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
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.
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.
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.