m&a australia merger control hughes gibbons freehill

8/3/2019 M&a Australia Merger Control Hughes Gibbons Freehill

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Merger Control 2011Published by Global Legal Group withcontributions from:Ashurst LLPBorden Ladner Gervais LLPBrasil, Pereira Neto, Galdino, Macedo Advogados BPGMBullard, Falla & Ezcurra AbogadosELIG, Attorneys-at-LawElvinger, Hoss and PrussenFreehillsGeorgiades & Pelides LLCGide Loyrette NouelHomburgerHunton & Williams LLPKallel & AssociatesKalo & AssociatesKoep & PartnersLiedekerke Wolters Waelbroeck KirkpatrickMatheson Ormsby PrenticeMichael Shine & Co.Morais Leito, Galvo Teles, Soares da Silva & AssociadosNagashima Ohno & TsunematsuNielsen NragerOlivares & Ca., S.C.PRA Law OfficesPUNUKA Attorneys & SolicitorsSchoenherrSetterwallsSJ BerwinStudio Pirola Pennuto Zei e AssociatiTamme Otsmann Ruus VabametsUGGC & AssociesVan Doorne N.V.Vasil Kisil and PartnersVogel & VogelWebber WentzelWikborg, Rein & Co.uri i Partneri

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Chapter 4

Freehills

Australia

1 Relevant Authorities and Legislation1.1 Who is/are the relevant merger authority(ies)?The Australian Competition and Consumer Commission (ACCC)

administers the Trade Practices Act 1974 (the Act), which amongst

other things, prohibits mergers which have an anti-competitive

effect and provides mechanisms for review of potentially anti-

competitive mergers. The ACCCs approach to the substantive

assessment of potential anti-competitive effects of mergers is set

out in the 2008 Merger Guidelines (Merger Guidelines).

The Federal Court also has a role in merger control, since the ACCC

must take enforcement action in the Federal Court and does not

have direct power to prevent a merger occurring.

The Australian Competition Tribunal (the Tribunal) is the body

which considers merger authorisations and can grant declarations inrelation to mergers which occur outside Australia under Section

50A of the Act (see question 1.2 below). The Tribunal may also

review decisions by the ACCC in relation to formal merger

clearance decisions.

The Foreign Investment Review Board (FIRB) considers proposals

by foreign interests to undertake investment in Australia (discussed

at question 1.3 below).

1.2 What is the merger legislation?The primary legislation is the Trade Practices Act1974 which, from

1 January 2011, will be renamed the Competition and Consumer

Act 2010. In this chapter, we refer to the existing and renamed

legislation as the Act.

Section 50 of the Act prohibits mergers and acquisitions which have

the effect, or would be likely to have the effect, of substantially

lessening competition in a substantial market in Australia. Section 50

applies to both direct and indirect acquisitions of shares or assets.

Subsection 50(3) of the Act sets out a non-exhaustive list of merger

factors that are to be considered in evaluating whether a proposed

merger has the effect or likely effect of substantially lessening

competition in a market:

the actual and potential level of import competition in themarket;

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 acquirerbeing able to significantly and sustainably increase prices or

profit margins;

the extent to which substitutes are available in the market orare 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 removalfrom the market of a vigorous and effective competitor; and

the nature and extent of vertical integration in the market.

Section 50A of the Act specifically deals with acquisitions that

occur outside Australia. Where an acquisition outside Australia

results in the acquirer obtaining a controlling interest in a

corporation in Australia, an application for review can be made to

the Tribunal. An application to the Tribunal can be made by the

Attorney General, the ACCC or any other person. (Most commonly

however, foreign mergers are considered by the ACCC on the basis

of the informal clearance process described at question 3.6 below.)In Australia, there is no mandatory requirement to notify the

competition regulator, the ACCC, about a proposed merger or

acquisition. However, even if the ACCC is not notified, it can

investigate any merger that it considers may raise competition issues.

The available clearance processes are discussed at question 3.6 below.

The Federal Court is the ultimate arbiter of whether a merger

contravenes section 50. Where the ACCC considers that an

acquisition contravenes section 50 of the Act, it can apply to the

Federal Court for an injunction, divestiture or penalties. Third

parties can apply for declarations and/or divestiture (including

setting aside the acquisition in certain cases). Any person suffering

loss or damage as a result of a merger that breaches section 50 can

apply for damages. Conversely, the merger parties themselves mayseek a declaration from the Federal Court relating to the validity of

a merger (whether proposed or completed).

1.3 Is there any other relevant legislation for foreign mergers?Foreign investments are regulated by theForeign Acquisitions and

Takeovers Act 1975 (FATA) and Australias Foreign Investment

Policy (Policy). The Foreign Investment Review Board (FIRB)

considers proposals by foreign persons (including corporations and

governments) to undertake investment in Australia and makes

recommendations to the Federal Treasurer (i.e. the Federal

Government minister responsible for fiscal and economic matters).

The Treasurer may prohibit or impose various conditions on foreigninvestment proposals where they are contrary to Australias national

interest. The impact of the proposed transaction on national security,

competition, other Australian Government policies (including tax),

impact on the Australian economy and the community and the

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Paul Hughes

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character of the investor will be considered. As of June 2010, the

Policy expressly states that FIRB will consider competition issues as

part of its examination of investment proposals.

The following transactions are subject to the FATA:

1 acquisitions of an interest in an existing Australian business

or corporation, which is valued above AU$231 million,including:

acquisitions of shares where a single foreigner (andany associates) has not less than 15% of the votingpower/issued shares;

acquisition of assets resulting in control of the business (where the assets are valued at more thanAU$231 million); and

any other type of arrangement resulting in control ofthe business;

2 a takeover of an off-shore company the value of whoseAustralian subsidiaries or gross assets exceed $231 million(or whose Australian assets account for more than 50% of thetarget companys global assets);

3 any direct investment by a foreign government or theirrelated entities (including companies in which foreigngovernments have a 15% or greater interest) in Australianbusinesses or corporations; and

4 an acquisition of an interest in Australian urban land(including acquisition of shares in an urban land corporationor trust, an interest in residential real estate or vacant land oran interest in commercial real estate valued at AU$50 million(or AU$5 million where the property is heritage listed)).

The monetary thresholds are subject to yearly indexation. An

increased threshold of AU$1,004 million applies to US investors,

except in relation to investments in prescribed sensitive sectors

(which include media, telecommunications, transport, military,

security and nuclear extraction and nuclear power generation)

where the AU$231 million threshold applies.

It is compulsory for a foreign person or corporation to notify FIRB

where they are acquiring an interest in an Australian company

through an acquisition of shares (either shares of that company or

of a parent, Australian or foreign) or acquiring an interest in any

Australian urban land. Failure to do so is an offence attracting a

fine not exceeding $55,000, imprisonment of up to 2 years or both

for individuals and a fine not exceeding $55,000 for corporations.

Other transactions may be voluntarily notified under the FATA.

In addition to submitting the prescribed notification form, FIRB

may also require the acquirer to provide certain details of the

agreement and other relevant transaction details. No fees or charges

apply to notifications or applications.Notification to FIRB under the FATA will commence a 30-day time

period within which the Treasurer may decide to prohibit the

proposal, impose conditions or raise no objections. The 30-day

period may be extended by up to a further 90 days. The Treasurer

has 10 days to notify the parties of the decision and publish the

decision in the Government Gazette.

Breach of conditions imposed by the Treasurer is a criminal offence

- individuals may be subject to a fine not exceeding AU$55,000,

imprisonment of up to 2 years or both and corporations may be

fined up to AU$275,000.

Where a transaction which falls within the FATA is not notified and

it is subsequently found that it is not in the national interest, the

Treasurer may order the divestment of the shares or unwinding ofthe investment.

The applicability of FATA has not been considered in relation to

subsequent questions. Further information relating to the foreign

investment regime in Australia can be found at www.firb.gov.au.

1.4 Is there any other relevant legislation for mergers inparticular sectors?Yes. There are also specialised regimes, regulating foreign

investment in various sectors, including media, banking, aviation,

shipping and telecommunications.

2 Transactions Caught by Merger ControlLegislation2.1 Which types of transaction are caught in particular, howis the concept of control defined?The focus of section 50 of the Act is on how the proposed

acquisition will impact competition in the relevant market, rather

than the issue of control.

The Act does not prescribe a threshold shareholding for the

purposes of section 50 and all acquisitions of shares or assets are

therefore subject to the Act. Accordingly, the acquisition of acontrolling interest, or lower shareholdings with or without other

non-shareholding interests, are sufficient to attract competition

review.

Nonetheless, the focus of the ACCCs competition analysis will

differ depending on whether the acquisition does amount to a

controlling interest, or if the acquisition is of a lower shareholding.

The ACCCs Merger Guidelines identify the following possible

anticompetitive effects of shareholdings that are below a level

delivering control:

horizontal acquisitions may increase interdependencebetween rivals and lead to muted competition or coordinatedconduct (see chapter 6);

joint acquisitions of assets by rivals may have coordinatedeffects;

vertical or conglomerate acquisitions may increase theacquirers incentive to foreclose rival suppliers;

acquisitions may provide access to commercially sensitiveinformation in relation to competitors; and

acquisitions may block potentially pro-competitive mergersand rationalisation.

2.2 Can the acquisition of a minority shareholding amount toa merger?

Yes. See question 2.1.

2.3 Are joint ventures subject to merger control?Yes. Under the Act, joint ventures may be the subject to section 50,

where the joint venture involves the acquisition of shares or assets.

2.4 What are the jurisdictional thresholds for application ofmerger control?As noted above, section 50 of the Act applies to any acquisition of

shares or assets which has the effect, or would be likely to have the

effect, of substantially lessening competition in a substantial market

in Australia.Apart from the relatively low threshold of needing to affect

competition in a substantial market, there is no jurisdictional

threshold for application of merger control. That said, as discussed

below at question 3.1, the Merger Guidelines encourage parties to

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notify the ACCC well in advance of completing a merger where the

products of the merger parties are either substitutes or complements

and the merged firm will have a post-merger market share of greater

than 20% in the relevant market/s.

2.5 Does merger control apply in the absence of asubstantive overlap?The focus of section 50 of the Act is on how the proposed

acquisition will impact competition in the relevant market (which

itself must be a substantial market). Thus, where no substantive

overlap occurs, parties need to consider whether other features of

the merger could give rise to a substantial lessening of competition.

2.6 In what circumstances is it likely that transactionsbetween parties outside Australia (foreign to foreigntransactions) would be caught by your merger controllegislation?

Section 50 of the Act will apply to acquisitions made outside

Australia where the acquisition is made by:

bodies corporate incorporated in Australia or carrying on abusiness in Australia;

Australian citizens; or

persons ordinarily resident within Australia,

where the acquisition would have the effect or be likely to have the

effect of lessening competition in a market in Australia.

In addition, foreign acquisitions for which an acquirer is not

considered to be carrying on a business within Australia may fall

under section 50A of the Act for consideration. See question 1.2.

2.7 Please describe any mechanisms whereby the operationof the jurisdictional thresholds may be overridden by otherprovisions.

Not applicable.

2.8 Where a merger takes place in stages, what principlesare applied in order to identify whether the various stagesconstitute a single transaction or a series of transactions?

The Act does not provide guidance on how to assess multiple

acquisitions between the same parties since section 50 applies to

any acquisition of assets or shares. Accordingly, while the ACCC

will not aggregate a number of acquisitions, it will consider any

separate acquisition in the context of its overall impact on

competition.

There has been discussion of potential amendments to the Act to

address the distinct but related issue of creeping acquisitions. In

Australia, creeping acquisitions refers to a series of small-scale

acquisitions by a single purchaser of different competitors. The

concern is that such acquisitions may not individually substantially

lessen competition in a market in contravention of section 50, but

may collectively have that effect over time. There have been a

number of proposed attempts to deal with this issue by draft

legislation since 2007, but at the current time, it appears unlikely

these will proceed.

3 Notification and its Impact on the TransactionTimetable3.1 Where the jurisdictional thresholds are met, is notificationcompulsory and is there a deadline for notification?While there is no compulsory pre-notification requirement for

mergers in Australia, the ACCC Merger Guidelines encourage

parties to notify the ACCC well in advance of completing a merger

where the products of the merger parties are either substitutes or

complements and the merged firm would have a post-merger

market share of greater than 20% in the relevant market/s.

The Herfindahl-Hirschman Index (HHI) can also be used to

determine whether the ACCC will likely identify competition

concerns and therefore may assist in making a decision to notify. The

HHI is calculated by adding the sum of the squares of the post-merger

market share of the merged firm and each rival firm in the relevant

market. The ACCC emphasises in the Merger Guidelines that the HHI

should not be viewed as interchangeable with, or a substitute for, thenotification threshold set out above. The ACCC will generally be less

likely to identify horizontal competition concerns when the post-

merger HHI is either less than 2,000, or greater than 2,000 with a delta

(the change in HHI pre- and post-merger) less than 100.

Note that the FATA does contain compulsory notification

requirements as described at question 1.3.

3.2 Please describe any exceptions where, even though thejurisdictional thresholds are met, clearance is notrequired.

Not applicable, given there is no mandatory clearance requirement.

3.3 Where a merger technically requires notification andclearance, what are the risks of not filing? Are there anyformal sanctions?

As there is no requirement to notify the ACCC, there are no formal

sanctions for failure to notify.

The decision whether or not to notify a merger is a commercial

decision for the merger parties and will depend on the parties

assessment of the competition risk (and the consequent risk of

intervention by the ACCC). As discussed at question 3.1, the

ACCC has indicated a combined market share threshold of 20% as

guidance for notification, but this is not a definitive rule.

If the ACCC initiates an investigation of a merger that was not

notified, it will ordinarily approach the parties and seek information

regarding the merger. Where concerns of a substantial lessening of

competition in a relevant market are identified, the ACCC may

initiate court proceedings to seek a range of remedies discussed

further in question 3.7 below.

Given the risks of regulatory intervention, where competition

concerns are likely, most parties tend to approach the ACCC in

advance.

3.4 Is it possible to carve out local completion of a merger toavoid delaying global completion?

In theory yes, although the carve out would need to address the root

cause of the potential competition concerns in Australia (and for

multinational organisations this may not be limited to activities of

Australian subsidiaries, or Australian-based assets).

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Where competition issues are identified in Australia, the merger

parties may negotiate a remedy with the ACCC (see question 5.2)

in order to obtain clearance so that the global merger can complete.

3.5 At what stage in the transaction timetable can thenotification be filed?

As prior notification is not mandatory in Australia, the timing for

any approach to the ACCC is a commercial decision.

The merger parties are able to approach the ACCC for an advance

view on a potential merger, even on a confidential basis, although

the ACCC states that there needs to be sufficient certainty around

the proposed acquisition such that there is a real likelihood that the

merger will proceed.

3.6 What is the timeframe for scrutiny of the merger by themerger authority? What are the main stages in theregulatory process? Can the timeframe be suspended bythe authority?

There are three potential routes for obtaining regulatory certainty or

comfort for a proposed merger (although in practice only one of

them is used regularly). Parties can choose to seek:

1 informal clearance from the ACCC (a form of regulatorycomfort letter which is not legally binding but remainsoverwhelmingly the most popular form of clearance formerging parties);

2 formal clearance from the ACCC (a statutory based clearanceintroduced in January 2007, which is binding on the ACCC);or

3 authorisation directly from the Tribunal on the basis thatpublic benefits outweigh any anti-competitive detriment.

Different processes and timeframes apply for each mode of

clearance.

1 Informal merger clearance (most commonly used)

Informal clearance typically involves:

Initial (phase 1) review: The parties typically provide theACCC with written submissions which the ACCC willanalyse in accordance with the factors set out in section 50(3)of the Act. On review of the submissions, the ACCC willusually set an indicative timeline for its review (typically 6 8 weeks initially) and publish this on the merger register onthe ACCC website.

Market inquiries: In most cases where competition issuesarise, the ACCC will seek further information from the

merger parties and conduct its own market inquiries,consulting customers, suppliers and other market participantson the competitive impact of the proposal. Marketparticipants will usually have a period of approximately 2weeks to make submissions to the ACCC.

Once market inquiries have been completed the ACCC willusually require between 2 - 3 weeks to undertake its internalassessment.

Two outcomes are likely to result from the ACCCsassessment:

competition concerns have been resolved throughmarket inquiries and informal clearance is granted; or

competition concerns have not been resolved throughmarket inquiries and assessment to date, and appear

incapable of being resolved without furtherinformation from the marketplace.

Statement of Issues (phase 2 review): If the proposal raisescompetition concerns or if the ACCC wishes to test some ofits assumptions in considering the merger, it will usually

publish a Statement of Issues seeking further publicconsultation on the proposal. The Statement of Issues willoutline the basis and facts on which the ACCC has made itsinitial assessment (after a first round of market inquiries),indicate the preliminary competition concerns and ask forfurther market comment.

In this case, a secondary timeline will be established, whichthe ACCCs Merger Guidelines suggest a usual period of 12weeks from the start of the public review process, althoughthis will depend on the particular case at hand.

Timeframes: A phase review 1 is typically 6-8 weeks. If aStatement of Issues is released, up to a further 6 weeks may be added to the timeline. However, these timelines areindicative only and the timeframe can be suspended orextended at any stage. The parties may request that thetimeframe be suspended for commercial reasons, or theACCC may suspend the timeframe if it is awaiting additionalinformation from the parties. The ACCC will communicateany intention to suspend the timeframe to the merger parties.

Decision by the ACCC: At the conclusion of the review

process, the ACCC will advise the parties of its final decisionwhich will either be:

not to oppose the proposed acquisition; or

not to oppose the proposed acquisition subject toundertakings (section 87B of the Act, discussed infurther detail at question 5.2); or

to oppose the proposed acquisition.

Public Competition Assessment: In substantive matters, theACCC usually publishes a Public Competition Assessmentoutlining its analysis after the assessment has beencompleted (see further at question 5.1 below).

Confidential views and courtesy contacts: 2 variations ofthe informal clearance process are worth a mention. Partiesmay wish to approach the ACCC confidentially to seek a

view on a prospective merger without the ACCC conductingmarket inquiries. The ACCC will entertain such approachesand will typically express a view as to whether thetransaction may substantially lessen competition in a market,but that view will be subject to the ACCC conducting marketinquiries once the transaction is public. Timing and thedepth of a confidential review are a matter for discussionbetween the ACCC and the party approaching it. The ACCCalso encourages courtesy contacts, where parties are notexpressly seeking informal clearance (for example becausethey do not consider competition concerns arise), but informthe ACCC as a matter of courtesy of their transaction orproposed transaction. In such cases, the ACCC may conductits own review (essentially adopting the informal clearanceprocess, with market inquiries etc. as above).

2 Formal merger clearance

Although available since January 2007, this is yet to be used (as at

October 2010). Formal clearance, if granted, confers immunity

from legal challenge under section 50. The ACCC must not grant a

clearance unless if it is satisfied that the acquisition would not have

the effect, or be likely to have the effect, of substantially lessening

competition.

Formal clearance involves:

The clearance application: The acquiring party mustsubmit a Form O application to the ACCC, accompanied bya filing fee of AU$25,000 and a formal statutory undertakingnot to proceed with the acquisition while the ACCC isconsidering the application.

The ACCC has expressed a strong preference that partiesconsult with it before the application is filed. This will assistparties to ensure their application is complete and valid.

The ACCC will advise the acquiring party within 5 businessdays if its application is invalid. Once a valid application is

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lodged, it cannot be amended and the filing fee will not bereturned.

Timeframes: The ACCC is required to issue its determinationon a formal clearance application within 40 business days ofreceiving a valid application. If additional information isrequested by the ACCC, the applicant must provide the

information within the timeframe specified by the ACCC.If no decision is made within the 40-business-day period, theACCC is deemed to have refused to grant the clearance. TheACCC may extend the time for its review of the formalapplication by agreement with the acquiring party. In acomplex and/or contentious matter, the ACCC may extendthe period by a further 20 business days.

Confidentiality: The formal merger clearance is more publicthan the informal process (confidential applications for formalclearance will not be entertained). Submissions of both themerging parties and interested third parties (including oralsubmissions) will form part of the public record and will beavailable on the mergers register on the ACCC website. Partiescan request that confidential information be excluded (and

should in such circumstances provide the ACCC with anadditional redacted version of the document).

Review by the Australian Competition Tribunal: A keydifference of the formal clearance process is the appellate process, if the ACCC rejects or is deemed to reject anapplication for formal clearance. In these circumstances, theapplicant may seek a review by the Tribunal. Third parties,including the target, do not have this right of review.

The Tribunals review is limited to the papers lodged with theACCC. However, the Tribunal may, in its discretion, seekrelevant information, and consult with persons, as itconsiders reasonable and appropriate for the purposes ofclarifying that information.

The Tribunal has 30 business days to make its decision.

3 Authorisation (on public benefit grounds)

Authorisation confers immunity from legal challenge on public

benefit grounds for mergers which might otherwise contravene

section 50.

In making its decision to grant or refuse an authorisation, the

Tribunal will weigh the public benefits of the proposed acquisition

against any lessening of competition.

Authorisation is only available for proposed acquisitions. Since 1

January 2007, applications must be made directly to the Tribunal

and the ACCC has a right to appear and provide a report. As at

October 2010, no applications have been made to the Tribunal for

authorisation of a merger on public benefit grounds.

To obtain authorisation for a proposed merger, the acquiring party

must submit an application directly to the Tribunal, accompanied by

a filing fee of AU$25,000 and a statutory undertaking to the ACCC

not to proceed with the acquisition while the Tribunal is considering

the application.

The Tribunal will advise the acquiring party within 5 business days

if its application is invalid. Once a valid application is lodged, it

cannot be amended and the filing fee will not be returned.

3.7 Is there any prohibition on completing the transactionbefore clearance is received or any compulsory waitingperiod has ended? What are the risks in completingbefore clearance is received?

Informal clearance

Where an informal clearance process has been initiated, parties

ordinarily await the ACCCs decision prior to completion. The

ACCC (although not private parties) can seek interim and final

injunctions from the Federal Court to prevent acquisitions from

proceeding. If an acquisition has completed and the ACCC is of the

view that there will be a substantial lessening of competition, the

ACCC may institute proceedings seeking pecuniary penalties,

divestiture of the shares or assets acquired or an order/declaration

that the transaction is void.

The ACCC will sometimes request that parties undertake not to

complete the transaction while the ACCC completes its review

process (a standstill undertaking), particularly where the ACCC has

identified competition concerns or perceived a risk of a substantial

lessening of competition arising. The standstill undertaking provides

that the parties will not complete the merger or take steps to complete

the merger without giving the ACCC prior notice.

Formal clearance and authorisation

As set out at question 3.6, in relation to formal merger clearance and

merger authorisation, the acquirer must give a statutory undertaking

stating that it will not make the acquisition while the application is

being considered. Where the acquirer acts in breach of the

undertaking, remedies may be sought.

3.8 Where notification is required, is there a prescribedformat?

Informal clearance

There is no prescribed format for a notification for informal

clearance. Merger parties ordinarily provide information to the

ACCC in writing and request clearance. The length of the initial

submission to the ACCC will depend on the complexity of the

matter, and would typically include information addressing section

50(3) factors, including:

information about the parties, including their history,

operations, commercial rationale for the acquisition anddetails of the proposal;

a discussion of relevant market definition;

the market shares of the parties;

the level of imports; and

details of barriers to entry to the market, substitutability anddynamics of the market.

Formal clearance

For formal clearance, the acquiring party must lodge the Form O

application for merger clearance with the ACCC.

Authorisation

Applications for authorisation must be made by completing and

lodging Form S - Application for merger authorisation with theTribunal.

3.9 Is there a short form or accelerated procedure for anytypes of mergers?

No.

3.10 Who is responsible for making the notification and arethere any filing fees?

Informal clearance

The informal merger clearance process is relatively flexible. Either

the acquiring party, or both parties jointly, can lodge an initial

submission to the ACCC. If the ACCC does not consider it has all

necessary information in the initial merger submission (either from

the acquirer or both parties jointly), the ACCC may request further

information. No filing fees apply for informal merger clearance.

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Formal clearance

In relation to formal merger clearances, the Form O must be

completed by the acquirer. A filing fee of AU$25,000 is payable for

a formal merger clearance.

Authorisation

In relation to authorisations, the acquirer must complete the FormS and a AU$25,000 filing fee is payable.

4 Substantive Assessment of the Merger andOutcome of the Process4.1 What is the substantive test against which a merger will

be assessed? Are non-competition issues taken intoaccount?

Informal and formal clearance by the ACCC

The relevant test is set out in section 50 of the Act. Section 50

prohibits mergers and acquisitions which have the effect, or wouldbe likely to have the effect, of substantially lessening competition

in a substantial market in Australia. Further information about

section 50 is discussed at question 1.2. Non-competition issues are

not considered in formal and informal clearance.

Efficiencies will be considered by the ACCC but only to the extent

they impact competition in the market. The ACCC will not in this

context look to see if efficiencies for the merging firms justify the

lessening of competition.

Authorisation by the Tribunal

In relation to applications for merger authorisation, the Tribunal will

weigh the public benefits of the proposed acquisition against any

lessening of competition. Non-competition issues (e.g. employment,

environmental and social issues) may be relevant to the Tribunalsassessment of any public benefits of the proposed acquisition.

The concept of public benefits is not defined in the Act, although

the Tribunal has defined it to be anything of value to the community

generally, the achievement of economic goals of efficiency and

progress, and as something that increases the well-being of

members of society as a whole. Benefits that accrue only to a

limited group will probably be private benefits rather than public

benefits. It is possible for efficiencies to constitute public benefits,

although the weight given to them in the weighing process will

depend on how broadly the benefit of them is spread.

4.2 What is the scope for the involvement of third parties (orcomplainants) in the regulatory scrutiny process?

As discussed at question 3.6, all merger clearance processes have

scope for involvement of third parties.

Informal clearance

The ACCC will conduct market inquiries by consulting market

participants on the competitive impact of the proposal. This

includes customers, competitors and suppliers of the merger parties.

As noted above, the ACCC may also publish a Statement of Issues

in relation to some acquisitions. The Statement of Issues invites

public comment on specific areas of concern.

The level of involvement of third parties will vary depending on the

complexity of the competitive issue and the level of interest. Thirdparties may make written submissions or may be consulted orally,

or by in-person interviews.

Recent practice at the ACCC now sees the ACCC summarising in

general terms the concerns expressed by market participants, to

facilitate the merger parties response to those concerns. The

ACCC however will not reveal confidential information as to the

identity of any participant raising concerns in the informal process.

Formal clearance

The ACCC will write to potentially interested parties requesting

submissions and place a notice on its website inviting submissions.Any submission made to the ACCC in respect of an application for

authorisation will (subject to confidentiality) be placed on the

mergers register on the ACCC website.

Authorisation

The Tribunal will conduct a process of consultation with market

participants, including the target and customers, competitors and

suppliers of both the applicant and the target in relevant markets.

Any submission made to the Tribunal in respect of an application

for authorisation will (subject to confidentiality) be placed on the

mergers register.

4.3 What information gathering powers does the regulatorenjoy in relation to the scrutiny of a merger?

In addition to issuing voluntary information requests, the ACCC

also utilises its mandatory information gathering powers in a

merger context. Section 155 of the Act allows the ACCC to issue a

compulsory notice to a person (including a corporation) if the

ACCC has reason to believe that the person is capable of furnishing

information, producing documents or giving evidence relating to a

matter that constitutes, or may constitute, a contravention of the

Act. In contentious matters, the ACCC uses its compulsory powers

under section 155 to interview individuals under oath, or to compel

the production of documents or other information.

It is an offence to knowingly or recklessly supply false or

misleading information to the ACCC.

4.4 During the regulatory process, what provision is there forthe protection of commercially sensitive information?

Informal clearance

Submissions and documents provided by the merger parties and

interested third parties are not published. In addition, parties are

able to identify commercially sensitive information in their

submissions and request that the information be kept confidential.

The ACCC has a strong track record on protection of confidential

information.

Note that the ACCC may disclose confidential information in

limited instances, for example, the provision of such information to

other regulators, both in Australia and overseas.

Formal clearance and authorisation

The formal clearance process and the authorisation process are

public. All information formally submitted (including oral

submissions) will form part of the public record and will be

available on the respective regulators website, although parties can

request that confidential information be excluded.

5 The End of the Process: Remedies, Appealsand Enforcement5.1 How does the regulatory process end?The regulatory process comes to an end when the ACCC or the

Tribunal (as relevant) reaches its decision (or is taken to have reached

a decision) or the matter is withdrawn by the merger parties.

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Informal clearance

The ACCC will typically notify the merger parties by letter of its

decision. In many cases, it will issue a press release detailing its

decision shortly after informing the parties and will also update its

merger register to provide a short explanation of its decision,

including the market definition and competition analysis.

Where a merger is opposed, subject to undertakings, merger parties

seek disclosure or the merger raises important issues that the ACCC

considers should be made public, the ACCC may release a Public

Competition Assessment, which provides further detail regarding

the ACCCs reasoning. Public Competition Assessments are

ordinarily released some weeks or months after the ACCCs

decision is announced.

Formal clearance

The ACCC is required to issue a determination on a formal

clearance application within 40 business days of receiving a valid

application. If no decision is made within the 40business-day

period (or any appropriate extensions), the ACCC is deemed to

have refused to grant the clearance.Authorisation

The Act requires that the Tribunal issue a determination on an

authorisation application within 3 months of receiving a valid

application. If no decision is made within this period, the Tribunal

is taken to have refused to grant the authorisation.

5.2 Where competition problems are identified, is it possibleto negotiate remedies which are acceptable to theparties?

Yes. Merger parties can provide the ACCC with a court enforceable

undertaking under section 87B of the Act to implement structural,

behavioural or other measures that address the competitionconcerns identified by the ACCC.

The provision of undertakings is at the discretion of the party giving

the undertaking. The structure and content of any undertakings is

therefore a matter for the party offering the undertaking to

determine, although the ACCC will discuss its views on the

acceptability of any proposed undertaking.

The ACCC will ordinarily consult the market on a proposed draft

undertaking. The ACCC will not accept undertakings if it is not

satisfied they address its competition concerns.

The Merger Guidelines indicate a preference for undertakings that

include structural rather than behavioural remedies. Structural

remedies generally change the structure of the merged firm and/or

the market, typically through divestiture of part or all of a business.

Behavioural remedies are normally ongoing remedies designed to

modify or constrain the behaviour of the merged firms. Where a

divestiture is offered pursuant to an undertaking, it is the ACCCs

strong preference that the divestiture provides for a viable,

independent and competitive business capable of competing with

the merged entity and that it be completed up front (i.e. to an

appropriate purchaser prior to the acquirer taking control).

In its Merger Guidelines, the ACCC has stated that, prior to

accepting an undertaking, it will need to be satisfied that:

the proposed undertaking is customised to the particularnature of the relevant merger, the competition concernsraised, and the industry or industries involved;

the core obligations in the proposed undertaking (forexample, a divesture) specifically, comprehensively andeffectively address the ACCCs competition concerns;

the proposed undertaking would impose clear andunambiguous obligations on the party giving the

undertaking, including clear delineation of assets andbusinesses covered by the remedy, the terms under which theremedy is to be carried out, timeframes for actions to becompleted, and the consequences of non-performance withinthose timeframes;

the party offering the undertaking is capable of meeting its

obligations as set out in the undertaking, and the remedycannot be frustrated by the actions (or inaction) of thirdparties (for example, there may be matters where minorityshareholders remain following the acquisition of a firm, whomay be able to prevent the acquirer from meeting itsobligations under a proposed undertaking); and

for international mergers involving firms operating injurisdictions other than Australia, any remedies provided tothe ACCC are capable of being enforced by the ACCC andcoordinated with any of the other relevant jurisdictionsinvolved.

In its Merger Guidelines, the ACCC also states that it will be

unlikely to accept an undertaking when, in its view:

there are risks that the undertaking will not be effective in

preventing a substantial lessening of competition as a resultof the merger; and/or

there are risks that the undertaking cannot be implemented inpractice and (where necessary) properly monitored and/orenforced.

5.3 At what stage in the process can the negotiation ofremedies be commenced? Please describe any relevantprocedural steps and deadlines.

As noted at question 5.2, the provision of undertakings is at the

discretion of the party offering the undertaking. Accordingly, the

negotiation of remedies can be commenced at any stage in the

process.Where the potential competition issues are clear from the outset, it

may be helpful to offer an undertaking early in the process.

Conversely, in more complex matters, it may be helpful to wait until

the ACCC has more clearly defined its concerns with the proposed

merger (e.g. through a Statement of Issues) before offering an

undertaking, so that the remedy can be targeted at the specific areas

of concern. An undertaking can even be offered after a decision

from the ACCC to oppose the proposed merger.

There are no mandated procedural steps or deadlines and the

development of an undertaking is an iterative process with the

ACCC.

The ACCCs Merger Guidelines state that in accepting an

undertaking the ACCC does not seek to improve competitionbeyond the pre-merger level of competition, but the remedy needs

to adequately address the potential harm identified.

Where the package is sufficient, the parties and the ACCC will

discuss the detailed provisions of the undertaking. The refinement

of the undertaking can take several weeks, depending on the

complexity of the arrangements.

Once the undertaking is in a form that is capable of being accepted

by the ACCC, the ACCC will release the draft undertaking (save for

confidential information) and seek comment from interested

parties. After the market inquiries regarding the draft undertaking

have concluded, the ACCC may require further adjustments to the

undertaking.

Where the undertaking is accepted, it will be signed by the parties

and the ACCC and a non-confidential version will be placed on the

ACCCs undertakings register on the ACCC website. The ACCC

will also issue a press release indicating its decision to accept or

reject the undertaking.

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5.4 If a divestment remedy is required, does the mergerauthority have a standard approach to the terms andconditions to be applied to the divestment?

The ACCC has a strong preference that the divestiture provides for

a viable, independent and competitive business capable of

competing with the merged entity. The ACCC has a preference forup-front divestiture (fix it first) and mechanisms for oversight

(e.g. an independent auditor). Where up-front divestiture is not

possible, ring fencing obligations such as an independent manager

will usually be required.

In the early stages of the discussion of a proposed undertaking, the

ACCC will ordinarily provide the party offering the undertaking

with information regarding the expected structure of the

undertaking and some standard clauses (such as interpretation etc.).

Recent undertakings that have been accepted by the ACCC can

provide guidance on acceptable language for the operative clauses

in the undertaking.

5.5 Can the parties complete the merger before the remedieshave been complied with?Under the Act, where undertakings have been accepted and signed

by the ACCC and clearance granted on the basis of the

undertakings, completion can usually take place. Whether parties

can complete the merger before the remedies have been complied

with will ultimately depend on the specific terms of the

undertaking.

5.6 How are any negotiated remedies enforced?Where a party breaches an undertaking, the ACCC can seek a court

order to enforce the undertaking (pursuant to section 87B(4)). Thecourt may:

direct the party to comply with the undertaking;

direct the party to pay an amount equal to a financial benefitobtained from the breach;

make any order that the court considers appropriate directingthe person to compensate any other person who has sufferedloss or damage as a result of the breach; or

make any other order that the court considers appropriate.

The ACCC may also seek an interim injunction to ensure that the

effectiveness of its eventual order is not prejudiced.

In addition, the ACCC will generally not cede the legal right to take

action against the parties even where it has accepted anundertaking. An undertaking accepted by the ACCC does not

preclude the ACCC from taking legal action under section 50,

particularly if the undertaking is not properly implemented or the

decision to accept the undertaking was based on inaccurate

information.

5.7 Will a clearance decision cover ancillary restrictions?Informal clearance

The ACCC has the ability to consider ancillary restrictions in the

context of the informal merger clearance, but as the clearance

provides no immunity as such, parties need to consider the

application of other provisions in the Act to their ancillaryrestrictions and satisfy themselves no contravention occurs.

Formal clearance

Applications for merger clearance and authorisation can only be

made for acquisitions covered by section 50. Any ancillary

arrangements or non-merger aspects of a transaction cannot be

granted clearance under the formal merger clearance provisions.

Authorisation

A decision by the Tribunal to provide authorisation for a merger

will not cover ancillary arrangements. According to the ACCCs

Formal Merger Guidelines, any ancillary arrangements may need tobe separately authorised by the ACCC, as part of a separate process

to the merger authorisation.

5.8 Can a decision on merger clearance be appealed?The potential avenues for appeal differ depending on the type of

merger clearance which was sought by the parties. As set out at

question 1.2 above, due to separation of powers, only the Federal

Court in Australia may determine whether a merger contravenes

section 50.

Informal clearance

There is no right of appeal in relation to the ACCCs decision in an

informal merger clearance process. If the ACCC chooses to oppose

a proposed merger, the parties could offer an undertaking (as

discussed at question 5.2), defend any proceedings initiated by the

ACCC or themselves institute court proceedings seeking a

declaration that the proposed acquisition does not contravene

section 50.

Federal Court proceedings can take several months, though the

court will seek through case management procedures to progress

the case expeditiously. There are very few examples of parties

instituting proceedings against the ACCC.

Formal clearance

If the ACCC rejects an application for formal clearance, or does not

make a decision (which is taken to be a rejection of the application

for formal clearance), the applicant may seek a merits review by the

Tribunal. Third parties, including the target, do not have a right of

review to the Tribunal.

The Tribunals review is limited to the evidence before the ACCC.

However, the Tribunal may, in its discretion, seek relevant

information, and consult with persons, as it considers reasonable

and appropriate for the purposes of clarifying that information.

The Tribunal has 30 business days to decide.

Authorisation

There is no formal right of appeal in relation to the Tribunals

decision where authorisation for a merger has been sought.

5.9 Is there a time limit for enforcement of merger controllegislation?

Post-completion remedies include a declaration that the merger

contravenes section 50, divestiture and pecuniary penalties.

Different time limits apply for each:

no time limit exists for a declaration of contravention;

an application for divestiture may be made by the ACCC orany other person and must be made within 3 years of themerger; and

the ACCC may institute proceedings in the Federal Court forpecuniary penalties within 6 years after the contravention.

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6 Miscellaneous6.1 To what extent does the merger authority in Australialiaise with those in other jurisdictions?The ACCC shares information and co-operates with a number ofinternational enforcement authorities, including the Commerce

Commission of New Zealand, the US Department of Justice and

Federal Trade Commission, the Canadian Commerce Commission,

the Fair Trade Commissions of Korea and Taiwan, the Commerce

Commission of Fiji and the Papua New Guinea Consumer Affairs

Council.

6.2 Please identify the date as at which your answers are upto date.

29 October 2010.

AcknowledgmentWe acknowledge the considerable assistance of Emily McConnell,

Solicitor, in preparing this chapter.

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Karen GibbonsFreehills

101 Collins StreetMelbourne, Victoria 3000

Australia

Tel: +61 3 9288 1583

Fax: +61 3 9288 1567

Email: [email protected]

URL: www.freehills.com

Karen advises on all aspects of the competition rules including

merger control, cartels, misuse of market power and general

compliance.

Karen joined Freehills in 2006 after several years working with a

major Irish law firm where she specialised in EC and Irish

competition law.

Karen has a particular interest in merger control advice and has

advised clients on mergers and acquisitions in many sectors,

including financial services, consumer goods, health, media andothers. She has represented clients seeking clearance from the

ACCC, the European Commission and the Irish Competition

Authority, and has negotiated remedies including divestments in

a number of matters.

Karen is a regular speaker at conferences, contributing on

Australian, EC and Irish competition law topics.

Paul HughesFreehills

MLC Centre 19-29 Martin PlaceSydney, NSW 2000

Australia

Tel: +612 9225 5697

Fax: +612 9322 4000

Email: [email protected]

URL: www.freehills.com

Pauls experience combines the disciplines of law, economics

and accounting in both regulated and unregulated industries. He

has advised across a range of industries and transaction

structures.

Paul advises clients seeking ACCC clearance for mergers in

industries such as petrol, consumer goods, financial services,

food ingredients, financial services and many others,

representing both Australian and multi-national clients.

He also advises on the competition issues which arise from jointventure structures. Paul assists clients in respect of antitrust

investigations and provides general competition law advice.

Paul has also represented clients before the Australian

Competition Tribunal, the Australian courts, and the ACCC.

Paul joined the competition law group of Freehills in 2001 and is

currently head of the competition group. He was a partner at

another firm from 1992 and previously worked in London.

Freehills is an Australian-based international law firm. We back up our commitment to providing innovative, commercial legal

advice to clients around the world, with the resources and expertise of around 1000 lawyers, including more than 200 partners

across offices in Australia and South-East Asia.

Our solid track record means you can be confident in our ability to deliver first class commercial results for your business. This

confidence is demonstrated by the quality of our client base. We act for more than 75 per cent of Australias top 100-listed

companies. We undertake high-level legal work for leading corporations on every continent across the globe. These companies

are involved in some of the largest and most complex commercial transactions being undertaken. Our ability to provide clients with

legal, commercial and strategic solutions is built on vast experience and knowledge of local markets, and a keen understanding

of the commercial context in which your business operates.

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