The process of mergers and acquisitions in Australia is very common. Although it occurs in relation to very large listed companies, it can also occur with small and medium sized businesses and can still require good legal advice in order to ensure that the process occurs smoothly and the rights of all of the parties are respected. There is also a very large body of regulation surrounding mergers and acquisitions in Australia and all large transactions of this type need to be approved by the Australian Competition and Consumer Commission (ACCC) in order to proceed. This is because the result of mergers can be that one very large firm establishes a monopoly over a particular market and this results in negative outcome for consumers because the firm can charge whatever it wishes for the product or service that it produces if it has a monopoly over that good or service.
The law which the ACCC is enforcing when it either gives or declines approval is the TRADE PRACTICES ACT 1974 – SECT 50 which states that:
“(1) A corporation must not directly or indirectly:
(a) acquire shares in the capital of a body corporate; or
(b) acquire any assets of a person;
if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.”
The following provisions also prevent a natural person acquiring shares in the capital of a corporation if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
The things that the regulator has to consider when assessing if the effect of the transaction would be to ‘substantially lessening competition in a market’ are, for example, the actual and potential level of import competition in the market, the height of barriers to entry to the market, the level of concentration in the market; the degree of countervailing power in the market and the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins. In the context of this piece of legislation, the definition of a market is a substantial market for goods or services in Australia, or a particular state, territory or region of Australia. Notably, the Australian Competition and Consumer Commission does not have the jurisdiction to enforce competition law overseas and internationally. The ACCC can do nothing in relation to anti-competitive behavior of a global corporation. If you have a question about the law relating to Australian Company Mergers, please do not hesitate to contact us using any of the methods available on this site.
