Mandatory merger regulations from January next year stipulate businesses can only proceed with a notified acquisition after it is approved by the ACCC. What does this mean for directors?
Directors should brace for heightened governance and oversight demands and greater legal and compliance exposure arising from Australia’s new mandatory merger control regime.
Simon Mitchell GAICD, Senior Policy Adviser with the AICD, described the reforms, which come into effect for deals closing or completing on or after 1 January 2026, as “a very significant change in economic regulation”.
“It is quite a profound movement to a mandatory merger and acquisition regime [which has] implications for many Australian businesses,” he said, during the AICD’s recent webinar, The New Mandatory Mergers Regime: Implications for businesses and boards.
“[It also] represents a far more strengthened and empowered Australian Competition and Consumer Commission (ACCC).”
Under the existing voluntary informal review process, corporations and not-for-profits (NFPs) that intended to acquire other entities did not necessarily need to seek approval from the ACCC, says Sar Katdare, partner and head of the national competition and anti-trust team at Johnson Winter Slattery.
The exceptions to that were if the deal required Foreign Investment Review Board approval or where competition concerns were flagged.
According to Minter Ellison’s M&A Meltdowns report, the vast majority of take-private deals publicly announced and recommended by the boards of ASX-listed targets successfully close. However, the proliferation of failed friendly take-private deals in recent years suggest the process isn’t always straightforward.
For example, the report highlights the example of EIG/Brookfield’s failed attempt to acquire Origin Energy — a deal that ran aground on the rocks of shareholder activism.
Under the new arrangements, any businesses contemplating an acquisition that meets certain criteria must notify the ACCC.
Katdare says these criteria involve the acquisition of shares or assets relating to a business operating in Australia that triggers specified monetary or control thresholds and is not subject to a relevant exemption. Significant filing fees are payable.
After an acquisition has been notified, the ACCC will assess whether it would be likely to substantially lessen competition. Businesses can only proceed with a notified acquisition after it is approved, provided it is completed within 12 months of the ACCC’s decision.
Non-compliant businesses potentially fell afoul of multiple laws — including merger law, a new “gun jumping” law and anti-avoidance laws, explains Katdare.
It also placed them at risk of being seen as engaging in “cartel conduct”.
“There are very significant and serious repercussions to all of this, for failing to notify or complete without approval,” he says. “The key commercial repercussion is that your deal is considered to be void at law.”
Substantial financial or even criminal penalties could accrue, he added.
Compliance and transparency
The new merger regime is designed to bring Australia into line with most other international jurisdictions. It’s also intended to increase the transparency of deals, given acquisitions that the ACCC has viewed as questionable in the past.
For instance, Woolworths acquired a 55 per cent stake in Petspiration Group (Petstock) in December 2023.
“(Woolworths) went through the voluntary process and as the ACCC was looking at that deal… it discovered Petstock had actually made about 40 acquisitions prior to that, none of which were notified to the ACCC,” says Katdare.
This raised the spectre of anti-competitive impacts.
The ACCC subsequently approved the deal, but only after Petstock agreed to divest 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores.
Under the mandatory ACCC regime, there are two key monetary thresholds, says Katdare. The first relates to acquisitions in which the sum of the revenue of the acquirer and target is $200m or more; and either the revenue of the target is $50m or more; or the value of the deal is $250m or more.
Alternatively, the revenue of the acquirer and their connected entities is $500m or more; and the revenue of the target is $10m or more.
In most cases, the parties must treat the current target and all previous shares or assets acquired by the acquirer in the preceding three years — that relate to the supply or acquisition of the same or substitutable goods or services — as one acquisition.
“This becomes a very significant issue for any parties doing multiple acquisitions across the years,” says Katdare.
The three-year “look-back period” was calculated to address a concern that the current regime didn’t account for creeping, or serial acquisitions, he adds. “It’s the concept of a business effectively buying a small competitor, one by one, over the years.”
For example, a large corporation with a 30 per cent market share might buy a site that takes them to 31 per cent market share.
“It’s pretty difficult to say that that’s a substantial lessening of competition,” says Katdare.
But if they continued to make seemingly small acquisitions, this might increase their market share substantially over time.
These changes meant companies needed to carefully plan their acquisition strategies.
“You now need to do an audit of all the deals you’ve done in the prior three years,” says Katdare. “You need to understand the entity, the market, the date of the deal and the revenue of the target at the time you bought them. And then you need to maintain that register of deals going forward.”
Whether the new regime will have a chilling effect on merger and acquisition activity in Australia remains an open question.
“My guess is that this is a regime and a change where the impact will only become visible once it starts,” says Mitchell.
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