Australia's proposed merger notification thresholds released for consultation

What you need to know

• The Federal Government has opened consultation on Australia's proposed merger notification thresholds.
• There are four different thresholds, based on alternative monetary and market concentration tests. Overall, the currently proposed thresholds are fairly low and would likely capture many transactions that are not currently notified to the ACCC.
• If the proposal is adopted, mergers meeting any of the thresholds will need to be notified to the ACCC under the new merger regime from 1 January 2026, following passage of legislation.
• Notification thresholds will be used to identify transactions that should be notified to the ACCC, and are not indicative of transactions that should be blocked.
• However, even for transactions below the thresholds, parties will still need to consider whether they are likely to substantially lessen competition. The ACCC will be able to take enforcement action in relation to such transactions under other provisions of the Competition and Consumer Act 2010 (Cth), including those that prohibit anti-competitive conduct.

What you need to do

• Review the changes and consider the impact on your business. Submissions on the proposed merger notification thresholds are open until 20 September 2024.

On 30 August 2024, the Federal Government opened consultation on Australia's proposed merger notification thresholds. The Consultation Paper proposes a notification regime that consists of four different thresholds – two based on monetary thresholds, and two based on market concentration. From 1 January 2026, subject to passage of the legislation, mergers that meet any of those thresholds will be required to notify and seek clearance from the ACCC. For further details about the forthcoming changes to the merger process, see our earlier article here.

The key objectives the Government is seeking to achieve with the thresholds are:

• capturing anti-competitive and economically significant acquisitions, including serial acquisitions;
• scrutinising acquisitions by acquirers with substantial market power, including of nascent competitors; and
• targeting acquisitions that directly affect Australian consumers.

The Government has noted that the proposed thresholds are based on risk factors that indicate a merger is more likely to have an appreciable effect on competition. The thresholds will determine which mergers must be notified to the ACCC, and the ACCC will then undertake an assessment of whether the merger is likely to substantially lessen competition.

As a further filter in the new merger control regime, only acquisitions that give rise to "control" (proposed to be defined as the capacity to directly or indirectly determine the policy of the target in relation to one or more matters) would be notifiable.

The Consultation Paper indicates that the proposed thresholds are based on Treasury's analysis of historical mergers considered by the ACCC, and capture around 90% of publicly reviewed transactions that raised competition concerns since 2018. The ACCC has estimated that 80-90% of notified mergers will be cleared within 4 weeks from the date the ACCC accepts the application.

Importantly, while notification thresholds will be used to identify transactions that should be notified to the ACCC, and are not indicative of transactions that should be blocked, parties will still need to turn their mind to whether transactions which do not meet the thresholds would be likely to substantially lessen competition. The Consultation Paper makes it clear that such transactions could "still be investigated by the ACCC for breach of other provisions of the CCA".

Monetary thresholds

Under the proposed thresholds, mergers will trigger mandatory notification requirements if they reach either of the two following monetary limbs and there is a material connection to Australia (Jurisdictional Nexus).

Limb 1:

• The combined Australian turnover of the merger parties (including the acquirer group) is at least $200 million; and
• Either the Australian turnover is at least $40 million for each of at least two of the merger parties or the global transaction value is at least $200 million.

OR:
Limb 2:

• The acquirer group’s Australian turnover is at least $500 million; and
• Either the Australian turnover is at least $10 million for each of at least two of the merger parties or the global transaction value is at least $50 million.

The Jurisdictional Nexus will be met where the target business or asset has a material connection to Australia, for example being registered or located in Australia, supplying goods or services to Australian consumers, or generating revenue in Australia. It is unclear how "materiality" will be approached – for example, whether de minimis supply of products to consumers located in Australia would be excluded, or whether any supply in Australia is intended to be capable of satisfying the jurisdictional nexus.

To address concerns regarding serial acquisitions, all acquisitions within the previous three years within the same product or service market/s (irrespective of geographic location) by the acquirer and acquirer corporate group are proposed to be aggregated for the purposes of assessing whether an acquisition meets the monetary turnover threshold, regardless of whether those acquisitions were themselves individually notifiable.

Market concentration thresholds

Even if a merger does not trigger the monetary thresholds, it is proposed that it would be notifiable if either of the two following market concentration limbs are met.

Limb 1

• The combined share of the merger parties is at least 25 per cent; and
• The Australian turnover of at least two of the parties to the acquisition (including the acquirer group) is at least $20 million each.

Limb 2:

• The combined share of the merger parties is at least 50 per cent; and
• The Australian turnover of at least two of the merger parties (including acquirer group) is at least $10 million each.

Limb 1 is designed to align with the European Commission's guidelines that market shares exceeding 25% may impede effective competition. Limb 2 is designed to ensure that "key acquisitions" involving parties with substantial market power are captured, even if the size of the acquisition is smaller.

In conjunction with the above market consultation thresholds, Treasury is consulting on whether the relevant "share" should be "market share" in the affected or adjacent market, or the parties' "share of supply" of a good or service. In relation to "market share", Treasury has indicated that this would require merger parties to calculate market share based on the market definition "most likely to raise competition concerns". In the alternative, "share of supply" does not require a market definition, as it is based on the specific product or service supplied. We query whether the use of "share of supply" would in fact reduce compliance costs and uncertainty for merger parties, as it would ultimately still involve consideration of products and geographies that should be taken into account in calculating share, and require the parties to have access to robust industry data, which is (in practice, in our experience) often lacking. There are also often questions about the appropriate measure of "share" (whether it is revenue, quantity, capacity, workers employed etc).

In acknowledgement of the uncertainties that the market concentration threshold will bring, Treasury has also floated the concept of "prior registration" of mergers in certain goods or services or in specified local or regional areas – as an alternative to applying market concentration thresholds. There are scant details on how this "administrative form" would operate, but the intention is to minimise compliance costs "while allowing the ACCC to scrutinise potential mergers of concern in small product markets, or local or regional areas".

Proposed notification waiver system

Treasury is considering establishing a process that would allow parties to seek a ‘notification waiver’ from the ACCC, including if there is uncertainty about whether the thresholds are met. If granted, a waiver would relieve parties of the obligation to notify an acquisition.

Under the proposal, the ACCC would not be able to subsequently bring proceedings for failure to notify. However, the ACCC would still be able to investigate or take action if they were to later consider the acquisition had an anti-competitive purpose or effect.

Additional targeted notification requirements

As foreshadowed previously, it is proposed that the Treasury Minister will have the ability to set targeted notification requirements in certain areas of the economy. The Consultation Paper specifically notes that additional requirements may be warranted in the sectors of groceries, fuel, liquor and oncology-radiology.

Before such a Ministerial determination can be made, evidence-based analysis and advice will need to be presented to the Minister, and stakeholder consultation undertaken. A Treasury Minister will be required to consider any reports and advice from the ACCC and to seek appropriate consultation as reasonably practicable. These additional requirements will last for a maximum of five years, after which the Minister must evaluate new advice before setting a new threshold.

Our initial observations

Our initial thoughts on the thresholds are as follows:

• Treasury's projected number of notifications (both voluntary and mandatory) is between 300 – 500 annually (although the Consultation Paper itself acknowledges this estimate is "subject to a substantial margin of error"). Based on transactions we have been involved in, we expect that the actual number of notifiable transactions – if the proposed thresholds and concept of "control" are adopted – would be materially higher than this, particularly in the first 12-18 months.
• Treasury has acknowledged the difficulties with market share and share of supply thresholds, which are likely to result in materially higher compliance costs and uncertainty for merger parties. The alternative "market concentration administrative approach" is worth considering, although further detail on what is envisaged would have been helpful.
• The Jurisdictional Nexus – and what is or is not a "material connection to Australia" - warrants further consideration. It is unclear whether the intention is to catch transactions even where the parties have only very limited operations in Australia or de minimus volumes or revenue in respect of customers in Australia.
• Examples of the application of the aggregation of all acquisitions in the previous three years would be useful, but are not provided.
• The introduction of a waiver system is an improvement, particularly in light of the market concentration thresholds. However, parties may think twice about relying on this approach given the absence of protection from the anti-overlap provisions.
• With the addition of a waiver system, possible "merger registration" and specific "targeted" requirements for certain acquisitions likely to be introduced, the proposed regime is becoming increasingly complex for parties to navigate.

Conclusions

Submissions on the proposed merger notification thresholds are open until 20 September 2024.

Authors: Tihana Zuk, Partner; Amanda Tesvic, Expertise Counsel and Peter Tryfonopoulos, Associate.

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