In the biggest change to Australia’s merger regime since the introduction of the Trade Practices Act in 1974, the Commonwealth Government has announced that it will replace Australia’s voluntary merger review regime with a compulsory notification regime. From 1 January 2026, completing a merger or acquisition that meets the notification thresholds without first notifying that merger to, and obtaining clearance from, the ACCC will attract penalties of up to $50 million or 30% of a company’s Australian group turnover.1 You can read our initial comments on the draft legislation here.
The government has now released the proposed merger notification thresholds for consultation. Broadly, these require mergers or acquisitions to be notified to the ACCC that meet any of the following four tests:
| 1 | Australian turnover of merged group > $200 million |
and | Aus turnover of each business to be merged > $40 million or global transaction value > $200 million |
| or | |||
| 2 | Australian turnover acquirer group > $500 million |
and | Aus turnover of each business to be merged > $10 million or global transaction value > $50 million |
| or | |||
| 3 | Post merger share of affected or ‘adjacent’ market > 25% |
and |
Aus turnover of each business to be merged > $20 million |
| or | |||
| 4 | Post merger share of affected or ‘adjacent’ market > 50% |
and |
Aus turnover of each business to be merged > $10 million |
The government can also set industry specific thresholds for industries of concern. Industries that are likely to have their own, lower notification thresholds include supermarkets, fuel retailing, liquor retailing and oncology-radiology.
There are a range of points to note about the proposed thresholds:
- Transactions that don’t meet any of the above thresholds will still be prohibited if they are likely to substantially lessen competition in any market. For this reason, it may be possible (and prudent) to voluntarily notify transactions to the ACCC and ‘opt in’ to the new merger clearance process even if the acquisition is not otherwise caught by the thresholds.
- Where a merger combines more than two businesses, the turnover thresholds will be met if any two of the entities to be combined have the relevant level of turnover.
- In calculating turnover thresholds, an acquirer must combine the values of every acquisition it has made in the relevant market in the past three years. All of these acquisitions must then be included in any notification. This will make the first notifications under the new regime large and complex for many groups.
- The aggregation of all transactions over any three year period also means that, once any group with an Australian turnover of over $500 million has made acquisitions totalling $50 million value in a three year period, every additional transaction the group makes in that three year period will need to be notified to the ACCC, no matter how small. If a corporate group has Australian turnover of $200 million then once it has made acquisitions with a total value of $40 million in any three year period, every additional transaction will need to be notified.
- It is not clear whether or how the thresholds will be applied to acquisitions of assets that are not normally thought of as having a ‘turnover’, such as leases or freehold interests in land. The draft legislation and the consultation paper both seem to suggest that such acquisitions are intended to be caught. The consultation paper states that a turnover threshold may be met “based on the attribution of turnover generated by the acquired assets, such as the lease income”. This raises the spectre that, once a corporate group has made a threshold level of acquisitions in any three year period, every further asset acquisition – including every acquisition of land or lease or a lease renewal – may need to be notified to the ACCC. The consultation paper states the government is considering establishing a notification waiver process. It would be cumbersome if companies need to go through this process for ordinary course of business acquisitions, such as lease renewals, once they have made a threshold level of acquisitions in a three year period.
- When calculating market shares for the purposes of determining notification thresholds, it will often not be clear what definition of the market should be applied. This is likely to create considerable uncertainty in applying the new regime. The consultation paper suggests that, when in doubt ‘it is preferable that market shares be calculated on the basis of the market definition most likely to raise competition concerns’. The paper suggests that, to reduce ambiguity, thresholds may be based on the ‘share of supply of goods or services’ by the businesses involved in the acquisition rather than ‘market’ shares. However, this still begs the question of what category of goods or services should be used for such a calculation.
- The market share test will not only be applied to markets in which parties directly supply or acquire goods and services, but also to markets that are ‘adjacent by product, geographic or functional level’. This seems to suggest that a company that, say, has a strong presence in a retail market may need to notify acquisitions of wholesale businesses, or a company with a strong presence in Victoria may have to notify acquisitions of a business in, say, New South Wales or South Australia even if they have no existing presence there.
- Every merger notification pursuant to this regime will attract a fee. The level of applicable fees has not yet been announced. What this will be. If an acquirer completes a merger without notifying the ACCC, they can be liable for a civil penalty of up to $50 million.
The government is consulting on the proposed notification thresholds until 20 September 2024. There is much more to be done and clarified before the new regime formally commences in January 2026.
This article was written by Richard Westmoreland, Partner and David Fleming, Partner.
1see: Reforming mergers and acquisitions – notification thresholds | Treasury.gov.au