Key takeaways
- Purchasers and vendors of assets in Australia, New Zealand, Papua New Guinea and Fiji have to consider the requirements and tests for merger clearances.
- There are potentially changes coming to the Australian legal requirements. The Federal Treasury’s Competition Taskforce has publicised three possible options for reforming the Australian merger control regime which may affect future merger and acquisition transactions in Australia.
- The requirements and tests for merger clearance differ in each jurisdiction, that is Australia, New Zealand, Papua New Guinea and Fiji.
- Companies that are considering acquiring assets in other companies domiciled in foreign jurisdictions need to be mindful of differing requirements in each jurisdiction to ensure they comply with the relevant competition laws and avoid penalties.
What are the potential options for reform in Australia?
The Treasury’s Competition Taskforce published its Merger Reform Consultation Paper (Consultation Paper) in November 2023 containing potential options to reform the merger control regime and test in Australia, aimed at addressing the limitations of the currently informal regime.[1] The Consultation Paper sets out three possible options to reform the current merger control process and the Treasury has sought submissions on the options.
Briefly, the possible options include:[2]
Option 1 – Voluntary Formal Clearance Regime (similar to New Zealand)
This option maintains voluntary notification as the parties decide whether to notify the Australian Competition and Consumer Commission (ACCC) of a transaction and apply for clearance. The ACCC would grant clearance if it is satisfied that a merger is not likely to substantially lessen competition. If the ACCC is not notified or the parties proceed with the merger regardless of the ACCC’s concerns, the ACCC must initiate legal action against the parties in the Federal Court.
Option 2 – Mandatory Notification and Suspensory Regime (similar to United States and Canada)
This option imposes a mandatory notification requirement for transactions exceeding a certain threshold, however, the ACCC would be able to investigate mergers under the threshold. If the ACCC decides that the merger is likely to substantially lessen competition and the parties proceed with the merger, the ACCC must initiate legal action against the parties in the Federal Court.
Option 3 – Administrative Mandatory Formal Clearance Regime (similar to the European Union)
In contrast, this option imposes a mandatory notification requirement for transactions exceeding a certain threshold. The ACCC would grant clearance if it is satisfied that the merger is not likely to substantially lessen competition, or the net public benefit test is satisfied. Additionally, the ACCC would be authorised to ‘call-in’ transactions under the threshold if there are competition concerns, without initiating legal action in the Federal Court. However, parties may seek merits review and or judicial review of the ACCC’s decisions.
Under all three options, the transaction would be suspended throughout the ACCC’s assessment period. This applies to voluntarily notified transactions under Option 1.
The Consultation Paper also sets out three possible options to reform the existing substantially lessening competition test.[3]
When do you need merger clearance or authorisation?
Mergers and Acquisitions in Australia and New Zealand
In Australia, there is a general prohibition on acquiring the shares or assets of any corporation if that acquisition would have the effect, or the likely effect, of substantially lessening competition without authorisation from the ACCC.[4] Breach of this prohibition may attract maximum penalties of the greater of:[5]
- $50,000,000.00;
- if the court can determine the value of the ‘reasonably attributable’ benefit obtained from the acquisition, three (3) times that value; or
- if the court cannot determine the value of the ‘reasonably attributable’ benefit, 30% of the corporation’s adjusted turnover during the breach turnover period for the contravention.
However, there is no obligation to notify the ACCC of a transaction, and so it is at the discretion of the parties and their legal advisors whether obtaining authorisation is required. This may change in the future if a mandatory notification requirement for transactions exceeding a certain threshold is introduced as part of the possible reform options outlined above.
Like Australia, New Zealand has a similar prohibition on anti-competitive mergers and no general notification obligation.[6]
Mergers and Acquisitions in Papua New Guinea
Papua New Guinea, like Australia and New Zealand, has a general prohibition on contracts and arrangements that have the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.[7] However, an application for merger clearance to the competition regulator in PNG, the Independent Competition and Consumer Commission (ICCC), is required when:[8]
- when the transaction value of the proposed acquisition exceeds the Kina 50,000,000.00 (around AU$20,000,000.00); or
- the proposed acquisition is likely or would likely result in a market share increase of 50% or more of the person who is acquiring.
In PNG, the triggers for merger clearance are defined separately from the prohibition against transactions that substantially lessen competition; although, the substantially lessening competition test forms the basis of the ICCC’s assessment of merger clearance applications. This leads to some confusion as to whether merger clearance is required when for example a transaction does not trigger the merger clearance application requirement but is likely to have the effect of substantially lessening competition.
Failing to make an application for merger clearance to the ICCC when required attracts a default penalty of Kina 750,000.00, (around AU$300,000.00).[9]
Mergers and Acquisitions in Fiji
Merger clearance in Fiji is the most distinct as it involves a test of market dominance rather than a ‘substantially lessening competition’ test. In Fiji, a person must not acquire shares or assets without authorisation if:[10]
- the acquisition will result in the acquirer being, or likely to be, in a position to dominate the market for goods or services; or
- if the acquirer is already in a position to dominate the relevant market, the acquisition will would, or would likely to substantially strengthen the power of the acquirer to dominate that market.
The penalty for failing to apply for merger clearance is capped at FJ$300,000.00. However, this penalty will also apply to each director of the company as they are vicariously liable under the Fiji Competition and Consumer Commission Act 2010 (Fj) (FCCC Act).[11]
How do competition regulators assess mergers?
Australia
When assessing an application for merger clearance, the ACCC applies a two-limb test. The first being whether there will likely be a substantially lessening of competition in the market and the second limb being the merger will likely result in net public benefit where the benefit outweighs any detriment.[12]
When assessing whether there has been a substantially lessening of competition the ACCC will consider the following matters:[13]
- the actual and potential level of import competition in the market;
- the height of barriers to entry to the market;
- the level of concentration in the market;
- the degree of countervailing power in the market;
- the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;
- the extent to which substitutes are available in the market or are likely to be available in the market;
- the dynamic characteristics of the market, including growth, innovation and product differentiation;
- the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor;
- the nature and extent of vertical integration in the market.
New Zealand and Papua New Guinea
Both New Zealand and Papua New Guinea use the same test when considering merger clearance and merger authorisation. As these two jurisdictions require a two-step application process (clearance and then authorisation), each step has a separate test.
When contemplating a merger clearance request, the ICCC and the New Zealand Commerce Commission (NZCC) will assess the merger to determine whether it is satisfied that the acquisition will not have and will not be likely to have, the effect of substantially lessening competition in a market.[14] This is the same as the first limb of the Australian Test.
When assessing a merger authorisation request, the ICCC and the NZCC must assess whether the merger will result or be likely to result in a benefit to the public that it should be permitted.[15] This is similar to the second limb of the Australian test, however, they do not have to contemplate whether the benefit outweighs any potential detriment.
Fiji
Fiji’s approach when assessing an application for authorisation is to use the second limb of the Australian test being the ‘balancing test’. The Commission must not make a determination authorising the merger unless they are satisfied that the merger would result in or be likely to result in a benefit to the public that would outweigh the detriment to the public constituted by any lessening of competition that would result from the merger.[16]
What is the market?
The definition of the market is essential component of any completion assessment. Each jurisdiction defines ‘market’ slightly differently.
Australia and Fiji
The CCA and FCCC Act define ‘market’ to mean:[17]
a market in Australia [and Fiji] and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.
New Zealand
The Commerce Act 1986 (NZ) (CA) defines ‘market’ as:[18]
a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them.
Papua New Guinea
The ICCC Act defines ‘market’ as:[19]
a market in the whole of Papua New Guinea for goods or services as well as other goods and services that, as a matter of fact and commercial common sense, are substitutable for them, including imports.
Goods and services that are substitutable
All four jurisdictions define ‘market’ with the focus being upon the substitutability of the goods and services. Substitution can be assessed using up to five (5) dimensions, which include the:[20]
- products supplied and purchased (product dimension);
- geographic area (where the product is obtained or supplied);
- level of the supply chain in which the parties operate;
- different customer types; and
- time period in which the market operates.
Each jurisdiction places an emphasis on different dimensions. The ACCC in its Merger Guidelines states that the focus is upon the product dimension and geographic dimension,[21] whereas the NZCC considers all five (5) dimensions.[22]
How can ANDE + Co. help?
If your company is considering entering into a domestic or upstream cross-border merger transaction involving multiple entities in different jurisdictions, ANDE + Co. can assist you with first identifying whether merger clearance is required and applying for clearance or authorisation in the relevant jurisdictions if required.
ANDE + Co. has experience in advising large companies that have acquired controlling shares in companies domiciled in different jurisdictions and resolving confusion as to whether merger clearance is required in each jurisdiction.
Importantly, ANDE + Co. has successfully assisted clients on the buyer side with obtaining merger authorisation for large acquisitions in both Fiji and Papua New Guinea.
Disclaimer
The information contained in this article is provided as a general guide only and is not intended as specific advice. Information contained in this article may have changed or may no longer be current. The content of this article was prepared in conjunction with our affiliate law firms domiciled in Papua New Guinea and Fiji.
References
[1] See page 6 of the Merger Reform Consultation Paper, available at https://treasury.gov.au/consultation/c2023-463361 (Consultation Paper).
[2] See pages 38-39 of the Consultation Paper.
[3] See pages 39-40 of the Consultation Paper.
[4] See section 50 and 50A of the Competition and Consumer Act 2010 (Cth) (CCA).
[5] See section 76(1A)-(1B) of the CCA.
[6] See section 47, 66(1), 67(1) and 69(1) of the Commerce Act 1986 (NZ) (CA).
[7] See section 50 of the Independent Competition and Consumer Commission Act 2002 (PNG) (ICCC Act).
[8] See section 81 of the ICCC Act.
[9] See section 81 of the ICCC Act.
[10] See section 72 of the Fijian Competition and Consumer Commission Act 2010 (Fj).
[11] See sections 143 and 144A of the Fijian Competition and Consumer Commission Act 2010 (Fj) (FCCC Act).
[12] See section 90(7) of the CCA.
[13] See section 50(3) of the CCA and page 2 of the ACCC Merger Guidelines.
[14] See section 66(3) of the CA and section 81 of the ICCC Act.
[15] See section 67(3) of the CA and section 82 of the ICCC Act.
[16] See section 150C(8) of the FCCC Act.
[17] See section 4E of the CCA and section 4 of the FCCC Act.
[18] See section 3(1A) of the CA.
[19] See section 45(2) of the ICCC Act.
[20] See pages 18-22 of the Commerce Commission New Zealand Mergers and Acquisitions Guidelines and pages 13-15 of the ACCC Merger Guidelines.
[21] See pages 13-14 of the ACCC Merger Guidelines.
[22] See page 18 of the Commerce Commission New Zealand Mergers and Acquisitions Guidelines.