Merger review – international insightsComparison between the US, EU, UK, NZ and AU

Dr Martyn Taylor

Andrew Willekes

Louie Liu

April 2016

Overview

Differences in…

– institutional frameworks

– merger notification processes

– substantive analysis

– decision-making and remedies

…and some interesting conclusions

Our key question: Does Australia have the best merger regime?

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Differences in institutional frameworks

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United States

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• Multiple regulators (including State and

sectoral), with overlapping jurisdictions

primarily the Federal Trade Commission

(FTC) and Department of Justice (DOJ).

• FTC has a 5 member board that is

politically appointed, but no more than 3

Commissioners from the same party.

FTC operates as an agent of Congress

and is oriented to competition policy.

• Antitrust Division of the DOJ is a federal

agency supporting the Attorney General,

as a member of the President’s cabinet.

DOJ is oriented to enforcement.

• FTC and DOJ have joint authority over

enforcement of the Clayton Act and will

informally discuss which takes the lead.

• FTC and DOJ follow a prosecutorial

model, with court enforcement required.

• Single regulator, being the European

Commission (Directorate General for

Competition - DG COMP).

• Current DG COMP Commissioner is

Margrethe Vestager, a Danish politician

and previously Denmark’s Deputy PM.

• Mergers with a ‘Community Dimension’

are subject to DG COMP’s exclusive

jurisdiction, otherwise relevant national

competition regulators have jurisdiction.

• Notifications under EU Merger Control

Regulation (EUMR) are reviewed by

sector-specific units within DG COMP.

• Member States of the EU express their

views on a merger via representatives in

Advisory Committee on Concentrations.

• DG COMP follows an administrative

model, can impose fines and remedies.

European Union

United Kingdom

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• Competition & Markets Authority (CMA) is

a non-ministerial government department

that started operation on 1 April 2014.

• CMA created by merger of Competition

Commission with Office of Fair Trading.

CMA is accountable to Parliament.

• The CMA has a Board (for governance)

and a Panel (for reviews and inquiries).

Alex Chisholm is Chief Executive.

• The Markets & Mergers Directorate

(currently led by Andrea Coscelli) is

responsible for merger reviews.

• CMA has jurisdiction over mergers which

do not fall within the exclusive jurisdiction

of the European Commission and which

satisfy the UK jurisdictional thresholds.

• Secretary of State has right to intervene.

• CMA follows an administrative model, can

impose orders, fines and remedies.

• New Zealand Commerce Commission

(ComCom) is an independent statutory

commission created under the Commerce

Act 1986.

• Commission comprises Chair (Mark

Berry), Deputy Chair, Telecoms

Commissioner, 3 x Commissioners, 2 x

Associate Commissioners, and 2 x Cease

& Desist Commissioners.

• ACCC and ComCom have a jointly

appointed Commissioner

• Commission is supported by staff.

Mergers are reviewed by the Competition

Branch under GM Kate Morrison.

• ComCom follows a prosecutorial model,

with court enforcement is required.

• The New Zealand institutional framework

is very similar to Australia.

New Zealand

How does Australia compare?

• We avoid the jurisdictional complexity of multiple

overlapping regulators (US), or a hierarchy of regulators

(EU/UK), preferring a single consolidated regulator.

• We avoid the pitfalls of politicised regulators (US/EU/UK)

by having an independent Commission comprised of

appointees with bipartisan Federal and State support.

• As with US/EU/UK regulators, mergers are reviewed by an

experienced and highly qualified staff, supported by legal

and economic teams. Decisions are made by the

Commissioners.

• EU merger review process is highly formalised and rule-

based, given the administrative model adopted and

institutional edifice. The Australian regime is more flexible.

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Chairman

Rod Sims

Deputy Chair

Delia Rickard

Deputy Chair

Michael Schaper

Commissioner

Christina Cifuentes

Commissioner

Sarah Court

Commissioner

Roger Featherston

Commissioner

Mick Keogh

and Four Associate Members

Differences in merger notification processes

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United States

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• Mandatory filing regime under the Hart-

Scott-Rodino Antitrust Improvements Act

of 1976 (HSR).

• Pre-notification required if turnover

thresholds met. Notification applies to any

party engaging in US commerce (or

activity affecting it).

• Filing based on prescribed form with fee

and requires specified documents. Filling

commences formal review.

• Merger is suspended until waiting periods

have expired.

• Phase I (30 days unless extended) and

Phase II (30 days). Phase II starts only

once ‘Certificate of Compliance’ is issued.

• Filing is a very document-intensive

process, supplemented with formal

interviews.

• Mandatory filing regime (EU Merger

Regulation). New Simplified Procedure

introduced for some transactions.

• Pre-notification required if geographic

turnover thresholds met. Notification

applies to mergers with a ‘Community

Dimension’ (multiple EU States).

• In-depth pre-notification consultation

including submissions and documents is

encouraged

• Filing based on prescribed form. Fee

payable. Filing commences formal review.

• Merger is suspended until waiting periods

have expired.

• Phase I (25 days unless extended) and

Phase II (90 days unless extended).

• Filing is extensive and detailed

submissions and documents provided.

European Union

United Kingdom

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• Voluntary notification under the Enterprise

Act 2002, administered by CMA.

• If UK turnover thresholds are exceeded or

the share of UK supply exceeds 25%, the

CMA may investigate on own initiative

within 4 months after completion/public

(ultimate risk: potential divestiture).

• Pre-notification discussions encouraged.

• Phase 1 decisions are made by the Board

within 40 days. If the CMA considers that

a merger may result in an SLC, it refers to

Phase 2. Undertakings in lieu (UIL) can

be offered after Phase 1 to avoid Phase 2

• Phase 2 decisions are made by a Panel

or ‘Inquiry Group’ within 24-32 weeks in

a more detailed review involving

consideration of remedies. The Panel is

comprised of at least 3 members (who

may not have a competition background).

• Voluntary filing regime / formal review

• No informal clearance regime. Choice

between a courtesy / formal clearance

notification or merger authorisation.

• Filing does not suspend the merger, but

ComCom can seek interim injunction.

• Pre-notification discussions encouraged

to identify information required and plan

for formal clearance.

• Filing based on prescribed form. Fee

payable. Filing commences formal review

• Formal clearances takes 40 – 60 days

(10 day statutory period extended by

agreement or risk of a deemed decline).

Authorisation 6 – 12 months.

• De-facto Phase I / Phase II regime with a

letter of concerns and potentially a letter

of unresolved issues.

New Zealand

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How does Australia compare?

• Australia has a voluntary filing regime, similar to the UK and NZ.

However, neither Australia nor NZ have “hard” merger thresholds,

instead parties identify whether there are competition issues (with

indicative filing guidance from the respective merger guidelines).

• Australia’s reliance on the informal clearance regime is also fairly

unique given the informal regime is not established under the CCA,

but is a policy adopted by the ACCC. Under this approach, the

ACCC provides no formal statutory comfort.

• There are however substantial differences in the filing requirements,

from detailed document intensive filing forms (US), to detailed

submissions (EU), to courtesy letters (AUD)

• Substantial difference in approach to pre-notification process, from a

heads-up (NZ) to a detailed substantive submission process (EU).

All regimes broadly adopt a Phase I / Phase II approach to allow a

greater focus on those mergers that raise real competition concerns.

• Australia’s informal process is flexible allowing for continual

refinement over time.

Differences in substantive analysis

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United States

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• Section 7 of the Clayton Act prohibits

acquisitions where the effect “may be

substantially to lessen competition or to

tend to create a monopoly”.

• Merger Guidelines (but now market

definition has been de-emphasised).

• Focus on whether merger would create or

enhance market power or facilitate its

exercise. Is a merger “likely to encourage

one or more firms to raise price, reduce

output, diminish innovation, or otherwise

harm customers as a result of diminished

competitive constraints or incentives” ?

• Vertical and conglomerate theories of

harm less common.

• Market concentration assessed via HHI.

• Agency may consider merger efficiencies,

but will not non-competition factors.

• The EUMR prohibits concentrations that

significantly impede effective competition

in the EEA, or a substantial part of it, in

particular as a result of the creation or

strengthening of a dominant position.

• Merger Guidelines.

• Focus on unilateral (does the merger

remove competitive constraints to the

extent the merger creates / strengthens a

dominant position) and coordinated

(mergers giving rise to collective

dominance) anti-competitive effects

• Market concentration assessed via HHI.

• The EC must (formally) consider merger

efficiencies (if substantiated) but in

practice these are less influential.

• Non-competition factors, eg industrial

policy, may feed into decision making.

European Union

United Kingdom

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• The substantive test is whether a merger

has resulted, or may be expected to

result in a substantial lessening of

competition (SLC) within a market or

markets in the UK for goods or services.

• Merger Assessment Guidelines 2010 set

out analytical approach. CMA considers

unilateral effects and co-ordinated effects,

and any vertical or conglomerate effects.

• CMA applies a ‘with and without’

counterfactual analysis. Approach is

similar to Australia.

• CMA also considers efficiencies, market

entry and expansion, and countervailing

buyer power, as with US and EU,

consistent with global best practice.

• CMA uses HHI, but also considers a

range of other market share metrics (eg

number of firms, concentration ratios).

• Section 46 of the Commerce Act 1986

(substantial lessening test).

• Merger Guidelines 2013

• Focus on market definition, concentration,

unilateral and co-ordinated effects,

contestability, countervailing power,

vertical foreclosure.

• ComCom adopts a ‘with and without’

counterfactual analysis and applies a very

similar approach to the ACCC.

• ComCom does not use HHI but refers to

indicative market concentration based on

CR3 (top 3 > 70%, merged entity > 20%;

or top 3<70%, merged entity > 40%),

hence more permissive of concentration.

• Authorisation is based on public benefits

outweighing anti-competitive detriments

New Zealand

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How does Australia compare?

• Australia’s “effects” test and concentration assessment is

essentially the same as that applied in the US/EU/UK and

consistent with international best practice.

• All regulators set out their analytical framework in merger

guidelines. Australia’s Merger Guidelines (2008) are consistent with

international best practice and other key jurisdictions.

• The US Merger Guidelines de-emphasise market definition as a

building block and focus on metrics such as upward pricing

pressure (UPP). Refinements to the ACCC’s guidelines, such as

UPP or dealing with evolving technology markets (eg network

effects) could be considered.

• Australia’s (and New Zealand’s) substantive approach takes into

account unique features of the Australian economy, including more

concentrated markets and a higher reliance on import competition.

• Differences arise in the consideration of merger efficiencies.

Australia’s authorisation process enables efficiencies (and wider

benefits) to be expressly considered, but in practice it is rarely

used. The Harper Reforms could change this.

Differences in decision-making and remedies

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United States

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• ‘Back-loaded’ review process.

• Staff recommendations with decisions by the

majority of Commissioners (FTC) or the

Assistant Attorney-General for Antitrust

(DOJ)

• Independent recommendations from Office

of General Counsel.

• HSR does not result in affirmative ‘clearance’

or ‘approval’, rather the parties are free to

close their transaction on the waiting period

expiry (and hence risk an injunction)

• Parties can offer a consent decree

(divestment remedy). Structural remedies

preferred. Behavioural remedies are less

common, but may be used for vertical

foreclosure issues.

• Less transparent processes and decisions

are not normally published.

• FTC/DOJ proceedings to block acquisitions

(3 - 6 months). Can take action at any stage.

• ‘Front-loaded’ review process.

• Staff recommendations with a Phase I

decision by Competition Commissioner, and

Phase II decisions by College of

Commissioners.

• Independent panel review and

recommendations of Phase II decisions

• Greater focus on procedural rights during

process, including third party submission

and joint EC/merger party/third party

meetings. Phase 2 access to non-

confidential file.

• Parties can offer undertakings using ‘Form

RM’. Structural remedies preferred but may

accept behavioural in limited circumstances.

• More transparent processes. Decisions are

routinely published.

• EC prohibits merger. Appeal to the General

Court on procedural and substantive

grounds, but 1-2 year delay.

European Union

United Kingdom

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• Increasingly ‘front-loaded’ review process

(due to set statutory review time-frames).

• Undertakings may be offered to remedy

any identified adverse competition

concerns at both Phase 1 (to prevent a

reference) and Phase 2 (to remedy any

adverse findings the CMA identifies

following a reference).

• Undertakings can be structural or

behavioural, but structural undertakings

are preferred if offered in Phase 1. The

CMA will also assess the cost of

remedies and proportionality.

• Decisions are made either by the Board

(Phase 1) or a Panel (Phase 2).

• Transparent process / decision published

• The CMA may make an interim order to

prevent or unwind transactions (at any

time), with penalties for non-compliance.

• ‘Back-loaded’ review process.

• Process involves staff recommendations

with a decisions by the Commission.

• Clearance and authorisation confer

statutory immunity.

• Commerce Act only allows the ComCom

to accept structural undertakings

involving divestitures of assets or shares

(typically 6-12 months).

• Merger party can proceed to close

regardless of ComCom decision, but

ComCom may take proceedings.

• More transparent processes / decision

published

• Clearance and authorisation decisions

may be appealed to the High Court by

way of rehearing. Lay member (economic

expert) appointed to assist Judge.

New Zealand

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How does Australia compare?

• The Australian merger review process enables parties to choose

whether to front or back load the process, allowing a greater

degree of flexibility.

• Each agency adopts similar internal processes with staff

investigations and recommendations supported by economic /

legal teams, with decisions by Commissioners.

• Unlike the EU/US, in Australia merger parties cannot appeal the

ACCC’s informal clearance decision. However, parties can seek a

court declaration or contest any ACCC injunction. Either option

may require the ACCC to defend its decision in Court, hence the

ACCC’s decisions are subject to checks and balances.

• The Australian informal clearance process provides significant

flexibility for remedies (either upfront or during Phase II). There is

however a difference in the tolerance for behavioural remedies (but

not NZ given statutory restrictions).

• The ACCC’s decision-making processes are world class and the

ACCC is regularly ranked as a leading competition regulator.

… and some interesting conclusions

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Do we have the best merger regime?

• From an institutional perspective, we benefit from a single consolidated and politically-

independent regulator, avoiding jurisdictional tensions between regulators.

• The ACCC’s decision making processes, substantive test, merger thresholds and

guidelines are world class and consistent with international best practice, but bespoke

to the unique features of Australia’s economy. The Guidelines could benefit from

ongoing refinement.

• The ACCC’s voluntary and informal processes create a high degree of flexibility for

merger parties, including in relation to proposed remedies. Australia could however

benefit from a greater tolerance for behavioural remedies in certain circumstances?

We avoid the complications that arise in

many of the other regimes, but that is

no excuse for complacency…

… the effectiveness of the merger

regime depends heavily on the actual

timeliness and quality of decisions.

Appendices

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Increasing complexity of global merger review

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Institutional frameworks – a useful snapshot

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Detail AUS (ACCC) US (DOJ and FTC) EU (EC) UK (MCA)

Structure of

Governing Body

Multi-Member Board Multi-Member Board (FTC)

Unitary executive (DOJ)

Unitary executive (EU) Multi-Member Board

Appointment of the

head of the authority

Appointment subject to

parliamentary approval

Appointment subject to

parliamentary approval

Presidential / Ministerial

appointment

Presidential / Ministerial

appointment

Status of the agency Stand-alone agency Stand-alone agency (TC)

Subsidiary (DOJ)

Subsidiary Stand-alone agency

Number of

competition

agencies

One enforcement agency Multiple agencies One enforcement agency One enforcement agency

Objectives

(competition, con-

sumer protection,

state aid...)

Multi-purpose Single-purpose (DOJ)

Multi-purpose (FTC)

Multi-purpose Multi-purpose

Scope of the agency Competition Policy Law Enforcement (DOJ)

Competition Policy (FTC)

Competition Policy Competition Policy

Civil or Criminal

competition law

Criminal sanction available Criminal sanction available Administrative remedies only Criminal sanction available

Integration of

functions

Prosecutorial model Prosecutorial model Integration of functions in

one entity

Integration of functions in

one entity

Review timelines (Assuming non-complex merger review)

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U.S.

EU

UK

NZ

AU

File

Formalised EC process that runs for 1-4

months depending on the complexity of the

deal

At least 2 weeks before

filing, can seek informal

advice

0-4 weeks, can

seek confidential

review

Encouraged

Encouraged

Phase I Phase II

25-35 days

40 days

25 days -

Letter of

issues

35-60 days for

public review

30 days

35-60 days (+)

weeks for post-

SOI review

15-20 days -Letter of

unresolved issues

120 days

90-125 days (3-4 months)

Extension

120 days

10

days

Pre-notification

30 daysPrepare response 1-6

months

Extension

40 days

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Merger review frameworks – a useful snapshot

Our global footprint

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0

Contact us

Dr Martyn Taylor

Partner

Norton Rose Fulbright Australia

+61 2 9330 8056

martyn.taylor@nortonrosefulbright.com

nortonrosefulbright.com

2185357227

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