Mergers: a 20 year Retrospective Retrospective Competition Law Conference Sydney 4 May 2013 Tim Grimwade and Jill Walker
20 years
Outline � Background and history of SLC in mergers � Evolution of merger analysis and the Guidelines � Merger moments: making a difference & contentious matters matters � Merger authorisation: early activity (and untimely death) � Evolution of Merger administration � Merger moments: establishing credentials � Evolution of remedies and use of s.87B � Concluding remarks
Background and history
Once upon a time......... � 1974-1977 SLC test � Re QCMA decision (merger authorisation) � Swanson Committee (1976): “(a) merger provisions are necessary to prevent the possibility of achieving, by merger, “(a) merger provisions are necessary to prevent the possibility of achieving, by merger, anti-competitive results prohibited elsewhere in the same law; (b) Merger provisions ensure that the control of significant capital assets in the community does not change hands in circumstances that disregard any anti-competitive effects of the change.” � 1977 – 1992 dominance test: “The Government has decided that the categories of merger subject to the Act should be quite limited. There should be no unnecessary impediment, legislative or administrative, to the attainment of rationalisation of Australian industry. It is in Australia’s best interests to achieve economies of scale and improved international competitiveness” (J Howard)
Ongoing Debate 1977-1992 � International competition: rationalisation & national champions v Porter and non-traded inputs � Problematic mergers: Ansett-East West � News Ltd-HWT � � Coles-Myer � � Dulux-British Paints Dulux-British Paints Dunlop-Goodyear � Unilever-Bushells � � Ampol-Solo Visyboard-Smorgan � � Logic of the Act: agreements v mergers � 1984 Green Paper recommendation v response � Griffiths Report (1989): “ “ There is significant support for the retention of the dominance test and for the belief that the test facilitates and promotes desirable industry rationalisation and increased international competitiveness… There is, at this stage, insufficient justification to recommend any amendment to the dominance test”
And so it came to be... � Cooney Report (1991) “The dominance test was specifically introduced to facilitate the development of economies of scale in Australian industry, and to further its international competitiveness. … A growing body of economic theory now suggests that international competitiveness, both in large and small nations, is achieved not by encouraging industry leaders to merger, but by encouraging them to compete” � November 1992: “After much consideration the Government has decided to amend section 50 to prohibit mergers or acquisitions which are “After much consideration the Government has decided to amend section 50 to prohibit mergers or acquisitions which are likely to substantially lessen competition and which have not been authorised by the Commission. In an Act which seeks to preserve competition it is appropriate that the merger test should focus on the effect on competition in a market rather than on the dominance of a particular firm. The effect of the amendment will be to broaden the range of transactions which can be examined under section 50. This can only be procompetitive.” ( M Duffy) but: “The Government’s position is a triumph for linguistic gymnastics. The problem is that in applying the test to actual situations, it will be difficult to predict the result. ... The matter will be thrown to the courts which no doubt will spend years clarifying the operation of the new provisions.” (P Costello) � S.50(3) and the Draft Merger Guidelines � Authorisation amendments � SLC (and s.87B) effective 21 January 1993
Guidelines and analysis
Draft Merger Guidelines1992 � Concentration “safe harbours”: � CR4<75% & market CR4<75% & market share <15%; or � market share <40% � “Flow Chart” � “Commercial Radio Guidelines” 1994
Draft Merger Guidelines1992 contd. � Market definition: SSNIP test � Major (unilateral & coordinated effects) theories of harm established � Vertical mergers but no � Vertical mergers but no reference to vertical theories of harm � Forward looking analysis and prevention of competition theories � Supply and demand side markets & SLC
Merger Guidelines 1996 � ACCC has replaced TPC � Guidelines much longer and more comprehensive, e.g. demand side mergers; partial acquisitions � NCP backdrop - expanded coverage of TPA and concern with mergers in sectors undergoing deregulation & privatisation mergers in sectors undergoing deregulation & privatisation � Retained the same basic analytical structure � Ripple effects, functional & time dimensions and sub-markets � Flow chart and concentration thresholds retained (IC Report) � Indicative position of not opposing mergers if sustained and competitive imports>10% � Consideration of efficiencies under SLC v “trade-off”
Merger Guidelines 1999 � Export Guidelines 1997 � No major change from 1996 � Flow Chart approach retained � Concentration thresholds unchanged � Various refinements e.g. � Cluster markets � Price discrimination markets � Failing firms � Strategic barriers to entry
Merger Guidelines 2008 � Media Mergers 2006 � SLC test established and participation in ICN � Substantial overhaul of the 1999 Guidelines: � no “safe harbours” – replaced with indicative notification thresholds: substitutes no “safe harbours” – replaced with indicative notification thresholds: substitutes or complements and > 20% market share � no flow chart – integrated analysis of constraints � main theories of harm retained � greater prominence to vertical foreclosure and conglomerates � theories of harm increased prominence vs merger factors � HHI adopted as concentration metric: <2000 or >2000 and <100 � TLS approach to entry adopted � Countervailing power
Merger moments: making a difference and contentious matters
Mergers opposed or modified that would not have been challenged under Dominance Caltex/Ampol (1995): co-ordinated effects in petrol refining/wholesaling � Wattyl/Taubmans (1996 and 2006): co-ordinated effects in A&D paint � Coke/Berri (2003): conglomerate effects/leveraging from CSD into fruit juice/drinks � Patrick/FCL (2005): vertical foreclosure in rail line-haul and freight forwarding � Boral/Adelaide Brighton (2006): unilateral and coordinated effects in concrete etc. � Baiada/Bartter (2009): unilateral effects in the supply of processed chickens Baiada/Bartter (2009): unilateral effects in the supply of processed chickens � � Pfizer/Wyeth (2009): unilateral effects in various animal health products � Gunns/ITC Timber (2009): acquisition of hardwood pulpwood � Caltex/Mobil (2009): coordinated and unilateral effects in petrol retailing � GUD/Breville (2009): unilateral effects in small electrical appliances � Cargill/Goodman Fielder (2010): unilateral effects in bulk RBD edible oils � NAB/AXA (2010): dynamic effects in retail investment platforms � Foxtel/Austar (2012): potential competition in pay TV and telco � Nestle/Pfizer (2012): unilateral and coordinated effects in infant formula �
Contentious mergers opposed � Very few cases have gone to Court and Commission’s Guidelines have largely prevailed � Completed court cases arguably “marginal” AGL v ACCC (2003) � AGL sought to acquire Loy Yang - vertical merger of electricity � generation and retail Economic modelling of NEM � Court found that the merger would not SLC � Useful guidance on “likely” (real chance) and “substantial” � (meaningful or relevant to the competitive process) ACCC v Metcash (2011) � Grocery merger similar to Davids/QIW (1993) � ACCC defined narrow market and found SLC � Court found broad market and no SLC � � Approach to “likely” SLC confirmed Counterfactual issue �
Contentious mergers not opposed � Westpac/St George (2008) � Horizontal acquisition of #5 bank by major � Combined market shares 15-25% � Several remaining competitors � Several remaining competitors � St George not uniquely competitive � Vodafone/Hutchison (2009) � Horizontal merger of # 3 & 4 in mobile � Vigorous & effective competitors � Network capacity constraints � Scale and investment pro-competitive
Merger authorisation: an important option in the early years
Authorisation � Availability of authorisation was an � Some parties successful: important option in the early years � Comalco/Gladstone Power (1994) of the SLC test � Qantas/BA alliance (1995) � Davids/QIW-CBL (1995 & 1996) � 1992 amendments: international � Dupont/Ticor (1996) competition � Adelaide Brighton/Cockburn (1999) � Commission encouraged parties to � Commission encouraged parties to � Little Company of Mary Health Care /St use this avenue where there were Vincent’s Hospital Launceston (2005) significant efficiency claims � GrainCorp and AWB (2005) � Others not: � CSR/Mackay Sugar (1994) � Silver Top/North Suburban (1995) � Wattyl/Taubmans (1996) � Bristol/Pioneeer (1997) � API/Sigma (2002) � Qantas /Air NZ alliance (2003)
Evolution of merger administration
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