Upcoming Mallesons seminarsAll corporations that operate in concentrated markets, or that may be viewed as having a substantial degree of market power, and who may be considering future acquisitions.
What do you need to do?Consider the options proposed in the discussion paper and make any submissions to the Government by 12 June 2009.
Wayne Leach
Senior Associate
Dave Poddar
Partner
T +61 2 9296 2281
Sydney
Sharon Henrick
Melbourne
Caroline Coops
Lisa Huett
Shanghai
Martyn Huckerby
(贺墨亭)
The Government today released a second discussion paper calling for public comment on the best way to address the issue of creeping acquisitions. The discussion paper puts forward two models and invites submissions on these models, and any other appropriate options, by 12 June 2009.
“Creeping acquisitions” refers to a series of acquisitions of individual assets or businesses over time that do not individually have the effect of substantially lessening competition in a market in contravention of section 50 of the Trade Practices Act (TPA), but would collectively have this effect over time.
The release of the second discussion paper is consistent with the Government’s election commitment to introduce new laws to address this perceived issue.
Background
As announced in our previous alert, the Government released its first discussion paper in relation to creeping acquisitions in September 2008, and sought public comment on the following alternate regulatory approaches:
- an “aggregation model” that involved a prohibition on corporations making an acquisition where that acquisition, aggregated with all other acquisitions made by the corporation within a specified period, would be likely to substantially lessen competition in a market, and
- a “substantial market power model” under which a corporation with a substantial degree of power in a market would be prohibited from making an acquisition if it would result in any lessening (as distinct from a “substantial” lessening) of competition in that market.
The responses to the first discussion paper contained divergent views in relation to both the need for creeping acquisitions laws and the effectiveness and practicality of the two options proposed by the Government. In particular, many submissions raised concerns about the practicality of applying the aggregation model and the absence of a materiality threshold for application of the “substantial market power model” (i.e. it would apply to “any” lessening of competition).
Accordingly, the discussion paper issued today seeks comments on alternative approaches to the issue.
Alternative approaches raised in the second discussion paper
The Government has stated that a number of the responses to the first discussion paper considered that the key concern relates to creeping acquisitions by corporations with a substantial degree of market power and that a provision that specifically targets smaller-scale acquisitions by firms with substantial market power may be regarded as consistent with the underlying policies of the TPA. Accordingly, the focus of the second discussion paper is on corporations with substantial market power.
The discussion paper sets out (and seeks comments on) two alternative approaches. Those approaches are as follows:
- Option 1 - a prohibition on corporations with a substantial degree of market power in a market acquiring shares or assets if the acquisition “would have the effect, or be likely to have the effect, of enhancing that corporation’s substantial market power in that market”, and
- Option 2 - providing the Minister with a unilateral power (potentially on application by the ACCC) to “declare” a corporation or a product/service sector for a period of time where the Minister has concerns about actual or potential harm from creeping acquisitions or acquisitions by corporations with substantial market power. The competition test that would apply to declared corporations or corporations in declared product/service sectors would be the same as in Option 1.
The discussion paper also raises, as an additional feature, that Option 2 might enable the Minister to set appropriate thresholds for the mandatory notification of acquisitions to the ACCC by declared corporations or corporations in declared product/service sectors.
The concept of “enhancing” market power
In its consideration of when market power may be “enhanced” under these Options, the Government may draw on recent experience by the European Commission and, in particular, the change to the EC mergers test implemented in 2004. This change involved moving from a prohibition against any merger which “creates or strengthens a dominant position as a result of which effective competition would be significantly impeded”, to the current prohibition against mergers “which would significantly impede effective competition … in particular as a result of the creation or strengthening of a dominant position”.
The test applied by the European Commission applies to all companies regardless of their existing level of market power and involves a quantitative assessment in relation to the impact on competition (that is, a “significant” impediment on effective competition). In contrast, neither Option 1 nor Option 2 includes any materiality threshold for when market power might be “enhanced”. This is arguably similar to concerns identified by many respondents to the first discussion paper (and apparently accepted by the Government) that a move from the current test which prohibits a “substantial lessening of competition” to one which prohibits “any” lessening of competition was inappropriate.
Option 2 also raises the possibility of mandatory merger notifications to the ACCC by particular corporations or corporations in particular product/services sectors. Although the effect of certain voluntary industry codes has been that the ACCC is advised of acquisitions in those industries, the introduction of a legislated mandatory notification regime for particular industries would represent a departure from the voluntary regime which has been in place for many years.
The Government has invited public comments
The discussion paper states that the Government is acutely aware that any regulatory response to the issue of creeping acquisitions should not stop the legitimate and organic growth of businesses that is designed to increase production efficiencies to enhance the welfare of Australians. Accordingly, the discussion paper specifically seeks:
- comments on any alternative regulatory or non-regulatory options in relation to creeping acquisitions, and
- comments on any unintended consequences that might arise as a result of the implementation of either Option 1, Option 2 or any other proposed regulatory response.
The Government has requested that submissions in relation to the discussion paper are made by Friday, 12 June 2009. Copies of the discussion paper can be found at http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1530.