ACCC releases new Merger Guidelines

The ACCC has released its new Merger Guidelines (guidelines). The guidelines outline the general principles underpinning the ACCC’s approach to merger analysis under section 50 of the Trade Practices Act 1974 (Cth).  

The 2008 guidelines document the ACCC’s current more ‘integrated’ approach to merger analysis, as it has evolved since the approach documented in the 1999 guidelines. The 2008 guidelines place greater emphasis on theories of competitive harm and more clearly articulate the different concerns arising from different types of mergers.

A discussion draft of the 2008 guidelines was issued in February 2008. The final version incorporates a number of changes made following public consultation. The most notable of these changes is the simplification of the new ‘notification threshold’.

Importantly, notification of a merger to the ACCC remains voluntary. The decision whether to notify the ACCC still turns on the facts of each merger. However, merger parties are now ‘encouraged’ to notify the ACCC well in advance of completing a merger where both of the following circumstances apply:

• the products of the merger parties are substitutes or complements, and
• the merged firm will have a post-merger market share greater than 20 per cent in a relevant market.  

While mergers that fall outside this threshold will rarely require ACCC investigation, merger parties are also ‘encouraged’ to approach the ACCC where the ACCC has indicated to a firm or industry that notification of mergers by that firm or in that industry would be advisable.

This new ‘notification threshold’ is not to be confused with the ACCC’s new indicative ‘concentration threshold’. The former indicates the ACCC’s expectation when a merger should be voluntarily notified to the ACCC. The latter indicates when the ACCC may have substantive competition concerns with a merger.

Consistent with its February draft, the ACCC has formally abandoned its previous CR4 and 40 per cent concentration thresholds, historically described (often but inaccurately) as the ‘safe harbours’.

Under the 2008 guidelines, the ACCC has instead adopted the ‘Hirfindahl-Hirschman Index’ (HHI), as used by competition regulators in the United States and European Union. The HHI is the sum of the squares of the percentage market shares of each of all market participants. By way of example, a market with a merged firm at a 40 per cent share and three remaining competitors each at a 20 per cent share would have an HHI of (40x40) + (20x20) + (20x20) + (20x20) = 2800.

The ACCC indicates that it will generally be less likely to identify horizontal competition concerns where the post-merger HHI is either:

• less than 2000, or
• greater than 2000 but with a change in HHI arising from the acquisition (or ‘delta’) of less than 100.

This new concentration threshold is not intended as a replacement ‘safe harbour’, but is rather one of many factors that the ACCC will take into account when analysing a merger.

The 2008 guidelines do not change underlying merger procedure. A successful informal clearance application, for example, will still result in a ‘letter of comfort’ from the ACCC with no legal effect. A successful formal clearance application will still provide conditional statutory immunity. The 2008 guidelines are not intended to apply to merger authorisation applications as these are still made directly to the Australian Competition Tribunal.

As the 2008 guidelines are intended to document current ACCC practice, Freehills are not expecting any substantive changes to the conclusions reached by the ACCC in merger analysis. However, the 2008 guidelines are well crafted and should provide an enhanced level of predictability and certainty to merger parties, their advisers, the business community and the public alike.

This article was written by Dr Martyn Taylor, Senior Associate.

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