On 21 November 2008, the Australian Competition & Consumer Commission (ACCC) released the 2008 Merger Guidelines (New Guidelines) which replace the original merger guidelines released in 1999.
Purpose of the New Guidelines
The purpose of the New Guidelines is to provide the business community with clear guidelines on the broad analytical framework that the ACCC applies when assessing whether a merger or acquisition has, or is likely to have, the effect of substantially lessening competition in a market and therefore contravening section 50 of the Trade Practices Act 1974 (Cth).
The changes to the guidelines reflect international best practice, contemporary views on anti trust analysis and the ACCC’s experience since 1999.
What are the key changes?
When should you notify the ACCC of a proposed merger or acquisition?
The ACCC will continue to assess each merger on its merits according to the specific nature of the transaction, the industry and the particular competitive impact likely to result in each case. To assist merger parties to determine whether they should notify the ACCC, the ACCC has developed a notification threshold. The threshold has been established to filter, and therefore limit, the merger reviews the ACCC conducts to those mergers which may raise competition concerns.
Merger parties are encouraged to notify the ACCC where:
- the products of the merger parties are the substitutes or compliments; and
- the merged firm will have a post merger market share of greater than 20% in the relevant market or markets.
In practice, the notification threshold is not that different from the approach that has been applied by the ACCC in recent years, as the ACCC set the notification at a level that reflects the ACCC’s experience in determining which mergers are more likely to raise competition concerns since 1999. However, it does remove the safe harbour approach.
How will the ACCC assess market concentration?
The New Guidelines state that, in assessing the increase in market concentration resulting from a merger, the ACCC will examine:
- market shares;
- concentration ratios; and
- the Herfindahl-Hirschman Index (HHI).
The HHI is widely used by regulators overseas and, in this regard, the change brought about by the ACCC aims to bring the guidelines in line with international best practice.
The HHI is calculated by summing the squares of each percentage of each player in the post-merger market, which indicates the level of market concentration while the change in the HHI (referred to as the ‘delta’) reflects the change in market concentration as a result of the merger.
The New Guidelines state that where the post-merger HHI is:
- less than 2000; or
- greater than 2000 with a delta less than 100,
the ACCC will generally be less likely to identify competition concerns.
Enforceable undertakings and divestiture
The New Guidelines restate the ACCC’s preference for structural undertakings, that is, undertakings that generally change the structure of the merged firm and/or the market, typically through divestiture of part or all of a business. The ACCC has provided guidance on the drafting of statutory undertakings and has maintained that, where possible, divestiture should occur on or before the completion of the merger.
If you would like to know more about the 2008 Merger Guidelines please contact David Grace of our Commercial Team on (07) 3231 2421.