The Australian Competition Tribunal today overturned the Australian Competition and Consumer Commission's (ACCC) decision to deny ANZ and Suncorp Bank’s application for merger authorisation in August 2023.
Today’s decision means ANZ is authorised to acquire Suncorp Bank, paving the way for the largest Australian banking acquisition in over a decade.
This is the first time the Tribunal has overturned an ACCC merger authorisation decision under the current authorisation regime (the only other merger decision that has been appealed was the Telstra-TPG matter in mid-2023, which the Tribunal affirmed). While the Tribunal has only provided a summary of its reasons at this stage, there appears to be three particularly significant aspects to the decision:
- the Tribunal’s overall approach to the competition test
- the Tribunal’s conclusion on the evidence of ‘coordinated effects’
- differing conclusions between the ACCC and the Tribunal on the weight and relevance of public benefits
We set out below the background to the Tribunal’s decision, the key takeaways and what’s next for ANZ and Suncorp. At the bottom of the page you’ll find more details on what the ACCC and the parties argued before the Tribunal, and where the Tribunal landed on each major issue. Our further assessment of the details of the Tribunal’s decision will follow once the full reasons are published.
How did we get here?
In 2022, ANZ entered into an agreement with Suncorp Group to acquire Suncorp Bank for $4.9B. The acquisition was conditional on ACCC approval of the deal, which the parties sought through the ACCC’s far-less used ‘formal’ merger authorisation pathway.
After more than 8 months of scrutiny, the ACCC denied the parties' application for authorisation on the basis that it was not satisfied that the merger would not be likely to have the effect of substantially lessening competition in markets for:
- home loans, on a national basis
- SME banking services in local or regional areas in Queensland
- agribusiness banking services in local or regional areas in Queensland
The ACCC was also not satisfied that the acquisition would be likely to result in a net public benefit, after considering issues including efficiencies, synergies, prudential stability, and ANZ’s specific commitments to invest in Queensland.
ANZ and Suncorp applied to the Australian Competition Tribunal for review of the ACCC’s decision. The Tribunal — comprising Federal Court Judge John Halley and 2 expert members — heard the matter over 9 days in December 2023, including in closed-door sessions to avoid disclosure of the parties' confidential information.
Key takeaways from the Tribunal’s decision
The Tribunal differed from the ACCC’s conclusions in all three markets, deciding that it was satisfied that the acquisition would not be likely to substantially lessen competition. The Tribunal also found that the acquisition would be likely to result in net public benefits.
Today’s decision has three key takeaways which add to the evolving landscape of Australia’s merger clearance regime.
1. The use of the ‘satisfaction’ test is critical
The ACCC’s decision to deny authorisation was made despite the ACCC not actually finding that the acquisition would be likely to substantially lessen competition in any market. Instead, the ACCC’s decision relied on the application of the authorisation test: the ACCC found that it wasn’t satisfied that the merger would not be likely to substantially lessen competition (in contrast, under the more common informal clearance route, mergers are only prohibited if the ACCC proves that they would be likely to substantially lessen competition.)
Notably, the Government’s current consultation on merger reform proposals includes an option (and is the ACCC’s proposal) for this ‘satisfaction’ test to apply to all mergers requiring clearance.
While we’ll need to wait for the full reasons to be published to understand the Tribunal’s approach, the summary appears to indicate that the Tribunal’s starting position was to apply a more standard evaluative judgment on the issue of competitive effects. The Tribunal’s decision may also introduce uncertainty about the potentially different approaches taken by the regulator on the one hand, and the review body on the other.
2. New guidance on ‘coordinated effects’
The ACCC’s original decision had a notable focus on ‘coordinated effects’. Put simply, this was a concern that the acquisition would increase the likelihood of the four largest banks coordinating (rather than competing) in various ways. While the theory of ‘coordinated effects’ is well understood, its application by the ACCC to the facts was considered to be at its outer limits.
The concern relating to coordinated effects was the basis for the ACCC finding that it could not be satisfied that the acquisition would not substantially lessen competition in the national market for home loans. The ACCC’s analysis was founded on economic analysis of the likelihood of coordinated conduct in markets exhibiting certain features. However, the ACCC did not identify that coordinated conduct had in fact occurred, or would be likely to occur, in the home loans market.
On the evidence, the Tribunal disagreed with the ACCC’s conclusion about the likelihood of coordinated conduct. In considering the ‘critical issue’ of whether the acquisition would be likely to substantially lessen competition by increasing the likelihood of coordination compared to if Suncorp was not acquired by anyone, or was acquired by Bendigo Bank, the Tribunal ultimately decided that this was not likely. This was because while conditions for coordination in banking may be present, they have recently reduced and are likely to continue to reduce.
3. Not all public benefits were accepted, but they still outweighed the likely public detriments
The ACCC’s recent decisions to authorise the Armaguard-Prosegur and Brookfield-Origin (proposed) acquisitions were made on the basis that, despite their potential competition concerns, those transactions would likely lead to public benefits outweighing those competition concerns.
In contrast, the ACCC was not satisfied that substantial public benefits would likely result from ANZ’s acquisition of Suncorp. While ANZ and Suncorp put forward numerous public benefits that would arise from the transaction (including significant cost savings and synergies, and certain commitments to make investments in Queensland), the ACCC placed relatively little weight on most of these, and concluded that they would not outweigh the public detriment of competition effects.
As with its findings on the competition issues, the Tribunal diverged from the ACCC in relation to public benefits. Given the Tribunal was satisfied that the acquisition would not be likely to substantially lessen competition, it did not need to come to a firm conclusion on public benefits. However, it elected to make a conclusion given the substantial evidence put forward by the parties.
The Tribunal found that the certain benefits of the synergies between ANZ and Suncorp outweighed any harms to competition, which were uncertain. The Tribunal stated that other public benefits claimed by the parties were either not public benefits or not specific to the acquisition. This indicates that the Tribunal’s reasons, when they become public, will further clarify the kinds of benefits that can be claimed by merger parties seeking authorisation, versus what kinds of benefits are not sufficiently connected to a transaction.
What’s next?
The Tribunal’s determination means that ANZ can acquire Suncorp without the ACCC being able to intervene. The ACCC can apply for judicial review of the Tribunal’s determination in the Federal Court of Australia, however any indication of whether it intends to do so will likely not come until it has a chance to digest the full reasons of the Tribunal.
Further details – what the ACCC and the parties argued
The Tribunal’s task was to decide whether it was satisfied that ANZ’s acquisition of Suncorp would:
- not be likely to substantially lessen competition in a market; or
- lead to a net public benefit.
If either condition is satisfied, the acquisition can be authorised. The ACCC had originally found neither was satisfied.
Competitive effects
What did the parties argue?
On the first issue, the ACCC argued before the Tribunal that:
- Structural features of the home loan market, and the major banks' position within it, meant there was a risk of the major banks engaging in tacit coordination rather than vigorous competition. The acquisition would increase symmetry between the major banks (in terms of market shares and business models). This would “soften” ANZ's incentives to vigorously compete. In other words, post-acquisition ANZ would have more to lose and less to gain by pursuing an independent strategy from, rather than coordinating with, the other large banks. The gap between the major and second-tier banks would also widen, making coordinated conduct more likely.
- The acquisition would result in the removal of a significant constraint on the major banks in the form of Suncorp Bank, which has a differentiated and competitive offering in the Queensland agribusiness and SME markets, particularly on non-price aspects of competition.
In contrast, ANZ and Suncorp had argued that:
- The acquisition would not lead to an increase in ANZ's scale or market share that would materially reduce its ability or incentives to compete.
- Home loan competition between the banks was in fact increasing while barriers to entry and expansion were declining, evidenced by Macquarie's success since entering the home loans market 10 years ago. Existing and potential competitors would continue to constrain ANZ.
- The ACCC's preferred counterfactual against which it was comparing the proposed acquisition — that Suncorp would instead be acquired by Bendigo and Adelaide Bank — had no real commercial likelihood of occurring. As such, the competitive effects of the acquisition could only be assessed by reference to the status quo. Even if Bendigo could realistically acquire Suncorp, the combined bank would not be a stronger competitive constraint than either bank alone.
- The proper approach to assessing the effects of the transaction on SME and agribusiness banking is as part of a broader, national business banking market, not as separate local or regional product markets.
Bendigo Bank had also made submissions supporting the ACCC's original decision, arguing that the acquisition would further consolidate ANZ's structural advantages and market position to the detriment of competition. Bendigo argued that, in contrast, it had the capacity to offer a value accretive takeover offer to Suncorp Bank and create a substantially stronger competitor against the major banks.
Where did the Tribunal land?
The Tribunal was satisfied that the acquisition was not likely to substantially lessen competition in the national market for home loans
This was because:
- While there are conditions that make the banking sector conducive to coordination — including the fact that the major banks have a 72% share of assets — these conditions have recently reduced and are likely to continue to reduce. This includes the emergence of other banks like Macquarie Bank, the material asymmetries in market shares of the major banks, and the increasing use of brokers, which facilitate greater consumer switching.
- The small increase in ANZ’s market share resulting from the acquisition of Suncorp would not have a meaningful effect on the likelihood of coordination between the major banks.
- Neither Suncorp continuing to be an independent bank nor Suncorp merging with Bendigo Bank would make a material difference to the risk of coordination. Suncorp is not a particularly strong competitor. A merger with Bendigo Bank would be unlikely to create a meaningful constraint in the market due to uncertainties around their ability to integrate effectively.
The Tribunal was satisfied that the acquisition would not be likely to substantially lessen competition in the market for agribusiness banking services in local or regional areas in Queensland
This was because:
- If Suncorp were not acquired by anyone, it would provide the same or a reduced level of service. It had no plans to expand.
- If Suncorp were acquired by Bendigo Bank, the merged entity would not pose a significantly greater constraint on the market.
- In contrast, once ANZ acquires Suncorp, ANZ will continue to be constrained by other strong competitors, especially NAB and Rabobank. The acquisition will not result in a loss of a unique competitor in the market. Barriers to entry and expansion are relatively low, meaning other competitors would be capable of imposing a constraint on the market following the removal of Suncorp.
The Tribunal was satisfied that the acquisition would not be likely to substantially lessen competition in the market for SME banking services in Queensland
This was because:
- Suncorp is not a particularly close competitor of ANZ, and is not materially differentiated from other competitors in the market.
- Barriers to entry and expansion are low, meaning the threat of new entry will constrain ANZ post-acquisition.
- Once it acquires Suncorp, ANZ will have strong incentives to compete in the market.
Public benefits and detriments
What did the parties argue?
On the likely public benefits of the merger, the ACCC had maintained that:
- ANZ and Suncorp had overstated the synergies that would result from the merger, and that there was doubt about whether the resulting benefits would flow through to consumers rather than ANZ shareholders only.
- The proposed benefits of the transaction (like a tech hub and increased lending in Queensland) rely on side agreements with the State of Queensland, not the merger itself. Accordingly, they should not constitute a public benefit from the merger that is weighted up against its public detriments.
- The merger would result in substantial public detriments. These included the harms to competition (as advanced in the arguments above) and the loss of Suncorp as an acquisition target, which represented the best opportunity for a second-tier bank to build scale and compete with the major banks.
In response, the parties had argued that the benefits arising from the parties’ commitments to the State of Queensland should be accounted for when calculating the likely public benefits because the commitments were a direct consequence of the merger. Other public benefits claimed included that without Suncorp Bank, Suncorp Group would become a stronger insurer, while ANZ would become a stronger and prudentially safer bank.
The Queensland Government, after being given leave to intervene in the hearing, submitted that the Tribunal should accept new information relating to the context surrounding the formation of their agreements with the merger parties. That information, which had not been sought by the ACCC despite being essential to its decision, could have addressed how the commitments in those agreements qualify as genuine public benefits.
Where did the Tribunal land?
The Tribunal was satisfied that the likely public benefits of the acquisition would outweigh the likely public detriments
The Tribunal was satisfied that the acquisition would likely lead to ANZ experiencing efficiencies from the significant and sustained synergies with Suncorp. Any detriments from a reduction in competition are unlikely to be sufficiently certain to outweigh these productive efficiencies. While the parties had claimed other public benefits, these were either not public benefits or not specific to the acquisition.
