more information on mergers in 2020, see our recent publication Sailing Steady in Rough Seas: Mergers in 2020.