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ACCC 2022 In Review | Merger clearances

By Jessica Reid, Charley Lupson

• 09 February 2023 • 14 min read
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2022 was a blockbuster year for mergers, with post- COVID-19 consolidations occurring throughout the Australian market. The ACCC considered 19% more mergers in 2022 than the average over the last five years and 24% more than the previous year. However, the ACCC merger investigations team continued its trend of encouraging the divestment of assets in concentrated markets, rather than blocking a transaction in its entirety.

COVID-19 authorisations may have been extended in 2022, with the impact of the pandemic still being felt as a result of supply chain and labour shortages. However, Ms Cass-Gottlieb commented on 4 May 2022 that,

“In Australia we have been able to strictly limit and control the duration and impact of short term collaboration in response to the pandemic through use of our authorisation powers. We firmly believe that COVID-19 should not result in lowering standards against which mergers are ultimately assessed or competition law enforcement is taken… Our merger assessments remain rightly focused on the long-term consequences of a merger and will not allow short-term market features, including those produced by the pandemic to outweigh these considerations.”

We eagerly await further insight into Ms Cass-Gottlieb’s approach to merger enforcement in 2023, after announcing at an event in 2022 her view that the process is about,

“… understanding what is actually happening, what the implications of that are and to always keep the focus on the outcome, which is ensuring there is workable competition so that the economy has innovation, new services, as low prices as we can in terms of competition achievable, and consumers get the benefit from that choice, price and innovation.

Merger enforcement proceedings

Maddocks | ACCC 2022 in Review | Merger clearances | Merger enforcement proceedings

On 21 December 2022, the ACCC announced that it would not be providing authorisation for Telstra and TPG to enter into a proposed spectrum-sharing agreement, setting the stage for an appeal to the Australian Competition Tribunal in 2023. See our Technology, digital platforms and telecommunications section of this report for further information on this decision and key developments below. This follows on from the ACCC’s attempt in 2020 to block the TPG-Vodafone merger and the ACCC’s first interlocutory injunction from the Federal Court of Australia in 27 years for an allegedly anti-competitive merger between two reproductive technology businesses in 2021.The ACCC also saw an increase in public informal merger investigations: commencing 31 investigations in 2022, which is an increase from the 25 investigations commenced in 2021.

Merger Reform

Maddocks | ACCC 2022 in Review | Merger clearances | Merger reform

In 2021, Mr Sims observed the increasing uncertainty inherent in Australia’s ‘forward looking’ merger test had become a reason for courts to approve mergers opposed by the ACCC. Mr Sims was concerned at the time that the test was open to manipulation and the focus on the ‘counterfactual’ in many cases risked overlooking the likely anti-competitive effects of the merger itself. On 25 February 2022, the ACCC published a report exploring the impact of past merger reviews, however, this predominantly aimed to improve the merger investigation process. The ACCC signalled that it was planning to continue advocating for reform in the coming year; however, Mr Sims conceded it would be a matter for the Commonwealth Government to determine what the next steps are and whether further legislative changes are required. On 3 March 2022, Mr Sims commented that,

“For a few years I have been voicing concerns about the adequacy of the merger control regime in Australia. We are concerned about the regime’s ability to ensure relevant transactions are subject to the appropriate level of scrutiny so that we can prevent anti-competitive mergers… Ultimately, however, it will be a matter for government to determine what the next steps are. I have enjoyed being involved in kicking off the debate and will follow this with great interest once I have left the ACCC.”

At the time of publication the ACCC was considering formal recommendations to Government with respect to possible law reform in this area. Whilst Ms Cass-Gottlieb has recently publicly stated that change is needed, she caveated this by noting that the ACCC was carefully considering targeted options and proposals that might be put to Government for consideration. Based on Ms Cass-Gottlieb's statements it would seem that a mandatory notification regime for global transactions is one of the recommendations being considered.

The ACCC has also advocated for the need for increased global collaboration among competition regulators. On 4 May 2022, Ms Cass-Gottlieb stated,

“The ACCC sees collaboration with our international counterparts as a key component of our effectiveness as a regulator”.

Public merger investigations

Maddocks | ACCC 2022 in Review | Merger clearances | Public Merger investigations

Aligning with the ACCC’s enforcement priority on essential services, such as energy and telecommunications, particularly in the wake of rising inflation, the ACCC conducted public informal merger investigations into notable names in these industries.

Out of the 24 merger investigations completed by the ACCC in 2022:

  • four were withdrawn by the parties
  • four were not opposed subject to undertakings
  • 16 were completed and not opposed.

Six of these merger investigations made it to the Statement of Issues (SOI) phase, up from five in 2021. However, this is still considerably less than the average of 10 over the past 10 years, as the ACCC focuses on resolving likely competition issues early in the investigation process and tries to limit which proposed transactions require entering the often long and arduous SOI phase.

While no mergers were blocked by the ACCC through the informal merger review process in 2022, four investigations were withdrawn by the parties after proceeding to the SOI stage. These investigations were likely withdrawn due to the significant preliminary competition concerns of the ACCC, which indicated to the parties that the merger would not proceed without significant intervention. In particular:

  • Cargotec and Konecranes abandoned their transaction after the UK Competition and Markets Authority blocked the merger and the US Department of Justice informed the parties that it intended to sue them to prevent the merger from proceeding. The ACCC had yet to make a final determination on the proposed transaction, but appeared likely to follow a similar path having collaborated with their international counterparts during the investigation.
  • Spirit Super and Palisade Investment Partners Consortium also decided not to proceed with their Port of Geelong acquisition, with the ACCC noting the potential concentration of power over essential infrastructure and the negative impacts this would have on a range of industries.

Four mergers were not opposed by the ACCC, subject to undertakings by the companies involved. These undertakings all concerned the divestment of assets to prevent the lessening of competition in their respective markets. The undertakings in 2022 included:

  • Apollo accepting a court-enforceable undertaking to divest a large proportion of its newest motorhome fleet in order to complete its acquisition by THL. This aligned with the ACCC’s focus on the caravan industry throughout 2021 and 2022, including a caravan retailing report released in 2022.
  • Jurox undertaking to divest a range of livestock antibiotics to complete its acquisition by Zoetis, again bringing to light the question of competition between generic and patented pharmaceuticals.
  • Before the acquisition fell through, Dye and Durham (which we discuss further below) undertook to divest its existing Australian business in order to acquire Link.
  • Aurizon undertaking to divest part of its east coast business in order to acquire One Rail.

On 3 March 2022, Mr Sims commented that,

“[The ACCC] noted the increase in the number and complexity of recent public reviews commenced. These have involved important sectors including ports, container handling equipment and services, rail transport, aviation, health and pharmaceuticals.”

Key enforcement activity

Telstra Corporation Limited and TPG Telecom Limited

Maddocks | ACCC 2022 in Review | Merger clearances | Key enforcement activity
Transaction opposed

On 21 December 2022, the ACCC announced that it would not grant authorisation for Telstra and TPG’s proposed $1.8 billion spectrum sharing agreement, a significant decision. Formal authorisation protects parties from possible legal action by the ACCC or other parties, unlike the more commonly used informal review process. The authorisation test under the CCA requires that the ACCC must not make a determination granting authorisation unless it is satisfied in all the circumstances that:

  • The conduct would not have the effect, or not be likely to have the effect, of substantially lessening competition, or;
  • The conduct would result, or be likely to result in a public benefit, and this public benefit would outweigh the public detriment that would result, or be likely to result, from the conduct.

Broadly, the arrangements entered into between Telstra and TPG involve the following:

  • TPG authorising Telstra to use spectrum which it currently owns, and Telstra providing TPG with network services by way of active mobile network infrastructure sharing in certain regional and urban fringe areas (the Regional Coverage Zone), which comprise approximately 17% of the Australian population coverage.
  • TPG would use the services supplied by Telstra to offer 4G and 5G retail and wholesale services in the Regional Coverage Zone. TPG would also transfer up to 169 of its existing mobile sites in the Regional Coverage Zone to Telstra, and intends to decommission the remainder.
  • TPG and Telstra would continue to operate their own networks in metropolitan areas where around 81.4% of Australia’s population resides. TPG and Telstra would also continue to operate their own mobile core networks (both in and outside the Regional Coverage Zone).

The ACCC was not satisfied that the transaction would give rise to a substantial lessening of competition, concluding that there was likely to be detriment in the long term to all mobile users, particularly those in regional Australia. The ACCC determined that the proposed transaction would reduce the incentive for mobile network operators to invest in improving their service and coverage, and that it would entrench Telstra’s position as the largest supplier of mobile services in Australia.

TPG and Telstra have appealed the ACCC’s decision in the Australian Competition Tribunal.

When comparing the Telstra and TPG determination to the TPG and Vodafone merger decision that was overturned by the Federal Court, ACCC Commissioner Ms Liza Carver commented on 21 December 2022 that,

“This is not a case where we’re hypothesising on theoretical possibilities. Our findings are grounded in the facts, the internal documents and the analysis of everything that has been put before us.”

Listen to our latest Watchdog podcast episode, with Maddocks Partners Shaun Temby and Brendan Coady for Commpete Chair, Michelle Lim further information on these developments.

Dye & Durham Corporation and Link Administration Holdings

Maddocks | ACCC 2022 in Review | Merger clearances | Dye & Durham Corporation and Link Administration Holdings
Transaction abandoned

Dye & Durham Corporation proposed to acquire, through a subsidiary, Link Administration Holdings (Link), which owns a 42.77% stake in PEXA Group Limited (PEXA). D&D provides information search and broking services Australia-wide and jurisdiction specific conveyancing software solutions and lodgement services. Link provides outsourced administration services for superannuation funds and corporate markets and other related services. PEXA operates an Electronic Lodgement Network.

The ACCC decided not to oppose the acquisition on the basis that it was willing to accept a court enforceable undertaking from D&D requiring divestment in its existing Australian business, including SAI Global and GlobalX, two information, search-brokering and conveyancing services that are some of the only competitors to PEXA. However, the parties decided not to proceed with the transaction and consequently, the undertaking was withdrawn.

Woolworths Group Limited (Woolworths) and Limited (MyDeal)

Maddocks | ACCC 2022 in Review | Merger clearances | Woolworths and
Transaction not opposed

On 20 May 2022, Woolworths Group Limited announced that it had entered into a Scheme Implementation Agreement to acquire 80.16%of the share capital of Limited. Maddocks acted for on this transaction. The ACCC considered the effect of the proposed acquisition on competition in Australia for the:

  • retail supply of various product categories
  • supply of online marketplace services to third party sellers
  • wholesale supply of various product categories.

The various product categories included furniture, homewares, health, beauty, electronics and other general merchandise.

The ACCC concluded that the proposed acquisition was not likely to substantially lessen competition as the parties are not close competitors and there has been growth in online marketplaces to constrain the combined entity.

Liverpool Partners Pty Ltd (Liverpool) and Genea Limited (Genea)

Maddocks | ACCC 2022 in Review | Merger clearances | Liverpool partners pty ltd
Transaction not opposed

This transaction gained attention in the wake of the injunction granted in the Federal Court preventing the acquisition by Virtus of another reproductive technology businesses, Adora. Liverpool was the eventual private equity investor that acquired Adora after the Virtus acquisition was blocked.

The ACCC found that in the cities in which both Liverpool and Genea competed, there would be sufficient constraints on competition by other providers of reproductive technology services. Both companies also offered differentiated products, which targeted different consumer segments (low-cost versus full-service offerings).

This decision demonstrates how each transaction is analysed on its own unique facts in terms of the products and market definition, even in an industry of previous concern.

With increasing inflation as a result of the economic impacts of the COVID-19 pandemic and international disruptions , there are expectations that rising interest rates may cause Australia to enter a recession. This means there may be further acquisition opportunities of failing firms, which the ACCC is likely to closely scrutinise.

The business community is also eagerly awaiting Ms Cass-Gottlieb’s view on several big mergers between businesses seeking to extend their share in industries that are oligopolies, ANZ’s $5 billion acquisition of Suncorp’s banking operations and Brookfield’s $18.4 billion acquisition of Origin. Mr Sims has previously expressed deep concerns about the state of banking in Australia, with the dominant power of the Big Four. However, the ACCC concluded that previous transactions resulting in further consolidation in the sector (such as NAB’s acquisitions of 86 400 and Citi’s Australian consumer business and Westpac’s acquisition of St George) had not breached Australia’s current merger regime. The ACCC may not be able to prevent some further consolidation under the current law.

The upcoming decisions are also notable in light of Telstra and TPG’s appeal to the Australian Competition Tribunal (whatever the outcome) and the ACCC failing to prevent the merger of TPG and Vodafone in the Federal Court. We eagerly anticipate some indication of the ACCC’s approach following the appointment of Ms Cass-Gottlieb’s to the role of ACCC Chair. In particular, whether having Ms Cass-Goittleib in the Chair will reignite the push for merger law reform which was started by Mr Sims in August 2021 or instead extinguish the small flame of reform lit by Mr Sims on his departure.

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By Jessica Reid, Charley Lupson

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