ACCC Merger Clearances

Introduction

The prohibition against anti-competitive acquisitions is an issue that must be considered whenever a company acquires a competitor. Under section 50 of the Trade Practices Act, an acquisition of shares or assets likely to substantially lessen competition is unlawful.

There are a number of issues you will need to consider in such an acquisition:

1. When is a merger clearance recommended?
2. The nature of the process of applying for clearance
3. Pitfalls of the assessment process
4. Timing of the process
5. The other forms of clearance available

Wisewould Mahony has extensive experience obtaining clearances for its clients. See list of principal clearances.

When is a merger clearance recommended?

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Given the nature of the test, there will often be some risk of breaching the law when acquiring a competitor, no matter how small the competitor. Companies thereby often proceed by first seeking informal clearance from the ACCC. That clearance is essentially a letter of comfort. The nature of the clearance provided is more fully discussed in the attached paper.

Applying for clearance is generally the recommended approach where the acquisition satisfies the ACCC's investigative threshold, namely, if after the acquisition:

1. the 4 largest competitors have 75% or more of the market and the merged entity have 15% or more of that market; or
2. the merged entity have 40% or more of the market, irrespective of what the 4 largest competitors have.

The ACCC will grant an informal clearance if it is convinced that the acquisition will not substantially lessen competition. This depends on a number of issues. It will probably do so though if, for instance, 10% or more of sales are imported, and have been over the last 3 years. This is referred to as one of the 'safe harbours'.

Applying for clearance

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The process is generally run by the purchaser. It must write to the Commission and request a clearance. This request must be accompanied by a written submission. The submission will:

1. describe the parties and businesses involved;
2. discuss the commercial rationale for the acquisition;
3. set out the grounds on which the purchaser argues the acquisition will not substantially lessen competition; and
4. present the evidence supporting those grounds.

The length of the submission will vary according to the complexity of the issues involved.

The application process and the strategic decisions involved in it are further discussed in the attached paper.

The assessment process

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The ACCC will test the arguments presented in the submission and any concerns of its own through market inquiries. Those inquiries involve questioning various stakeholders. The objective is not a 'popularity contest', although strenuous opposition is often problematic. In fact, the ACCC's objective is the technical analysis of the acquisition from a competition perspective. In this context, we have assisted a number of companies that wish to oppose acquisitions by advocating to the Commission their position on the issues of the merger. Read the recent paper on this process by Martin Algie and John Horner (Quigg Partners, NZ) at the AIJA Conference Toronto (August 2007).

The market inquiry process and how to manage it and the confidentiality issues it raises is further discussed in the attached paper (coming soon).

Market inquiries often result in the ACCC coming back to the purchaser expressing various concerns. A statement of issues may even be published on the ACCC public register, seeking public comment. The objective for the purchaser then is to overcome these concerns and there are various strategies that the purchaser can adopt in order to do so.

These strategies are further discussed in the attached paper.

Timing of the process

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Obtaining an informal clearance can be a lengthy process. The purchaser is therefore well advised to begin the process as early as possible in the sale process. Ideally, it should run in tandem with the drafting of the sale contract and due diligence.

From start to finish, the process can take around 10 to 12 weeks. The submission will generally take around 3 to 4 weeks to complete. The ACCC states that it will consider applications within 6 to 8 weeks. If market inquiries are not refused, the Commission should complete its work in between 2 and 3 weeks. However, it could be much longer if the issues are complex requiring additional market inquiries and submissions from the parties. In the first 6 months of 2007, the average period taken by the ACCC was 23 days from the date the application was received. The longest assessment in this period took 68 days. If the submission took 3 weeks to draft, that is a total of just under 3 months.

Other forms of clearance

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On 1 January 2007, the Trade Practices Act was amended to create a 'formal clearance' procedure.

This allows an appeal from any ACCC decision, which would be decided by the Australian Competition Tribunal. This can be a great advantage, even though the Tribunal is restricted to the materials provided to the ACCC. The other advantage of a formal clearance is that it is not only binding, but it entirely legitimises the acquisition. As noted above, an informal clearance is mere a letter of comfort.

However, the new process can only be used judiciously as:

1. a fee of $25,000 applies; and
2. the preparation is more involved and therefore takes longer, requiring more executive input and is commensurately more expensive.

No formal clearance applications have been filed as yet.

For the sake of completeness, it should also be noted that there is the option of applying for Authorisation, which is an application made directly to the Australian Competition Tribunal. Authorisation is for acquisitions that clearly lessen competition, but will produce significant public benefits. This process is very rarely used because of the cost and the public nature of the exercise.

ACCC merger clearances

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Company	Target	Acted for	Industry	Summary
Spotless Catering	P&O Australia Ltd	Acquirer	Catering
Godfrey Hirst Australia Pty Ltd	Feltex Carpets	Opponent	Carpet Manufacturing Supply
Britax Childcare Pty Ltd	BabyLove Products Pty Ltd	Acquirer	Child car restrains and wheeled products
Cockburn Cement Rugby Group plc	Adelaide Brighton Pty Ltd	Acquirer	Regional Australian cement and lime production
Simsmetal Ltd	Wanless Metal Industries Pty Ltd	Acquirer	Scrap Metal
Pacific Dunlop Ltd	Atkins Caryle Ltd	Acquirer	Automotice
Arrow Taxi Services Limited	Embassy Taxis	Acquirer	taxi Depot Services
MiTek Australia Limited	Pryda Reid Group of Austrim Nylex Limited	Opponent	Computer aided design software and connector plates for pre-fabricated timber frames and trusses
Adelaide Brighton Limited	Cockburn Cement	Acquirer	Cement production and distribution
Adelaide Brighton Limited	Adelaide Brighton Cement Limited	Acquirer	Cement production and distribution
Adelaide Brighton Cement Limited	Melcann Ltd	Acquirer	Cement production and distribution
Adelaide Brighton Limited	Adelaide Brighton Cement Limited	Acquirer	Cement production and distribution
Barro Group Pty Ltd Adelaide / Brighton Cement Limited	Independent Cement & Lime Pty Ltd	Acquirer	Cement production and distribution
Berri Limited	National Foods Limited	Acquirer	Production and wholesale supply of fruit juice and fruit drink
Black Cabs Combined Pty	Northern Suburban Taxis Ltd	Acquirer	Taxi depot services
Automotive Components Ltd	Carparts Distribution Pty Ltd	Acquirer	Dsitribution of car parts
Flint Ink Australia Pty Ltd	SICPA Australia Pty Ltd	Acquirer	Coldest Printing Ink
Infratil Australia Limited	Port of Portland Pth Ltd	Acquirer	Port Services at the Port of Portland, Victoria
Maxi-Cube Limited	Freighter Australia	Acquirer	Semi-Trailers