The long track to the finish – will the new merger authorisation process provide timing certainty?
On Friday, the Australian Competition Tribunal (Tribunal) decided, for the second time, to authorise Tabcorp Holdings Limited (Tabcorp)’s proposed merger with Tatts Group Limited (Tatts) in the Australian wagering sector. The Tribunal published its reasons for the decision today.
The decision followed orders made by the Full Federal Court of Australia to set aside the Tribunal’s earlier decision authorising the proposed merger because of an error of law and remitted the matter back to the Tribunal for reconsideration.
Tabcorp first applied to the Australian Competition and Consumer Commission (ACCC) for informal clearance of the merger. The ACCC commenced its public review on 25 November 2016. Tabcorp withdrew from the ACCC’s informal process and applied to the Tribunal for authorisation on 13 March 2017, 109 days after the ACCC commenced its public review with at least 53 days of further review necessary to obtain a decision from the ACCC. The withdrawal was prompted by the ACCC’s publication of a Statement of Issues on 9 March 2017 that identified one ‘red light’ issue and several ‘amber light’ issues.
One of the reasons Tabcorp gave for “switching tracks” was to obtain greater timing certainty for the merger to allow implementation of its proposed scheme of arrangement by December 2017. Another reason was that the Tribunal was allowed to take into account a wider range of factors under the “net public benefits” test for authorisation. In contrast, under the ACCC’s informal process, only competition factors could be taken into account.
With the Harper reforms taking effect as of 6 November 2017, the first-instance decision making power for merger authorisation applications transferred from the Tribunal back to the ACCC (see our article on the key changes that took effect on commencement of the Harper reforms and a summary of the new merger authorisation process in the ‘Background’ section below).
In this post, we discuss whether the new authorisation regime could be used to achieve timing certainty.
1. Timing under the authorisation process
Until the ACCC’s appeal of the Tribunal’s decision to authorise the Tabcorp and Tatts merger, some commentators considered that the authorisation process provided more timing certainty for parties because the Tribunal was required to make its decision within 90 days. In contrast, the ACCC’s informal clearance process is not subject to a statutory timeline. However, so far this year, the ACCC has taken between 52 and 326 (and an average of 129) days to complete its public review of mergers.
The ACCC is also subject to a 90 day statutory clock under the new merger authorisation process, which may be extended with consent. However, a 90 day statutory timeframe may not provide parties with increased timing certainty for a number of reasons.
Pre-filing discussions and extension of the statutory timeline
Firstly, it is highly likely that parties will consent to extending the 90 day statutory deadline, and/or spend considerable time in pre-filing discussions with the ACCC before the commencement of the 90 days.
One reason for this is that, under the legislation, the ACCC is deemed to have refused to authorise the merger if it has not made a determination within 90 days. The ACCC’s draft guidelines for merger authorisations state that the ACCC expects applicants to contact it for informal discussion and guidance before lodging their applications.
Consequently, parties are likely going to want to engage with the ACCC prior to lodging an application for authorisation. This is consistent with the practice in other jurisdictions with formal merger clearance regimes, including the European Union, the United States and China. In the European and the United States, ‘pre-notification’ discussions allow the competition regulator to commence the substantive assessment of the merger before the start of the statutory timeframe.
Appeals will add to timing uncertainties
Secondly, if the ACCC denies the parties’ application for authorisation, the appeal process is likely to result in further timing uncertainty.
Under the new merger process, the acquirer has a right to appeal the ACCC’s decision to the Tribunal for a limited merits review or to the Federal Court of Australia for judicial review for errors of law. Although there is a statutory timeframe of either 90 or 120 days (if Tribunal allows new information, documents or evidence) for the Tribunal’s limited merits review process, the Tribunal has the power to extend this timeframe further if it considers it necessary. Any application to the Federal Court for judicial review of the Tribunal’s decision will further delay the final decision on whether the transaction is authorised.
The Tribunal has a good track record of granting authorisation. It has authorised three of five applications since 2007 and, in the one instance between 1993 and 2007 where acquirer appealed the ACCC’s decision to deny an authorisation, the Tribunal overturned the decision.
However, the ACCC’s track record for granting authorisation is mixed. Between 1993 and 2007, when the ACCC was the first-instance decision-maker for merger authorisations, it denied authorisation in six of 13 applications.
The figure below illustrates the proportion of merger applications since 1993 that have been denied by the ACCC, granted by the ACCC unconditionally, granted by the ACCC subject to conditions or withdrawn by the parties.
Of the 13 applications for authorisation to the ACCC between 1993 and 2007:
- the ACCC opposed authorisation in six (or 46.2% of) cases;
- the ACCC granted authorisation subject to conditions in four (or 30.8% of) cases;
- the ACCC granted unconditional authorisation in two (or 15.4% of) cases; and
- the parties withdrew the application in one case (7.7% of all cases).
Notably, the ACCC also opposed the four applications to the Tribunal for authorisation between 2007 and November 2017.
Based on the above statistics, there is about a 50/50 chance that parties may need to appeal the ACCC’s decision to achieve authorisation.
2. When should the authorisation process be used?
Given the ways in which the authorisation process could result in timing uncertainties, we expect parties will achieve “clearance” more efficiently through the ACCC’s informal review process in the majority of cases. Although Tabcorp and Tatts ultimately obtained authorisation before their December 2017 deadline, this was almost one year from when the ACCC commenced a public review.
The authorisation process will continue to be an option for complex mergers that are likely to have significant public benefits and for which parties anticipate the ACCC will have serious competition concerns.
However, parties considering the authorisation process should build into their transaction timetable the timing uncertainties that could arise.
Key features of the new merger authorisation regime
The new merger authorisation regime took effect on 6 November 2017, when the substantive amendments contained in Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) commenced.
The key features of the new authorisation process are as follows:
- The ACCC is now the first instance decision-maker for all merger authorisation applications. Parties are no longer be able to apply directly to the Tribunal for authorisation.
- The ACCC may authorise acquisitions of shares or assets where it is satisfied that the transaction would not be likely to substantially lessen competition in Australia, or would be likely to result in a net public benefit.
- The new process is subject to a 90 day statutory clock, which may be extended with consent.
- If authorisation is granted, it will confer immunity from suit for the merger provided the merger completed within 12 months of the decision to formally authorise it.
- Where parties opt to use the new process, they will have a right to apply to the Tribunal for limited merits review of the ACCC’s decision and a right to apply to the Federal Court of Australia for judicial review of the ACCC’s decision.
Tabcorp / Tatts – background to Full Federal Court decision
On 22 June 2017, the Tribunal granted authorisation for the Tabcorp and Tatts merger, finding that the transaction would lead to significant public benefit and no material detriments, subject to Tabcorp providing a court-enforceable undertaking to the ACCC to divest a monitoring business in Queensland.
The grounds of appeal
On 10 July 2017, the ACCC applied to the Federal Court of Australia for judicial review of the Tribunal’s decision to grant authorisation. In doing so, the ACCC submitted that the Tribunal had erred in three respects:
- first, in finding that only a substantial lessening of competition (as opposed to any lessening of competition, including an insubstantial lessening) constitutes a detriment;
- second, in finding that a counterfactual analysis is only necessary if the merger is likely to result in detriment (substantial lessening of competition); and
- third, by failing to assign lesser weight to benefits that would be retained by Tabcorp only, as against benefits that flow through to the broader community.
CrownBet also appealed the Tribunal’s decision on the ground of irrationality.
The Federal Court’s findings
The Federal Court accepted the ACCC’s submission that any lessening of competition constitutes a detriment and, therefore, the Tribunal erred in finding that only a substantial lessening of competition constituted a detriment.
However, it rejected the ACCC’s other two grounds of review. In particular, the Court found that:
- while a counterfactual analysis is usually helpful, it is not required by the language of the CCA. Consequently, the Tribunal did not err when it did not undertake a counterfactual analysis in circumstances where it was clear that a detriment would not exist;
- while it is open to the Tribunal to attribute a lesser weight to benefits that flowed to a limited number of members in the community (as opposed to benefits that flow to through to the broader community), it is not the standard imposed by the language contained in the CCA. The Court observed that, in reality, much administrative decision making involves the weighing of intangibles and it would be unworkable to require the Tribunal to explicitly give a weight to each benefit – it is not an arithmetical or accounting process and may involve an “instinctive synthesis of otherwise incommensurable factors”.
The Court rejected CrownBet’s submission that the Tribunal acted irrationally in its decision.
 Birketu Pty Ltd’s and Illyria Nominees Television Pty Limited’s proposed joint bid for interests in Ten Network Holdings Limited (completed 24 August 2017).
 DowDuPont Inc’s proposed acquisition of El du Pont de Nemours and Company and The Dow Chemical Company (completed 8 June 2017).
 Excludes reviews where the parties withdrew the application or where the ACCC discontinued the investigation and includes days wh
 ACCC, Merger Authorisation Guidelines 2017 – For Consultation (31 October 2017), p. 8.
 In Murray Goulburn’s application, the Tribunal did not grant authorisation because the parties withdrew the application and did not re-apply and, in Sea Swift’s application, the Tribunal ultimately granted authorisation when the parties re-applied.
 Qantas Airways Limited (2004) ATPR 42-027.