Competition and Market Regulation Update May 2007
11 May 2007Contents
In this month's Competition and Market Regulation Update we explore the following developments:
- Coles – private equity ‘lock-ups’ come under focus
- Fairfax / Rural Press merger advances after ACCC consent
- ACCC approves Toll split: The end?
- Authorisation for Motor Trades Association and GPs
- In brief – Energy & Telecommunications
Coles – private equity ‘lock-ups’ come under focus
The Coles sale process continues to attract considerable public interest. The Australian Competition and Consumer Commission (ACCC) has been keeping a watchful eye on the process, particularly private equity ‘lock-ups’.
Last month, after Wesfarmers Ltd secured an 11.3 per cent stake in Coles, it advised the Coles board that it intended to make a $16.47 a share full cash offer (with a scrip alternative). Rival, Woolworths, has also expressed an interest, with Coles’ general and office merchandise businesses clear targets.
Potential competition concerns are raised by private equity ‘lock-ups’ which involve the formation of large consortiums ‘locking up’ all or the majority of potential bidders.
The ACCC maintains a watchful eye on this issue and is reported to have been in close discussions with the US Department of Justice (the equivalent competition regulator), which is also increasingly concerned with the ‘locking-up’ of suitors. As yet, the ACCC has not publicly commented on how it intends to deal with this issue.
Fairfax/ Rural press merger advances after ACCC consent
The ACCC announced on 18 April 2007 that it would not oppose the Fairfax / Rural Press merger, subject to Fairfax undertaking to divest two free community newspapers in Newcastle and the lower Hunter Valley.
The ACCC examined the possible effects of the merger in relation to the supply of advertising opportunities to advertisers, the supply of content to consumers, and the acquisition of content from content providers in the geographic areas of Canberra, Newcastle and the Hunter Valley, and Hawkesbury. (For more information, see the Public Competition Assessment dated 27 April 2007.)
According to the Fairfax Media chairman, the merged entity will be Australia’s ‘largest integrated metropolitan, regional and rural print, online and digital media business.’
ACCC approves Toll split: The end?
On 18 April 2007 the ACCC consented to a variation of Toll Holdings’ undertakings, allowing Toll Holdings (Toll) to split into two separately listed entities – Toll (a logistics company) and Asciano (an infrastructure company).
Toll had offered the original undertakings in March 2006 to address the ACCC’s competition concerns about Toll’s proposed acquisition of Patrick Corporation.
The recently-accepted division of Toll relieves the company of several of its original obligations, but also creates new ones.
Toll no longer has to divest:
- its vehicle transport business, its PrixCar interest, or 50 per cent of rail company Pacific National (since Asciano will own Pacific National after the split).
To ensure a ‘clean break’ between Toll and Asciano, the ACCC has required new obligations such as:
- prohibition of joint ventures and cross shareholdings between Toll and Asciano, and personal undertakings from the directors of both companies to meet certain standards of independence.
Furthermore, some of the old obligations from the original undertakings remain:
- Asciano has assumed Toll’s obligations to divest the ‘Starter’s Kit’ of East West Rail assets, and not to discriminate in favour of Pacific National and Patrick Corporation’s container terminals.
The new and revised undertakings for Toll and Asciano also include ‘information clauses’, which the ACCC has promised to include in all future undertakings. These clauses enable the ACCC to gather documents and interview employees to ensure compliance with undertakings. If Toll and Asciano fail to comply with their obligations to maintain a ‘clean break’, the ACCC will enforce the original undertakings and require divestiture of the vehicle transport business, the PrixCar interest, and 50 per cent of Pacific National.
This may finally bring an end to the process that began in August 2005, when Toll first announced its intention to acquire Patrick Corporation. For articles keeping track of the story, see the Updates from February 2006, March 2006, April 2006, May 2006, and April 2007.
Authorisation for Motor Trades Association and GPs
The ACCC has issued a draft determination proposing to authorise the Motor Trades Association of Australia (MTAA) ‘real times guide’ to smash repairers and providers of motor vehicle insurance. In 2005, the Productivity Commission inquiry into the close ties between the insurance and smash repair industries urged the relinquishment of the quoting practice known as ‘funny time, funny money’ whereby insurers agree to smash repairers extending the number of hours quoted for smash repair work to compensate for an apparently low hourly rate. ACCC Chairman, Graeme Samuel considers that the guide will be ‘a useful tool for the formation of quotes based on real world factors, which may provide for greater transparency in the quoting process’. The ACCC is seeking submissions on this proposal (See ACCC news release, 11 April 2007.)
The ACCC has also issued a draft determination proposing to authorise certain GPs to agree on the fees they charge to patients and to collectively negotiate hospital agreements. In 2002, authorisation was granted by the ACCC to the Royal Australian College of General Practitioners (RACGP) for GPs intra-practice price-setting arrangements. The RACGP is seeking to renew the authorisation and extend it to allow GPs to collectively negotiate on the terms and conditions of their service contracts with public hospitals as visiting medical officers. In December 2006, the ACCC gave interim authorisation only to the intra-practice price setting element of the application. The ACCC is now proposing to grant interim authorisation to all the arrangements because they will probably result in efficiency gains in negotiations with hospitals and create a net benefit to the public.(See ACCC news release, 11 April 2007.)
Energy
On 13 April 2007, the Council of Australian Governments (COAG) met to discuss various issues, including energy reform. The Energy Reform Implementation Group (ERIG), established by COAG in 2006 to review Australia’s energy sector, produced a report, released on the same day: Energy Reform—The way forward for Australia. ERIG’s report recommended a broad ranging reform agenda designed to improve competition, governance, infrastructure planning and financial markets. (For further information see the Freehills article on Developments in national energy reform.
Also, see ERIG report, Energy Reform-The way forward for Australia.
Telstra has won its Federal Court action against the ACCC. The court found that the Consultation Notice issued to Telstra differed from the final Competition Notice to such an extent that Telstra had been denied procedural fairness.
aaNet Communications Pty Ltd has brought an interesting and potentially ground-breaking claim against Telstra in the Federal Court, claiming predatory pricing in contravention of section 46 of the Trade Practices Act. The decision could be of critical importance in breathing new life in recovering under the notoriously difficult section 46.
G9, the consortium of telecommunication companies attempting to develop a rival proposal to Telstra’s Fibre-to-the-node (FTTN) high-speed broadband network has lodged a draft special access undertaking with the ACCC. Although the draft undertakings have not been made public, the ACCC announcement gives some information about expected pricing.
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