How merger reform will benefit Aussies


The federal government is moving to reform the rules which govern company mergers in Australia, a move which it says is necessary to improve competition and productivity in parts of the economy.

In announcing the proposed changes last week, Treasurer Jim Chalmers argued that while most mergers are positive, more needs to be done to ensure that potentially harmful mergers are under greater scrutiny.

"Most mergers have genuine economic benefits. They attract capital, re-tool businesses and improve the uptake of new technologies. This is particularly important in parts of the economy undergoing structural change.

petstock mergers

"But some mergers can cause serious economic harm. This happens when players are not interested in improving profitability by lifting productivity. When they're solely focused on squeezing out competitors to capture a larger percentage of the market.

"This can strangle innovation, reduce productivity in our economy and punish consumers with reduced choice."

What are the merger reforms being proposed?

At the heart of the changes, the government is proposing that mergers over certain monetary and market share thresholds - which are yet to be determined - will have to be reported to the Australian Competition and Consumer Commission (ACCC) by law.

Proposed mergers will also no longer be able to go forward without receiving a determination from the regulator or the Australian Competition Tribunal.

This is not the case currently, as there's no obligation for companies to notify the ACCC of any merger proposals, or to wait for the tick of approval to go ahead.

The government says that the regulator will also operate with a narrower framework for assessing potentially harmful mergers, focusing in on those that pose a real threat to competition, consumers and the economy.

On the other hand, the approvals process for beneficial mergers will be sped up, with most approvals set to be made by the ACCC within 30 working days as long as they are deemed not to pose a threat to competition.

The reforms will need to be legislated before they come into effect, but if they are passed by parliament they are set to kick in from January 1, 2026.

Regulator will no longer be kept in the dark

The ACCC has welcomed the government's reforms, having previously advocated for the introduction of a better system to help prevent anti-competitive mergers.

The regulator made one such call for reform last December in an announcement involving pet retailer Petstock. Following an investigation into past acquisitions made by the company, the ACCC revealed that Petstock was divesting a number of assets - including 41 retail stores.

During its investigation the ACCC raised concerns that the large number of acquisitions made by Petstock in previous years had removed some of its competition in the pet retail space - acquisitions that the regulator had not been notified about.

Not that it needed to. As ACCC chair Gina Cass-Gottlieb said in a statement at the time, companies are under no obligation to inform the regulator of proposed mergers and acquisitions under existing laws.

"Petstock's decision to make numerous acquisitions of this scale without notifying the ACCC demonstrates the limitations of Australia's current merger regime.

"It relies on the goodwill of businesses to voluntarily notify the ACCC and await an outcome. Absent this goodwill, businesses may be able to amass scale through serial and non-notified acquisitions which may fly under the ACCC's radar."

While Petstock's move to divest a number of stores resolved the regulators concerns in that case, Cass-Gottlieb said that, in general, trying to restore competition after the fact is not always an option and a "...poor substitute for preventing the loss of competition in the first place."

Will merger reform benefit consumers? 

In a consultation paper on merger reform published late last year, Treasury highlighted that while there's been limited research undertaken in Australia, overseas studies suggest that too many anti-competitive mergers have been waved through as a result of lax enforcement in the last two decades.

These mergers, on balance, were found to have led to reduced competition and higher prices for consumers in some markets, and delivered little in the way of productivity gains.

Rosie Thomas, director of campaigns at consumer advocacy group Choice, believes that the government's proposals are a step in the right direction in ensuring that consumers don't become more disadvantaged by a lack of competition in some sectors.

"The system in Australia has enabled the creation of many concentrated markets. Supermarkets, airlines, banks, telcos, insurance - they're all markets for essential products and services where we have a few dominant players," she says.

"Consumers are paying for these concentrated markets and that takes the form of higher prices and often poor quality products and services.

"So this should stop the creation of new concentrated markets, as well as making sure our existing concentrated markets don't get any worse."

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Tom Watson is a senior journalist at Money magazine. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney. He tweets at @TomasAKWatson.
May 4, 2024 9.37am

RE mergers and concentrated markets, better too late than never.