Too soon to tell if proposed thresholds will result in uplift of merger notifications 5 min read
As foreshadowed in August, Treasury has released its Consultation Paper on notification thresholds under Australia's proposed new mandatory merger regime. The Consultation Paper sets out its proposed design and values for the notification thresholds, which are based on international experience and available data (particularly from the ACCC).
An acquisition must be notified to the ACCC if:
- there is a material connection to Australia and any one of the monetary or market concentration thresholds is met; or
- it is a 'high-risk' acquisition, as determined by the Minister.
While Treasury is still considering various options (eg whether market concentration will be based on 'market share' or 'share of supply'), the Consultation Paper provides a good indication of how notifiability will be assessed.
Treasury will conduct targeted engagement with stakeholders on the proposed design and values for the notification thresholds, and is seeking public feedback by Friday 20 September 2024 (in three weeks). Further details are available on Treasury's website here.
In this Insight, we outline some of the key matters in the Consultation Paper and unpack the implications for merger parties.
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Key takeaways
- An acquisition will be notifiable if the target business or asset has a material connection to Australia and either the 'monetary' or 'market concentration' threshold is met. Each of these thresholds has two limbs, as shown below.
- A target business will have a material connection to Australia, for example, where it is registered or located in Australia, supplying goods or services to Australian customers or generating revenue in Australia.
- For the purposes of the monetary thresholds only, all acquisitions by the acquirer within the previous three years within the same product or service market/s (regardless of geographic location) will be aggregated.
- For the purposes of the market concentration thresholds, Treasury is considering two options: market share and share of supply.
- In addition, the Minister may determine that certain acquisitions are 'high risk' and, therefore, notifiable (without altering the broader thresholds). Such determinations would apply for a maximum of five years (unless new advice is received).
- Treasury is considering a notification waiver process whereby parties may seek such waiver from the ACCC, which would be binding on the ACCC. Details of what an application would involve are unknown, however it would likely involve a fee and the ACCC would be required to make a decision within 30 business days.
Treasury has proposed two different thresholds: 'monetary' and 'market concentration'
An acquisition must be notified to the ACCC if the target business or asset has a material connection to Australia and any one of the monetary or market concentration thresholds is met. Each of these thresholds contain two limbs, as shown below.
The target business or asset will have a material connection to Australia if, for example, the business is registered or located in Australia, supplies goods or services to Australian customers or generates revenue in Australia. This is intended to ensure only acquisitions that impact Australian consumers will be captured, without capturing foreign acquisitions with negligible operations in Australia or minimal impact on Australian commerce, which may otherwise be captured by the global transaction value threshold.
For the purposes of the monetary thresholds only, all acquisitions by the acquirer within the previous three years within the same product or service market/s (regardless of geographic location) will be aggregated.
For the purposes of the market concentration thresholds, Treasury is considering two options: market share and share of supply.
- Market share would be determined by the combined parties’ proportion of the total market size by sales value and/or volume. The market share threshold would capture both anti-competitive horizontal and non-horizontal mergers impacting affected markets, including adjacent markets. A market share threshold would require merger parties to calculate market share based on the market definition most likely to raise competition concerns.
- Share of supply of goods or services is based on the activities of the acquirer and target in the areas where they are both active. This would not require businesses or the ACCC to define the relevant market/s.
Source: Consultation Paper, p 18 and 24.
Acquisitions may also be notifiable if the Minister determines it is a 'high-risk' acquisition
The Minister may determine that certain acquisitions are 'high risk' and, therefore, notifiable (without altering the broader thresholds). These determinations will apply for no longer than five years (unless new advice is received).
The Minister may only make such determinations 'if there are evidence-based concerns'. Before making any such determination, evidence-based analysis will be presented to the Minister and stakeholder consultation will be undertaken.
Other than these procedural requirements, there appears to be wide scope for the Minister to make determinations on this basis.
These determinations are intended to address enduring competition risks in certain markets over time, which may not be captured by the broader notification thresholds.
The ACCC will provide guidance on the thresholds and may provide a 'notification waiver'
Treasury is considering a notification waiver process whereby parties may seek such a waiver from the ACCC, which would be binding on the ACCC. Such applications would involve a fee and require the parties to provide 'sufficient information' for the ACCC to make its decision, although it is not clear what such information requirements would involve. Decisions would be made within 30 business days (and are reviewable by the Tribunal) and published on the ACCC's public register.
While a notification waiver would protect parties from notification obligations and related penalties, it would not provide other protections afforded by notification, eg those conferred by the anti-overlap provisions.
What's next?
Treasury will engage with targeted stakeholders on the proposed design and values for the notification thresholds and is seeking public feedback by Friday 20 September 2024 (in three weeks).
The ACCC will also publish guidance on the notification thresholds and relevant processes, and parties may engage with the ACCC as to whether an acquisition is notifiable.
Please get in touch if you would like to discuss further.