Creeping Acquisition Amendments Revisited
Posted by Julie Clarke on 4 February 2010
I have previously discussed the Government’s proposed changes to the definition of market, for purposes of mergers – essentially their plan to remove the word ‘substantial’, so that a merger would be prohibited where it substantially lessened competition in any local, regional or national market, whether or not that was considered a ‘substantial’ market.
The problem with the reform (or at least it’s effectiveness in achieving the government’s objective of curbing ‘creeping acquisitions’) is that the word ‘substantial” rarely, if ever, has any impact on the ACCC’s determination of the ‘relevant’ market for assessing likely competitive impact. I’ve previously referred to comments by former chair of the ACCC’s Merger Review Committee, Prof Stephen King has made this observation in this respect:
Markets are based on substitution. If properly defined, an economic market for merger analysis captures the relevant level of competition. A market might be nationwide or even international. Or it may simply cover a single town or even part of a town … The key issues are – what is the nature of competition and what will the merger or acquisition do to this competition. If the merger substantially lessens competition in a properly defined economic market then it will harm consumers and the economy. The merger should be opposed. Requiring that the market is also ’substantial’ is redundant. So if Durie’s speculation is correct, the government will be getting rid of a redundant but confusing adjective!
The ACCC’s Merger Guidelines (updated in November 2008) also express the view that a ‘small’ market can be a ‘substantial market’ and that ‘substantial’ is not necessarily determined by geographic size. Although the Guidelines have no force in law, so a Court might interpret the meaning of ‘substantial’ differently in this context, the fate of mergers in Australia is, in practice, determined by the ACCC (there has been only one challenge to the ACCC’s decision not to informally approve a merger since the current test came into operation), so that its Guidelines reflect the current application of the law. Consequently, although removal of the word ‘substantial’ may remove a ‘redundant’ term, it is unlikely to impact on the number or type of mergers approved by the ACCC. It is clearly unlikely to have any impact on the ‘creeping acquisitions’ about which the Government seems so concerned.
This appears to be the consensus of opinion, as reported by Sam McKeith on page 11 of today’s Fin Review. However, also reported in that item are commends by Assoc Prof Frank Zumbo and Queensland Consumers Association spokesman Ian Jarrett, that need to be challenged. Zumbo claims that the ‘anti-merger law [first, it’s not an ‘anti-merger’ law, but I’ll let that one go] has dangerous gaps and needs a major overhaul. This fiddling will not fill the dangerous gaps in the existing anti-merger law’. It appears he also considers creeping acquisitions to be a ‘rapidly growing threat to competition and consumers’. None of these claims appear justified. It’s not clear what the ‘dangerous gaps’ are. Our merger laws are broadly consistent with those in other OECD countries, which do not specifically or separately address ‘creeping acquisitions’, so that although in theory there is a gap in the law not addressing potentially anti-competitive impact of a series of small mergers, there is little evidence that this is currently a problem in practice (even the ACCC in its Grocery Report could not identify a problem associated with creeping acquisition in the grocery sector, despite having every incentive to do so: ‘The ACCC does not consider that acquisitions by Coles and Woolworths of smaller competitors over time are a significant current concern in the grocery retail sector’ (p xxi). It’s also not clear what ‘major overhaul’ would be required to correct any perceived gap.
Ian Jarrett made a different but related claim, that ‘the high proportion of unopposed mergers indicated the ACCC needed more power to stop creeping acquisitions’. This conclusion simply does not follow. Most mergers are cleared because most mergers are not anti-competitive and the same holds true in most jurisdictions in which notification of mergers meeting certain thresholds is required; for example, the US challenges less than 5% of mergers notified to its competition agencies.
A law removing the word ‘substantial’ from the definition of market is to be welcomed because it is a redundant term which (it is clear) is capable of causing confusion. But let’s not pretend it’s something that it is not and let’s not overstate the problem (if there is one) of ‘creeping acquisitions’ in this county.