Business hopes ACCC's court loss will pave way for new process in merger reviews
The lawyers who advise Australian companies on mergers and acquisitions hope the Australian Competition and Consumer Commission's comprehensive loss to Metcash in the Federal Court will produce a permanent shift in the balance of power between the regulator and their clients.
The lawyers who advise Australian companies on mergers and acquisitions hope the Australian Competition and Consumer Commission's comprehensive loss to Metcash in the Federal Court will produce a permanent shift in the balance of power between the regulator and their clients.Specifically, they hope the ACCC will change its informal merger clearance process by providing companies with detailed evidence when it opposes a transaction.The business community complains that the regulator has too much power during its informal reviews - and uses it to keep its cards close to its chest - because challenging the ACCC in court can take more than a year. Few vendors or merger partners are prepared to sit out the uncertainty.When the ACCC opposed NAB's purchase of AXA's Australian business during its informal review last year, for example, the deal was terminated and AMP bought it instead.The Metcash case was an exception because Pick 'n Pay Retailers, the South African owner of the target company, Franklins, believed Metcash was the only viable purchaser.Pick 'n Pay's lawyer, the Blake Dawson partner Peter Armitage, has told his clients not to expect the ACCC's loss to result in a significant increase in companies taking it to court. Such challenges would remain rare, he said, confined to deals where the vendor has limited options.But if the ACCC changed its rules, the ramifications of the case could be wide. The regulator might be tempted, because Justice Arthur Emmett's decision shows that the balance of power can shift away from it once a case gets into court.This week Metcash's lawyers, the Freehills partners Michael Gray and Grant Marjoribanks, commended the ACCC for "perhaps reluctantly" meeting the expedited timetable set by Justice Emmett at their client's request.There's no doubt the speed of the case worked in favour of the defence. One example is that the ACCC applied to make a significant change, which the judge refused, to its definition of the relevant market after much of the evidence had been presented.Another is the weakness of the evidence from its witnesses.After Lou Jardin, of SPAR Australia, left the witness box, the ACCC abandoned its submission that SPAR was a credible alternate bidder for Franklins.Metcash knew Jardin - who left it to join a small rival on bad terms - much better than the ACCC and used that knowledge to great tactical effect.Witnesses for the ACCC's second alternate bidder, a consortium of independent supermarket operators, did not persuade the judge they could mount a credible offer.The business argument goes that if the ACCC provided more evidence during its informal review, it would reduce its risk of losing so comprehensively in court.The collateral benefit to the companies is that they would have a much better idea at the informal stage of the case against them.This would allow them to put up a more vigorous fight at that point and give them a sounder base for pursuing the risky course of a court challenge.A hurdle for the ACCC in agreeing to change its ways is the vulnerability of its witnesses.Many Metcash customers refused to co-operate with the regulator, and only gave evidence after the court issued subpoenas.The ACCC told the judge they feared retaliation by Metcash.Three companies who would be delighted with immediate reform to the merger clearance rules are Foxtel, Austar and Austar's major shareholder, Liberty Global.The Foxtel-Austar merger already fits the bill for a court challenge because Foxtel is the most obvious purchaser of Austar, and Liberty could consider a delay worthwhile.But they would love an early opportunity to test the ACCC's evidence during the informal review now under way.Their position is strengthened by Justice Emmett's ruling on the standard required to prove that a merger is "likely" - the term used in the Competition and Consumer Act - to result in a substantial lessening of competition.As in Metcash, if Foxtel gets to court the ACCC will have to convince a judge it is more likely than not that its scenarios will unfold. Foxtel and Liberty will be happy to raise the spectre of the ACCC's evidence going the way of its scenarios about Franklins.Plenty of other companies and their lawyers will be right behind them, pushing the regulator to make permanent changes that would benefit common mergers as well as rare ones.