Competition Law

Australian Competition Law and Policy Discussion

Archive for May, 2010

Creeping Acquisitions Bill Introduced

Posted by Julie Clarke on 27 May 2010

The Competition and Consumer Legislation Amendment Bill was introduced into Parliament today.  It includes the following key amendment to the competition law provisions:

(1) replacing the words ‘a market’ in section 50(1) with ‘any market’

(2) Removing the requirement that a market, for purposes of the merger provision, be a ‘substantial’ market, by removing the word substantial from subsection 50(6)

The Government claims that this will address some of the concerns raised about creeping acquisitions.

Detail on the changes

Subsection 50(1)

The existing s 50(1) provides:

A corporation must not directly or indirectly:

(a) acquire shares in the capital of a body corporate; or

(b) acquire any assets of a person;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

The bill proposes to amend the last two words from ‘a market’ to ‘any market’. This, the EM explains (at para 1.33)  is to ‘clarify the ability of the ACCC or a court to consider multiple markets when assessing mergers’ and to ‘prevent businesses from being able to challenge a decision that a proposed merger or acquisition would, or would be likely to, substantially lessen competition in a market in breach of section 50, on the grounds that the lessening of competition identified was in one or more markets other than the primary market in which the merger or acquisition would occur.’

Subsection 50(6)

The existing provision provides that, for purposes of s 50:

market means a substantial market for goods or services in:

(a) Australia; or

(b) a State; or

(c) a Territory; or

(d) a region of Australia.

The bill proposes to remove the word ‘substantial’. The government claims that the current provision is unclear about whether or not the market definition extends to ‘local’ markets and is also unclear on just how ‘substantial’ a market must be to be caught. In particular, they claim (at para 1.28 of the EM) that removing the word substantial will ‘remove the risk … that a court may in the future adopt the view that the substantiality of a market should be determined with reference to Australia as a whole.’ The EM goes on to state that the ‘amendment will also remove doubts regarding the ACCC’s ability to examine markets where creeping acquisitions concerns may arise in the future’.

They are the proposed changes in a nutshell.  More detail to follow soon.

Note: Dr Emerson’s second reading speech is now available.

Posted in Legislation, Mergers | Tagged: , | 1 Comment »

Senate Committee rejects amendments to merger laws

Posted by Julie Clarke on 13 May 2010

The Senate Economics Legislation Committee has recommended that the Trade Practices Amendment (Material Lessening of Competition – Richmond Amendment) Bill 2009 be rejected.

The Bill was introduced by Senator Nick Xenophon and drafted by Associate Professor Frank Zumbo.  According to Senator Xenophon it was a response to an event occurring in West Richmond, Adelaide, involving Woolworths’ attempt to purchase a service station site next to a small independent site run by ‘Mr Fares’.  Of course, this has nothing to do with the content of the Bill, which relates to mergers, but that didn’t stop the Bill’s proponents from using this example as justification for the Bill (the Senate Committee correctly noted that the ‘anticipated’ conduct complained of would relate to predatory pricing not creeping acquisitions, despite claims to the contrary by Zumbo – and that, ironically, the Bill is likely to hurt Mr Fares by removing his ability to sell his business asset to larger competitor).

The Bill itself was designed to do two things:

  • lower the threshold for prohibited mergers from those that substantially lessen competition to those that materially lessen competition
  • address creeping acquisitions by preventing a corporation with substantial market share from merging or acquiring shares/assets which would have the effect of lessening competition in a market (no ‘substantial’ or ‘material’ lessening required)

Are Australia’s current merger laws too permissive?

Before considering their view on the Bill itself, the Committee considered the claim by leading proponent of the Bill, Frank Zumbo, that the ACCC approves 97% – or nearly all – mergers and that this proved Australia’s merger laws were too permissive.  The Committee rejected this claim, finding that it was misleading because it excluded mergers not assessed because they do not substantially lessen competition and those not proposed because they clearly do have that effect.  As a result, it did not accept that the 97% approval figure was accurate or that it proved that Australia’s merger regime was too permissive.

Lowering the merger threshold

On the first point the Committee (Xenophon dissenting) held that alteration of the merger test would generate uncertainty when there was no sound evidence suggesting a problem with the current bill.  They also did not accept that the different wording would necessarily lower the threshold as Zumbo had claimed.  They concluded that the concept of ‘substantially lessening competition’ was well established in Australia and elsewhere

Creeping acquisitions

In relation to this issue the Committee (Xenophon dissenting) noted that the change proposed would be ‘arbitrary and contentious’.  Although they rejected the claim by opponents of the bill that the bill would set an absolute market share cap (although I’m not sure that in this respect they correctly interpreted the criticisms) they did find that the change could potentially harm the small business it was intended to protect.  They were also influenced by the Government’s current proposal to clarify the definition of market in relation to mergers, to ensure it was capable of including ‘local market’, which they considered might address some of the concerns raised about creeping acquisitions.

The dissent

Naturally Senator Xenophon, who introduced the bill, dissented and recommended passage of the bill with some modification.  He placed a lot of emphasis on the ‘Fares’ case (which doesn’t relate to merger law) and Zumbo’s 97% figure, rejected by everyone else as false evidence of the ‘leniency’ of Australia’s merger laws – claiming the statistic suggested the threshold was ‘far too onerous and high’.  He also claimed

The material lessening of competition test would assess the reduction in consumer choice as a result of a merger or acquisition, whereas the substantial lessening of competition test effectively only focuses on pricing power. [at 1.25]

This is patently false and, one would wonder where he got this idea, until you skip to paragraph 1.26 and see that it is derived from a quote from Assoc Prof Zumbo’s submission.  That, of course, does not make the statement true.

In relation to the creeping acquisition provision, the core focus of Senator Xenophon is protection of small business from ‘aggressive and arguably anti-competitive strategies of larger and more powerful corporations such as Woolworths’.  If that’s Xenophon’s concern, he’s focusing on the wrong provision – the proposed changes to the merger laws would not correct this and existing misuse of market power provisions already address this, at least to a degree – if he’s concerned with the way in which market power is used he should focus attention on s 46 and stop messing with our merger laws which represent international best practice.  He should also be reminded that protection of small business is not the goal of our competition law.

Phew!

As a private member bill this one was always going to struggle to get up – but stranger things have happened in Australian competition law in the past – particularly in election years – so a general ‘phew’ describes my relief that the Senate Committee got it right this time – hopefully the Senate listens to them and buries the bill – hopefully deep enough that it doesn’t resurface any time soon.

View full report

Posted in Competition Policy, Legislation, Mergers | Tagged: , , | 1 Comment »

 
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