Proposed amendments to Australian merger law may not, as a practical matter, extend the Australian Competition and Consumer Commission’s power to block mergers beyond its current administration of the Trade Practices Act 1974 (Cth), but they do raise important policy questions.
The proposed amendments
On 27 May 2010, the Competition and Consumer Legislation Amendment Bill 2010 was introduced into Parliament and read for the second time. The Bill proposes to amend, among other things, the merger provisions of the TPA to address the issue of so-called ‘creeping acquisitions’.
Concerns about creeping acquisitions have been raised over the past few years, and are most commonly expressed in relation to the supermarket sector in Australia. Creeping acquisitions in this context are understood as a series of small-scale acquisitions that individually do not substantially lessen competition in a market in contravention of section 50 of the TPA, but may collectively have that effect over time.
The ACCC said in its 2008 Grocery Inquiry Report1 that, while section 50 of the TPA applies to individual acquisitions, its application to creeping acquisitions is more problematic. Specifically, the ACCC said that it can assess under section 50 the competitive issues associated with an individual acquisition, but it is unlikely to be able to examine the cumulative impact of a series of acquisitions of smaller competitors over time that individually do not raise competition issues.
The intention of the proposed amendments is to ensure that section 50 of the TPA applies to acquisitions in local markets, and that the impact on competition can be considered in any market, including upstream and downstream markets.
The Bill proposes the following amendments:
- in subsections 50(1) and (2), the words ‘a market’ will be replaced with the words ‘any market’, and
- in the definition of ‘market’ in subsection 50(6), the requirement that the market be a ‘substantial’ market will be removed.
Therefore, the TPA would prohibit acquisitions if they would have the effect, or be likely to have the effect, of substantially lessening competition in any market, whether or not the market is substantial.
Proposed amendments restate the existing application of section 50
The explanatory memorandum says that the proposed amendments are ‘not likely to substantially broaden the scope of operation of section 50 beyond its current administration’. Rather, it says that the proposed amendments largely restate the ACCC’s existing administration of section 50. In particular, the ACCC has not to date shied away from defining markets narrowly, and has always considered that section 50 applies to local markets. In addition, the ACCC has, where appropriate, assessed the effect of proposed acquisitions on competition in upstream and downstream markets.
This is clearly demonstrated by the ACCC’s approach to assessing mergers and acquisitions in the supermarket and liquor sectors. For example, when the ACCC assessed Woolworths’ proposed acquisition of the Karabar supermarket in Queanbeyan in regional New South Wales, it considered the effect of the proposed acquisition on:
- the local retail supermarket market within a 3–5 kilometre radius surrounding the Karabar supermarket, and
- upstream (state-wide) markets for the procurement and wholesaling of products sold in supermarkets.
Policy considerations
However, the word ‘substantial’ as presently used in relation to markets in section 50 must have some work to do. It may be the case that no reported merger to date has raised for serious consideration the question whether the affected market was substantial and therefore warranted competition law scrutiny. But the substantiality of a market is none the less a legitimate question in many mergers. And in Australian Gas Light Co v Australian Competition and Consumer Commission (No. 3)2, Justice French in the Federal Court (as he then was) suggested without expressing a concluded view that the substantiality of a market, even if it were geographically limited to a state or territory or region, might have to be judged by reference to Australia as a whole.
There also may be sound policy reasons for excluding from the regulatory burden of competition analysis mergers in markets that are not ‘substantial’. As long ago as 1976 the Swanson Committee in the first review of the then relatively new TPA had ‘a great deal of sympathy’ for the view that there should be a threshold test to prevent section 50 applying to relatively small companies.3 The Committee received a number of submissions citing the example of a one man or family business faced with the decision as to how or whether it should be continued on the retirement or death of the key personality where section 50 might stand in the way of the business being sold. For a different example, should a merger of two hairdressing businesses in Sydney’s Double Bay be subject to ACCC scrutiny?
This raises the more difficult question of what ‘substantial’ means, not just in the context of markets, but also in connection with market power and lessening of competition. Perhaps the best approach again is that of Justice French in Stirling Harbour Services Pty Ltd v Bunbury Port Authority4, namely substantial means ‘meaningful or relevant to the competitive process’. Another way of putting the question is, should the law care about or be concerned with this market, this degree of market power, or this lessening of competition? There must be trivial markets, trivial degrees of market power, and trivial lessenings of competition that do not justify intervention and do not justify parties being put to the trouble of competition analysis of a transaction.
Will the proposed amendments address the problem of creeping acquisitions?
It is not clear how the proposed amendments address the problem of creeping acquisitions, to the extent that such a problem exists. By definition, creeping acquisitions involve a series of acquisitions that do not substantially lessen competition when looked at individually, but may do so when considered collectively.
Whether creeping acquisitions are actually a problem is subject to some debate. The ACCC said in its Grocery Inquiry Report that none of the submissions in response to the Inquiry had identified specific markets where there had been a substantial lessening of competition as a result of a series of acquisitions. In the Report the ACCC said that it had not been able to identify any supermarket acquisitions in the last five years (to 2008) where the result would have been different had the ACCC been able to take into account other acquisitions in the same market. This suggested to the ACCC that ‘the cumulative effect of a series of acquisitions … has not been a significant contributor to any competition problems in the supermarket sector in recent years’.
That said, the proposed amendments would not change the focus of section 50, which expressly refers to a single acquisition and does not contain provisions allowing for the examination of multiple acquisitions. In other words, the proposed amendments would not allow the ACCC to consider the cumulative effect of a series of acquisitions over time. For this reason, the proposed amendments would be unlikely to have an impact in tackling the problem of creeping acquisitions, if there is such a problem.
This article was written by Karen Gibbons, Executive Counsel, Melbourne, Sarah Chubb, Solicitor and Jennifer Sing Key, Solicitor, Sydney.
Endnotes
- ACCC, Report of the ACCC inquiry into the competitiveness of retail prices for standard groceries, July 2008.
- (2003) 137 FCR 317.
- Trade Practices Act Review Committee, Report to the Minister for Business and Consumer Affairs, August 1976.
- (2000) ATPR 41-752.
More information
For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.