Australian Parliament passes Merger Reform Act

Consistent with the Exposure Draft the new mandatory regime will apply from 1 January 2026 and will replace the current voluntary “informal clearance” regime and merger authorisation process. There are important transitional changes which will affect mergers from 1 July 2025.

A transaction which falls within the regime must be notified to the ACCC (mandatory) and will not be able to complete (suspensory) without the ACCC making a determination that the transaction may be put into effect.

Key takeaway: Unlike the current regime, parties will not be able to self-assess whether a transaction should be notified to the ACCC. Parties will now need to consider both the notification thresholds (which may capture transactions with no obvious competition issues) and potential substantive issues. Where notification is required, the timing for an ACCC review process will need to be factored into transaction timing.

Subject to monetary thresholds, the new regime will apply to direct or indirect acquisitions of shares or assets.

In the case of shares, the provisions only apply if the transaction gives rise to control. Reflecting concerns raised in relation to the complexity of the Exposure Draft, including in relation to rebuttable presumptions regarding control and potential impacts on takeovers and capital markets, the Bill differs from the Exposure Draft in material aspects.

In the case of shares, unless a ministerial determination applies, an acquisition of shares is not required to be notified if the acquirer will not “control” the body corporate within the meaning of section 50AA of the Corporations Act 2001 (Cth) (with certain modifications set out below). In this regard, the Bill reflects the more familiar meaning of “control” in the Corporations Act. However, the following rules will apply to the concept of control:

• A person is taken to control a body corporate if they / their associates (within the meaning of Chapter 6 of the Corporations Act) jointly have the capacity to determine decisions about financial and operating policies (even if the acquirer alone does not have this capacity).
   
• For special purpose vehicles, the rule that deems an entity not to have control if it is under a legal obligation to exercise its influence for the benefit of others, is disregarded.
   
• The requirement that the acquirer be under a legal obligation to exercise its influence for the benefit of someone other than its own members is also disregarded where it applies to a legal obligation the acquirer has as a subsidiary of a body corporate.

Further, if the acquisition is in a class of acquisitions determined by the Minister, the exemption will not apply and the acquisition must be notified. The Minister has the power to determine, by legislative instrument, that the merger regime will apply to “an acquisition by a corporation of anything” and “an acquisition of anything relating to a corporation”. The Explanatory Memorandum states that this broad determination power provides the necessary flexibility to address emerging issues or transaction structures that may not fall within the legislation. For example, it provides that this may include business transactions where control is obtained via management agreements in combination with partial shareholding.

Acquisitions which result in up to 20% voting power of publicly listed entities or an unlisted widely held company will be excluded from mandatory notification (thereby aligning with the takeovers threshold in the Corporations Act). In addition, surprise hostile takeovers will be able to be confidentially reviewed and listed on the public registry after 17 business days which will allow the ACCC time to make a confidential decision if the transaction is unlikely to raise concerns.

Land acquisitions involving residential property development and certain commercial property acquisitions will be exempt from notification.

The Bill also introduces a process to allow parties to seek a “notification waiver” from the ACCC. Upon application, the ACCC will be able to determine that an acquisition is not required to be notified, having regard to the object of the Competition and Consumer Act 2010 (Cth) (CCA), the interests of consumers and the likelihood that the acquisition would have the effect or likely effect of substantially lessening competition. The specific requirements for the waiver application will be finalised in subordinate legislation.

Key takeaway: Subject to monetary thresholds, transactions involving an acquisition of control will be notifiable. The simplified definition of control under the Bill is an improvement as compared to the drafting in the Exposure Draft.

Whilst the monetary notification thresholds will be formally set out in subordinate legislation, the Treasury has announced changes to the initial thresholds which were the subject of consultation.

In summary, the new proposed notification thresholds are:

• A single economy-wide monetary threshold focused on large mergers, where the combined merger parties (including the acquirer group) have above $200 million combined Australian turnover AND are buying businesses or assets above: EITHER $50 million Australian turnover OR $250 million global transaction value.
   
• Lower thresholds will apply for very large businesses buying smaller businesses or assets (above $500 million Australian turnover buying above $10 million Australian turnover).
   
• To target serial acquisitions, for businesses with combined Australian turnover above $200 million, a 3-year cumulative $50 million turnover threshold ($10 million for very large businesses) will capture acquisitions in the same or substitutable goods or services.

In addition, the Minister may make a determination that requires certain mergers to be notified irrespective of monetary notification thresholds. A targeted screening tool is also being contemplated to capture acquisitions below notification thresholds in select concentrated regions and sectors.

Key takeaway: The removal of proposed market share thresholds benefits certainty. The Minister is very likely to take steps to require notifications in certain high profile industries – the Treasurer, in his Second Reading Speech, has already stated that “the government intends to make sure the ACCC is notified of every merger in the supermarket sector”.

The ACCC will be the first instance administrative decision-maker for all mergers.

• Federal Court: There will be no right for merger parties to have mergers determined by the Federal Court. This is a fundamental change and removes the traditional evidence giving process where both the ACCC and the merger parties call witnesses and test evidence through cross-examination.
   
• Merits review: The merger parties and third parties with a "sufficient interest" (potentially customers, competitors, suppliers and consumer interest groups) may seek merits review of ACCC decisions in the Australian Competition Tribunal.

Key takeaway: The Federal Court will no longer be a venue to determine merger matters. The differences in process and evidence before the Australian Competition Tribunal and the Federal Court may have an impact on outcomes.

Consistent with the Exposure Draft, the ACCC, in considering the competitive effect of a transaction will consider the cumulative effect of other transactions by the acquiring party during the three years prior to the effective date of notification.

The Exposure Draft included transactions which were in the same “industry”. This drafting has not been included in the Bill. The Bill allows the ACCC to have regard to the cumulative effect of transactions where the acquired businesses involve (directly or indirectly) the supply or acquisition of the same goods or services which are substitutable for or otherwise competitive with the products or services supplied or acquired by the target business (disregarding geographical factors or limitations). The drafting in the Bill is more consistent with the orthodox legal and economic concept, used in Australia and overseas, of focusing on relevant “markets”. However, by disregarding geographical factors, which are an intrinsic part of any market analysis, the ACCC will be able to consider the cumulative effect of transactions even where the target business operates in different geographic areas as compared to the businesses previously acquired.

Key takeaway: The three-year look back raises potential complexity for bolt-on/roll-up strategies – both substantively and from a process perspective.

Consistent with the Exposure Draft, a “substantial lessening of competition” may include creating, strengthening or entrenching a substantial degree of power in the market. This is intended to take into account the competitive structure of a market in an overall assessment of the effects of a merger on competition. However, unlike what was proposed in the Exposure Draft, the Bill states explicitly that this amendment does not affect the meaning of substantially lessening competition outside the new merger provisions and does not involve the deeming mechanism proposed in the draft.

Key takeaway: This change is aligned with an appropriate economic consideration of competitive effects.

The Exposure Draft proposed that the ACCC must not prevent an acquisition unless it “reasonably believes” that there is a real (not merely a remote) possibility that the acquisition would be likely to have the effect of substantially lessening competition in a market. The reasonable belief standard has not been adopted in the Bill.

Under the Bill, the ACCC (or the Tribunal upon review) must be “satisfied” that the acquisition would have the effect or likely effect of substantially lessening competition. This is a material improvement and reflects usual administrative decision-making standards. This change is also reflected in the standard to be applied in respect of the public benefit test.

The Exposure Draft also proposed changes to the standard to weigh public benefits against anti-competitive detriments in the context of the public benefit test, by requiring that any public benefit needed to “substantially outweigh” any harm to competition. The Bill reverts back to the current language applicable in authorisation applications where there needs only to be a net public benefit.

Key takeaway: The Bill is a material improvement on the Exposure Draft in respect of the standards imposed upon the ACCC and its assessment of net public benefit.

Consistent with the Exposure Draft, in making its merger clearance determination, the ACCC must have regard to the objects of the CCA (ie, “enhancing the welfare of Australians through the promotion of competition”), the interests of consumers and all relevant matters.

The Explanatory Memorandum provides that the ACCC could be expected to have regard to the following (expressly non-exhaustive) economic factors, however, these factors are not included in the legislation:

• the market position of the parties to the acquisition and their economic and financial power;
   
• whether the acquisition would result in the removal of a vigorous and effective competitor;
   
• the nature of competition, including potential competition, in the market;
   
• the effect of the acquisition on the conditions for competition in the market;
   
• the structural and/or other conditions affecting competition, including the level of concentration in the market;
   
• the conditions or barriers to entry and expansion to the market and the impact of the acquisition on those barriers;
   
• the nature and strength of competitive constraints, whether within and/or outside the market, including the potential for the acquisition to give rise to increases in prices and/or profit margins;
   
• the degree of product and/or service differentiation in the market;
   
• the degree of dynamism, whether through innovation or otherwise, in the market;
   
• the degree of countervailing power in the market; and
   
• the extent to which the acquisition may give rise to efficiencies that could not otherwise be obtained and the extent to which those efficiencies may ultimately benefit consumers.

It is expected that these factors will inform the ACCC’s proposed substantive guidelines that will set out its approach to the economic and legal assessment of whether an acquisition is likely to substantially lessen competition. In parallel with the introduction of the Act, the ACCC released its “Statement of Goals for Merger Reform Implementation” and one of these goals is that the ACCC will publish new analytical and process guidelines commencing with a consultation process in early 2025.

Key takeaway: The ACCC will consider a broad range of factors in reaching a conclusion as to any substantive lessening of competition. Its proposed analytical and process guidelines will be material factors to be considered by merging parties in making any application.

A transaction can be approved subject to conditions. The Act removes the requirement in the Exposure Draft that the ACCC must “reasonably believe” that those conditions would “comprehensively address” any substantial lessening of competition. Instead, the ACCC must not include conditions in its determination unless it is “satisfied” that, absent any conditions, the acquisition could “in all the circumstances, have the effect of substantially lessening competition in any market”.

• There are time limits on when conditions can be offered. In Phase 1, the final date for remedy proposals is Day 20 of a 30 business day process and if a merger proceeds into Phase 2, the final date for remedy proposals is Day 60 of a 90 business day process. If a remedy is proposed in either case, the review can be extended by 15 business days.
   
• The ACCC may be able to unilaterally impose conditions not contemplated by the parties, including on ancillary contractual restrictions agreed between the parties and notified – see below. The potential conditions are not limited to section 87B divestiture or behavioural undertakings.

Key takeaway: Under the new process, there may be less flexibility regarding the timing and consideration of remedy proposals. The ACCC’s proposed process guidelines may provide additional insight into how the ACCC will consider remedies.

Under the Act, the Minister may make a determination regarding the form of the merger notification, which may require the notification of any goodwill protections within the relevant agreement, i.e. non-compete provisions. It is expected that notification of goodwill restraints will be required.

Under the CCA, provisions in a business sale agreement that are solely to protect the goodwill in the purchased business are exempt from prohibitions against anti-competitive conduct. Under the Act, the ACCC may declare that this exemption provision does not apply where the ACCC is satisfied that the provision is not necessary for the protection of the purchaser under the contract in respect of purchased goodwill. Such a declaration would expose the purchaser to proceedings under various provisions of the CCA. Even if the ACCC does not make such a declaration, it is not precluded from commencing proceedings in respect of a goodwill provision at a later date.

Key takeaway: A notification requirement, when coupled with the ACCC’s declaration power, may lead to greater consideration of the scope and duration of any post-completion restraints.

The Act sets out the following review timeframes for Phase 1, Phase 2, the public benefit phrase and timeline for Tribunal review:

• Phase 1 (Initial review): 30 business days
• Phase 2 (In depth review): 90 business days
• Public Benefits: 50 business days
• Tribunal review: application must be lodged within 14 calendar days (for a 90 calendar day review). The “fast track” 60 calendar day review proposed in the Exposure Draft has been removed.

We also note the following in relation to timelines.

• Complete application: Treasury has not prescribed what information and documents will need to be included for a notification to be "complete" and for the ACCC’s review timeline to commence.
• ‘Stopping the clock’: The ACCC can "stop the clock" in any determination period if it issues a section 155 notice.

Key takeaway: Clarity is required on when an application is complete, otherwise significant delays and uncertainty can arise. The ACCC’s ability to "stop the clock" on the mere issue of a section 155 notice risks undermining the certainty associated with the statutory timelines.

There will be filing fees for all notifiable transactions (with some exceptions for small businesses). These are not set out in the Act, but the Government has indicated that fees will likely be in the range of $50,000 to $100,000.

Key takeaway: The cost of filing fees will increase regulatory burden on serial acquirers.

The ACCC will maintain a public register listing all mergers notified to it (subject to comment below in respect of hostile takeovers). The ACCC will also set out its findings on material facts and the reasons for all merger decisions.

To address concerns regarding the rationale for a move from a Phase 1 to a Phase 2 review the ACCC will, with its written notice that the investigation is moving to a Phase 2 review, describe the nature of the theory of harm that the ACCC is considering and the matters to be considered during the Phase 2 review.

The ACCC will also provide reasons to the notifying party for notifications and for public benefit applications.

As discussed above, surprise hostile takeovers will be able to be confidentially reviewed and listed on the public registry after 17 business days, unless the ACCC makes a determination prior to the 17^th business day (in which case the public registry will not include information or documents relating to that takeover at all).

Key takeaway: Under the existing regime it is possible to seek confidential “pre-assessment” of transactions, which allows acquirers to obtain ACCC clearance prior to signing a transaction with a target. Under the new regime, a confidential review will only be possible in the context of a surprise hostile takeover.

Under transitional provisions, merger parties will be able to voluntarily notify and opt into the new regime from 1 July 2025. 

Businesses that receive informal ‘clearance’ or are granted merger authorisation under the current system between 1 July 2025 and 31 December 2025 will be exempt from notification, provided the acquisition is put into effect within one year.

From 30 June 2025, parties will not be able to make applications for merger authorisation under the current regime. They may, however, advance public benefits arguments by voluntarily notifying a proposed acquisition to the Commission under the new notification process. 

Key takeaway: Parties will need carefully consider the impact of the transitional provisions, and transaction and clearance timelines in making merger clearance or authorisation applications in 2025.