On 27 May 2010, the Competition and Consumer Legislation Amendment Bill 2010 (Bill) was introduced into Parliament. The Bill will amend, amongst other things, section 50 of the Trade Practices Act 1974 (TPA) which sets out the current merger test. This article only addresses proposed amendments to section 50 of the TPA and does not comment on the other amendments proposed in the Bill.
Current Merger Test
Section 50 of the TPA prohibits an acquisition of assets or shares, other than in the ordinary course of business, where the acquisition would, or would be likely to, substantially lessen competition in a market (Current Merger Test). The term “market” in section 50 of the TPA is defined as a substantial national, state or regional market.
Context of proposed amendments
The Bill was introduced following a number of inquiries and reports on the issue of “creeping acquisitions”. By way of background, “creeping acquisitions” are a series of small-scale acquisitions that individually may not substantially lessen competition in a market and thus do not breach section 50 of the TPA, but may have that collective effect over time.
The application of the Current Merger Test in the context of creeping acquisitions has been considered primarily in relation to acquisitions in the grocery retail sector, following the Australian Competition and Consumer Commission (ACCC) 2004 report entitled “Shopper Docket Petrol Discounts and Acquisitions in the Petrol and Grocery Sectors” and the ACCC’s inquiry into the competitiveness of retail grocery prices in 2008 (Grocery Price Inquiry). Following the conclusion of the Grocery Price Inquiry, the ACCC’s recommendations included that there be a prohibition on creeping acquisitions to address the issue of individual supermarket acquisitions by major supermarket chains.
Proposed amendments
The Bill proposes to amend the Current Merger Test by replacing the reference to “a market” with “any market”, and removing the word “substantial” from the definition of “market”. Effectively, the proposed new merger test is whether an acquisition would, or would be likely to, substantially lessen competition in any national, state or regional market.
Current practice
The Merger Guidelines document published by the ACCC sets out the ACCC’s interpretation and application of the relevant provisions of the TPA, including section 50 of the TPA. The Merger Guidelines state that in applying section 50 of the TPA, the ACCC considers the effect of a proposed acquisition on all relevant markets, as opposed to only considering the market primarily affected by the acquisition. In addition, the Merger Guidelines indicate that the ACCC considers “local” markets in its merger review process, i.e. it does not view the word “substantial”’ as setting a threshold for the markets which it will consider.
Effect of proposed amendments
The amendments to the TPA proposed in the Bill seek to clarify perceived ambiguities in section 50 of the TPA. However, the amendments have little practical effect as they reflect the ACCC’s current approach to the analysis of mergers and acquisitions. The changes will, however, restrict potential opposition to ACCC decisions, particularly in relation to mergers which affect local markets.
It is proposed that the amendments to section 50 of the TPA will apply to acquisitions which occur after the commencement of Schedule 1 of the Bill (which contains the proposed amendments), which will be on a date no later than two months after the Bill receives Royal Assent.
T 61 2 8233 9572
Crystal Png | Lawyer
T 61 2 8233 9569
