Chalmer’s Merger Makeover

The Australian Government is overhauling the nation’s merger laws in the largest business reforms since the 1970s. The proposed reforms were announced by Treasurer Jim Chalmers on Wednesday, and seek to make the Australian economy ‘more competitive’ as he claims that Australia’s ‘outdated’ merger laws enable big business to squeeze out competitors and capture a larger percentage of the market for themselves. Furthermore, where a market giant does this, the consumer is punished with reduce choice and higher costs.

Since the early 2000s, Australia’s competitiveness has been falling and this has delivered a noticeable hit to the economy and to living standards. There has been a significant increase in the market share by large business with market concentration nearly doubling since 2010, and there has also been a fall in the number of new companies entering particular sectors; contributing to the average ‘mark-up’ Australian businesses apply to goods and services having grown by more than two percentage points in recent decades.

The Australian Competition & Consumer Commission (ACCC) plays a role in ‘focusing on the small number of mergers that could substantially lessen competition’. However, under existing laws, if the ACCC believes a merger will harm consumers, there is little it can do. The ACCC can challenge a merger in court, but only after the merger happens.

Furthermore, as it stands, Australia is just one of three developed nations where regulatory authorities are only informed of mergers and acquisitions on a voluntary basis. The US, Canada and the European Union all have mandatory notification regimes. The ACCC has noted that under the current regime, they have at times been completely unaware of significant mergers – and thus cannot protect consumers. By way of example, Petstock had completed a spate of pet shop and vet clinic acquisitions and did not notify the ACCC. The ACCC only came to know of the acquisitions in 2023 when Woolworths sought to acquire a majority stake in Petstock. Qantas has also made acquisitions of small airlines without ACCC approval.

Image Credit: Finance News Network | The ACCC is currently reviewing Sigma’s proposed $8.8 billion merger deal with pharmacy retailer Chemist Warehouse

The proposed overhaul of Australia’s merger laws therefore revolves around mandatory notice to and approval by the ACCC of a planned merger over a, yet to be determined, size threshold. The changes will give the ACCC more power to examine and stop mergers that pose a great risk to the overall economy.  Ultimately, a merger cannot proceed where it ‘creates, strengthens or entrenches substantial market power’. Additionally, the cumulative effect on competition of all mergers within the last three years by parties may be considered to prevent companies from gradually gaining an overly powerful market share. Companies that merge without the approval of the ACCC could have their entire transaction voided.

Theoretically consumers will feel the benefits of the changes through lower prices. Analysis by Treasury and the Reserve Bank has found that returning competition to the levels Australia experienced 20 years ago could lift GDP between 1% to 3%.

The proposed reforms seek to be in place and effective by 2026.

13 April 2024 | Authored by Connor Andreatidis, Consultant, Precision Public Affairs

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