Merger reform legislation: complex process risks capturing more transactions than intended

Some industry concerns, however, have been addressed 20 min read

Yesterday, the Federal Government introduced the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (the Bill) to the Parliament, marking a significant shift in Australia's merger regime. From 1 January 2026, Australia will adopt a mandatory and suspensory administrative merger process. New merger authorisation and informal clearance applications can no longer be made after 30 June 2025 and 31 December 2025 respectively.

The Bill sets out the legal framework for the new merger regime and key elements, including the control test, notification thresholds, ACCC and Tribunal review timelines, the suspensory rule, the substantial lessening of competition and public benefit tests and transitional arrangements.

While the Government has incorporated some feedback from businesses and the legal community provided during the consultation stage, concerns remain about the complexity of the regime, the volume of transactions it may capture and the ACCC's ability to review mergers efficiently as a result. Businesses should carefully plan their timelines to avoid having to restart the process under the new regime during the transitional period.

However, despite some concerns, there are some positive changes. Amongst these, the Tribunal's new evidence rules and ACCC waiver powers introduce important and beneficial new procedural aspects. In this Insight, we outline the key elements of the Bill and explore what its passage through Parliament could mean for the future of mergers in Australia.

Key takeaways

• The Bill introduces a package of reforms that replaces Australia's existing merger review framework with a single mandatory and suspensory administrative merger regime, which will come into effect on 1 January 2026. New merger authorisation and informal clearance applications can no longer be made after 30 June 2025 and 31 December 2025 respectively. From 1 January 2026, if an acquisition reaches the notification threshold and an exemption does not apply, it must be notified to the ACCC and cannot be 'put into effect' or it will be void.

• The announced thresholds include only monetary factors (including a three-year cumulative turnover threshold), suggesting the Government will not be proceeding with market concentration thresholds. The Treasurer also has the ability to designate acquisitions that must be notified.

• Acquisitions that do not result in control or a change in control are not required to be notified. While the concept of control is aligned with the Corporations Act, it is subject to several modifications when considering whether the 'control exemption' applies. Acquisitions of shares in listed entities and other bodies corporate under Chapter 6 of the Corporations Act are also not required to be notified if the acquisition does not result in a person's voting power in that entity increasing to more than 20% or between 20% and 100%.

• The ACCC will assess the acquisition against the new and expanded 'substantial lessening of competition test' (SLC test) of whether an acquisition, in all the circumstances, will lead to an effect, or likely effect, of creating, strengthening or entrenching a substantial degree of power in the market. Unlike the exposure draft, this SLC test will only apply to mergers and not the Competition and Consumer Act (CCA) generally.

• The public benefits test will remain unchanged in the CCA, ie that the ACCC may determine that an acquisition can be put into effect if it is satisfied the acquisition will result in public benefits that outweigh any detriment. In the exposure draft, it had been proposed that the public benefit would need to substantially outweigh any detriment to the public, but this has since been removed in the Bill.

• A confidential review process can be requested for certain hostile takeover bids and a notification waiver process is available to allow the ACCC to waive notification on a case-by-case basis. Similarly, voluntary transfers of business under the Financial Sector (Transfer and Restructure) Act will be reviewed by the ACCC confidentially, with no information or documents included on the acquisitions register until the ACCC makes a determination.

• While the Tribunal cannot generally have regard to material that was not before the ACCC when making its determination, it has been empowered under the Bill to seek further information, documents and evidence in certain circumstances. One new circumstance is where the notifying party was not given a reasonable opportunity to make submissions to the ACCC in respect of new information relevant to the ACCC's determination. This is a new addition, and one that is certainly welcome.

• While the ACCC states in its statement of goals for merger reform implementation that it expects about 80% of mergers to be cleared within 15 to 20 business days, the complexity—together with the potential volume of mergers captured—raises significant concerns about the ability of the ACCC to review mergers promptly. Transacting parties will need to factor in specific timeframes for review of public benefits after the ACCC's determination on competition effects.

Notifiable acquisitions

What types of acquisitions are caught?

The new regime requires that the following types of acquisitions by corporations or persons be notified where the 'control' and 'monetary' thresholds are met:

• shares in the capital of a body corporate or corporation;
• any assets of a person or corporation; or
• any other acquisition the Minister, following consultation and by legislative instrument, determines should be notifiable or exempt.

The new regime also applies to partnerships and unit trusts as if they were a 'person' (subject to certain modifications, eg obligations being imposed on each partner or trustee (where there are multiple trustees), but capable of being discharged by the one). It also applies to acquisitions of units in a unit trust and an interest in a managed investment scheme as if those entities were bodies corporate and the units/interest were shares. This represents an expansion from previous legislation, addressing gaps identified in the exposure draft. The concept of 'indirect' acquisition has also been removed from the Bill.

Control test

Notification will be required where the above acquisitions result in the acquirer gaining control or practical influence over the business.

In this context, 'control' refers to the capacity to determine the outcome of decisions regarding the target's financial and operating policies. Assessing whether such control exists requires consideration of both the practical influence that may be exerted (rather than the rights enforceable) and any practice or pattern of behaviour affecting the financial or operating policies of the entity. In aligning more closely with the definition of control in the Corporations Act 2001 (Cth), the Bill provides greater clarity on the concept of control as compared to the exposure draft.

However, the Bill modifies the concept of 'control' in certain ways, such as:

• a person is taken to be able to control the target if it and one of its associates jointly have the capacity to control the target; and
• for an acquirer that is a special purpose vehicle—the rule that deems an entity not to have control if it is under a legal obligation to exercise its influence for the benefit of others, is disregarded.

Exemptions

Certain acquisitions are exempt from notification, including:

• acquisitions that do not result in control (ie the capacity to determine the outcome of decisions regarding the target's financial and operating policies), including a change in control;
• acquisitions of shares in the capital of a listed company, listed scheme or a large unlisted company (ie more than 50 members) (Chapter 6 entity) where the acquiring party's voting power does not exceed 20% or does not move from above 20% to below 100%. This aligns with the takeovers threshold in the Corporations Act. When determining whether an acquisition meets the voting power threshold, a person is not considered to have acquired a ‘relevant interest’ in the shares until a conditional contract becomes binding (eg where a person has an option to acquire shares). This is a shift away from what was presented in the exposure draft;
• internal restructures and reorganisations of involving related bodies corporate, or conducted through a trust or partnership; and
• ordinary business transactions other than those involving land and patents.

Unlike the exposure draft, the Bill does not adopt the rebuttable presumption of control which had seen stakeholder concerns surrounding its ambiguity around acquisitions with lower voting power thresholds. The Bill also does not adopt the express exclusions for temporary holdings of shares or acquisitions. This is likely to be a significant issue for many businesses, so it will need to be considered further. It may be that it is intended to be covered by the waiver process or the Chapter 6 entity voting power exemption.

Further, parties can request that notification of a proposed 'surprise hostile takeover' (ie where the target is not aware of the proposed bid) be withheld from publication on the acquisitions register for up to 17 business days, or indefinitely if the ACCC decides to cease its review (including at the bidder's request) within that period. However, this only applies to unconditional bids (or those subject only to prescribed occurrence conditions), and there is a range of requirements, such as the bidder committing to filing the bidder's statement one business day after receiving the ACCC determination, which may expose the bidder to market risk.

Thresholds

While the regulations are yet to be released, the Government response has confirmed that the new regime will have the following notification thresholds:

Economy wide monetary thresholds

Targeted notification requirements and exceptions

• Notification waiver: the new law also introduces a notification waiver process, wherein parties to an acquisition can apply to the ACCC to relieve them of the obligation to notify an acquisition that would otherwise be required to notified. The notification waiver does not, however, exempt an acquisition from the operation of section 50.
• Ministerial determinations: the Bill incorporates a power for the Minister to make a determination that could require certain potentially anti-competitive mergers to be notified, in response to evidence-based analysis and consultation regarding high-risk sectors of the economy.
• Further consultation on exceptions and targeted notification: the Government response indicates that it intends to consult further on whether certain categories of transactions should be notifiable or exempt, including:
  • requiring notification if a target is a non-listed body corporate, at least one merger party has Australian turnover of at least $200 million and the acquisition results in the acquirer holding more than 20% voting power; and
  • exempting land acquisitions involving residential property development or by any business that is primarily engaged in buying, selling or leasing property and which does not intend to operate a commercial business (other than leasing) on the land (unless those acquisitions are captured by additional targeted notification requirements).
  • The Government has also said it will 'ensure' that acquisitions unlikely to have an impact on Australia will not need to be notified. It is not clear how this will be applied at this point.

Proposed targeted screening tool

• A targeted screening tool is currently being explored as a low-cost approach to capture acquisitions below the monetary thresholds in select concentrated regions and sectors. This means that all mergers where the target business or asset operates in the designated sub-industries, sector, goods or services or regions above a minimum turnover threshold (which is yet to be determined) would need to register with the ACCC. 
• A Ministerial determination could require acquisitions found through the screening tool to be in high-risk or concentrated markets to notify or provide more information to the ACCC.
• The merger would only be notifiable if the ACCC requests notification within 5 to 10 business days.

Notification rules and requirements

The Bill details various changes to the notification and information-gathering requirements under the mandatory merger regime.

Who has the obligation to notify?

There is an obligation on the principal party (ie the person(s) who acquire the shares / assets) to make a notification to the ACCC. A notification may be made jointly if there are multiple parties to the transaction.

Material changes of fact

Parties have an ongoing obligation to notify the ACCC of any material changes of fact to the notification until the ACCC makes its determination.

What constitutes a material change of fact is left to the discretion of the ACCC, but examples of material changes of fact may include: (i) the immediate or short-term exit of a major competitor, (ii) the destruction of assets that are relevant to the ACCC's assessment of the notified acquisition; or (iii) significant regulatory change.

If a change of fact will materially impact the ACCC's investigation, it has the ability to:

• extend the determination period by the number of days that the ACCC was without information of the relevant change; or
• could also effectively 're-start the clock'.

Penalties

The Bill introduces pecuniary penalties for contravention of the obligation to notify the Commission; the prohibition on putting into effect stayed acquisition; and a new civil penalty for providing false or misleading information to the ACCC or the Tribunal in relation to an acquisition.

Transitional arrangements

Both the current informal merger filing process and the merger authorisation process will be phased out.

From 1 January 2026, the new mandatory merger regime will come into effect and, if a proposed transaction is notifiable—in that it meets the relevant merger thresholds and control test—it will have to be notified to the ACCC under the new regime. Businesses will no longer be able to voluntarily notify the ACCC via its informal clearance process from 1 January 2026, or use the merger authorisation process from 1 July 2025.

Between 1 July 2025 and 31 December 2025, merging parties can choose to voluntarily notify the ACCC of their proposed acquisition under the new regime. There is no obligation to do so, however, and merging parties can continue to voluntarily notify the ACCC of a transaction under the informal process during this period.

The formal merger authorisation process will remain in effect until 31 December 2025, but merging parties can only lodge applications for merger authorisations up until 30 June 2025.

The new mandatory merger regime will not apply to acquisitions notified to the ACCC before 1 January 2026 where the ACCC has:

• granted merger authorisation; or
• advised the merging parties that it does not intend to take action under s50 of the CCA (ie cleared the transaction under the informal process); and
• where the merging parties have put that acquisition into effect within 12 months of the ACCC's decision.

To the extent that merging parties do not put the acquisition into effect during that period, they will need to re-notify the ACCC under the new mandatory regime. Similarly, if merging parties do not have informal clearance or a merger authorisation decision by 31 December 2025, the proposed acquisition will need to be re-notified to the ACCC under the new regime.

Section 50 of the CCA, which is the section under which the ACCC currently assesses informal merger filings, was slated to be repealed under the exposure draft. Under the proposed Bill, however, Treasury has retained s50 for application to non-notifiable/non-notified acquisitions.

Acquisitions will be suspended in various circumstances

An acquisition is stayed (ie suspended) in the following circumstances:

• the acquisition is required to be notified to the ACCC but has not been;
• the acquisition has been notified but has not been finally considered by the ACCC, or is the subject of an ongoing Tribunal review (ie there has not been a final determination);
• the ACCC has determined that the notified acquisition must not be put into effect and has not subsequently determined that the acquisition is of substantial public benefit; or
• the notification of the acquisition has become 'stale' (ie 12 months have lapsed since the ACCC's determination that the acquisition may proceed). This time limit has been imposed in recognition of the fact that market conditions can materially change within a year of an ACCC determination, such that an acquisition that may have had substantial public benefits no longer does, or it now substantially lessens competition when previously it did not.

These types of acquisitions cannot be put into effect, or else they will be void.

Substantial lessening of competition test

In its July 2024 merger law reforms consultation, Treasury proposed that the interpretation provision of 'lessening of competition' in the CCA be expanded beyond the inclusion of 'preventing or hindering competition', to define that 'substantial lessening of competition' in a market includes creating, strengthening or entrenching a substantial degree of power in any market.

In the Bill tabled to Parliament, this extended substantial lessening of competition test is retained, but its operation has been limited to the process of merger authorisations only, rather than having general application within the CCA. 

The Bill states that the ACCC must have regard to 'all relevant matters' and provides guidance in the Explanatory Memorandum that economic factors to which the ACCC could be expected to have regard to include:

• market position of the parties (including their economic and financial power);
• whether the acquisition would result in the removal of a vigorous and effective competitor;
• the nature of competition (and potential competition) in the market;
• the effect of acquisition on the conditions for competition in the market;
• structural and / or other conditions affecting competition, including the level of market concentration;
• the conditions and barriers to entry and expansion, and the impact of the acquisition on those barriers;
• the nature and strength of competitive constraints, including from outside of the market;
• the degree of product and/or service differentiation;
• the degree of dynamism;
• the degree of countervailing power; and
• the extent to which the acquisitions may give rise to efficiencies that could not otherwise be obtained, and the extent to which those efficiencies may benefit consumers.

A number of these will be quite familiar as they incorporate many of the existing 'merger factors' contained in s50(3) of the CCA, being factors the ACCC must currently take into account in assessing whether an acquisition would have the effect or likely effect of substantially lessening competition under the current regime. However, these factors will no longer appear in the legislation under the new regime.  

As with the previous exposure draft, the ACCC will be allowed to consider the cumulative effect of all acquisitions put into effect by the merging parties within three calendar years of the date the merger filing was lodged, whether those acquisitions were individually notifiable or not. The notifiable acquisition (ie the acquisition the ACCC is assessing) will be taken to have the effect, or be likely to have the effect, of substantially lessening competition in any market if the cumulative effect of the current acquisition and any acquisitions in the preceding three years by the merging parties in the same industry would be, or be likely to be, to substantially lessen competition in any market.

Aside from its SLC assessment, the ACCC now also has the power to consider and reject 'goodwill provisions' in sale agreements. Generally, provisions in business sale contracts that are solely to protect the goodwill of a business for the purchaser are exempt from the prohibitions against anti-competitive conduct in the CCA. Under the Bill, however, the ACCC will be able to declare that the goodwill exemption does not apply, eg where the contract includes a non-compete clause and its duration and/or geographic scope is broader than necessary for the protection of the purchaser in respect of the goodwill of the business.

Public benefit test

As foreshadowed in April and July 2024, a public benefit assessment of an acquisition which may otherwise be anti-competitive will only take place after the ACCC's competition assessment. 

In the Bill, there are no changes to the current public benefit test. The previous exposure draft proposed a public benefit test that introduced the concept of a 'substantial' outweighing of any detriment to the public, which has now been removed, as has the concept of a 'substantial' public benefit. The ACCC will continue to have broad discretion to consider what constitutes a public benefit. However, in making its determination (and whether to impose any conditions on an acquisition), the ACCC must consider the object of the CCA and all relevant matters, including the interests of consumers.

Processes for transparency of ACCC decisions

Public register

The Bill establishes a register of notified acquisitions that must be published by the ACCC.

Certain information and documents must be included on the register within one business day from when the determination, decision or notification (as applicable) is made. These include:

• a copy of each determination;
• the ACCC's statements of reasons for making the determination;
• a copy of the notice stating that a notification is subject to a Phase 2 review; and
• details of each merger notification, including at least the names of the merging parties, a short description of the proposed acquisition and affected products and/or services, and a review timeline.

Information gathering

The Bill seeks to give additional clarity regarding the timing for the ACCC's information gathering powers, and confirms the ACCC non-compulsory powers to request information through inviting interested persons to make written submissions, requesting additional information and consulting with reasonable and appropriate persons for the purposes of making a determination.

The ACCC must not take into account information that is received, or request information (unless written consent is provided), within 15 business days of the end of the Phase 2.

ACCC review timelines

The timelines within which the ACCC must make a determination on notified acquisitions are:

• For Phase 1: up to 30 business days after the acquisition has been notified. Alternatively, if no issues are identified, a 'fast-track' determination may be made after 15 business days.
• For Phase 2: if a determination is not made during Phase 1 and the ACCC is satisfied the notified acquisition could have the effect or likely effect of substantially lessening competition, it has up to an additional 90 business days to complete its review.

However, the Bill allows the ACCC to extend these periods under certain conditions, including:

• extending the Phase 2 determination period by the number of days the ACCC has not given notice of competition concerns after the 25th business day of the Phase 2 determination period for a duration that the notifying party agrees to;
• extending the determination period by no more than 15 days to consider a commitment or undertaking offered by the notifying party;
• extending the determination period by the number of days after the due date that the notifying party responds to a request for information;
• following a notice by the ACCC no sooner than 10 business days after a s155 notice is issued to a party to the acquisition, the determination period is extended by the number of days between the extension notice being received and the date the information is furnished; and
• adjusting the notification date if the ACCC becomes aware of a material change of fact, with the determination then required to be made 'within a reasonable period' after the ACCC identifies that change.

Therefore, in practice, these timeframes may not provide businesses with the degree of certainty intended, including if pre-consultation is engaged in. However, if the ACCC does not make a determination within the set timeframe and no applicable extension periods apply, the acquisition is automatically deemed approved.

Tribunal merits review

The Bill provides for a limited merits review by the Competition Tribunal to affirm, set aside or vary a determination of the ACCC in relation to a proposed acquisition. 

The exposure draft included a proposed 'fast-track' process for Tribunal review, which has since been removed. However, if a party requests a review of an ACCC internal decision (ie the effective notification date or date of application), the Tribunal must make a decision within 14 days.

Both merging parties and third parties can apply for the ACCC's determination to be reviewed by the Tribunal. Factors relevant when considering whether to grant a third party (ie not one of the merging parties) the right to review the ACCC's decision include: the person’s interest in the matter, the efficient administration of the acquisitions provisions, whether there are any reasonable prospects of success, and any other matter the Tribunal considers relevant.

In its review of an ACCC determination, the Tribunal cannot generally have regard to material that was not before the ACCC when making its determination. It is empowered, however, to seek further information, documents and evidence in the following circumstances: 

• via consultations with any consumer associations or consumer interest groups;
• via consultations with a technical expert (such as economic or industry experts);
• information requests from the Tribunal to the ACCC;
• where the notifying party was not given a reasonable opportunity to make submissions to the ACCC in respect of new information relevant to the ACCC's determination. This is a new addition, and one that is certainly welcome;
• where there is new, relevant information available that was not in existence at the time of the ACCC's determination; and
• where the Tribunal requires additional information for the sole purpose of clarifying existing information.

The Tribunal must make its decision in relation to a review of an ACCC determination between 45 and 90 days, and may extend that for up to 60 days in certain circumstances. Judicial review of Tribunal decisions will be available in the Federal Court.

What's next?

Subject to the passage of the Bill, the new laws will come into effect on 1 January 2026 and allow for voluntary notification under the new regime from 1 July 2025.

If you would like to discuss the Bill, the impact it may have on your business and the steps you can take in the meantime to prepare for it, please get in touch with us.