Mergers & Acquisitions
10. Competition Considerations
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 22 Aug 2015
- As a company you are prohibited from directly acquiring shares in the capital of another company if the acquisition would have the effect or likely effect of substantially lessening competition in a particular market.
- A similar prohibition applies to individuals. A person acquiring shares or assets of a corporation must not do so if it would have the effect or likely effect of lessening competition in a market.
- The Australian Competition and Consumer Commission (ACCC) has the power to start proceedings against a person or company who has breached these prohibitions.
- In order to avoid such proceedings being brought against you it is advisable to liaise with the ACCC before commencing a takeover to discuss whether they have any concerns. The ACCC will usually give an informal indication that they do not object to the takeover.
- Alternatively a company can seek a formal authorisation or clearance from the ACCC.
- The ACCC can grant your company an authorisation to acquire a controlling interest regardless of any lessening of competition. This will usually only be done if there is a public benefit to be obtained from the merger. Included in the notion of 'public benefit' is an increase in the value of any exports or a significant substitution of domestic products in place of imported goods. Other factors can also be considered.
- The ACCC can also grant a person clearance to acquire shares or assets of another company or another person. A clearance can't be granted if the ACCC believes the acquisition would substantially lessen competition.
- In order to obtain a clearance you must apply to the ACCC. The ACCC will publish the application on their website. Applicants will be invited to lodge submissions for the ACCC to consider when deciding whether to grant clearance or not.
- Once the ACCC has made a decision they will notify you in writing. If 40 days pass and you have not been notified this is to be taken as a refusal to grant clearance.
- When determining whether a merger or acquisition is likely to have the effect of substantially lessening competition in a market for goods and services the court must have regard to a number of factors. These factors include:
- the potential level of competition for imports in the market;
- the extent of any barriers to entry into the market;
- the market levels of concentration;
- any countervailing power in the market;
- the likelihood that the acquirer would be able to achieve a significant or sustainable increase in prices or profit margins;
- the characteristics of the market including dynamic factors of growth, innovation and product differentiation;
- whether the acquisition would remove a vigorous and effective competitor from the market; and
- the nature and extent of any vertical integration.
- If the court believes on the basis of these considerations that competition would be substantially lessened then the takeover will be contrary to law.
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