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Australia's economy relies upon healthy, reliable competition to ensure businesses have incentive to provide quality services and products at affordable prices.

It also drives research, development and innovation in the market, the result of businesses seeking to remain competitive. It means consumers have choices, which is especially relevant when cost of living stress is having a significant impact on spending habits.

A recent study by Australian comparison site Finder revealed nearly 59 per cent of Australians are experiencing financial stress, (equivalent to 11.9 million people), with more pressure falling on women and those aged between 18 and 26 (Generation Z).

The Competition and Consumer Act 2010 is currently under the microscope as questions of behaviour arise that threaten genuine competition in Australia.

In February, the Independent Review of the Food and Grocery Code of Conduct 2023-2024 was launched by Treasury, tasking Dr Craig Emerson with reviewing this voluntary code under the Competition and Consumer Act 2010. In question is whether the code, introduced in 2015, needs to be amended and retained as voluntary, or redesigned as a mandatory code.

That review is in addition to the Treasury’s Competition Review, which has been investigating competition laws, policies and institutions since August 2023. The Review, including public consultations, required the Competition Taskforce to provide reports to government on areas of reform until August 2025.

The Taskforce is chaired by Kerry Schott, and includes economics, business and legal experts including John Asker, Sharon Henrick, David Gonski, John Fingleton, Danielle Wood and Rod Sims on the expert advisory panel. So far, mergers, non-compete clauses, and the aviation industry have come under query.

The forefront of championing competition

The Australian Competition & Consumer Commission (ACCC) has made numerous submissions particularly in relation to mergers. The priority for the ACCC is that the current conditions make it difficult for them to review mergers within the given time frame, and in some cases information pertinent to the proposed merger is not provided for part of the review.

Under the Competition and Consumer Act 2010, section 50 prohibits acquisitions that are likely to have the effect of substantially lessening competition in a market.

ACCC Chair Gina Cass-Gottlieb says, “A strong and effective merger regime is in the public interest. It is an essential protection in the creation and maintenance of competitive, dynamic, and resilient markets which are important for consumer confidence, and drive innovation and economic prosperity.”

“It protects Australian consumers, farmers, and small businesses from anti-competitive acquisitions, which result in higher prices, lower quality, less innovation, less choice and lower productivity across the economy.

“Strong merger laws are particularly important as many of Australia’s markets are already concentrated, and the Competition Taskforce’s merger data analysis indicates the ACCC is being notified of less than one-third of acquisitions taking place in Australia and that acquisitions are disproportionately made by very large firms – the largest 1 per cent of firms account for around half of all acquisitions – and the merger activity by large firms has increased over time.

“Some mergers can cause a long-term change in the structure of a market that results in an enduring lessening of competition, to the detriment of consumers, businesses relying on acquiring from or supplying to the merged entity, and the economy more broadly.”

Not all mergers are clear-cut and singular in nature. Whether it is circumstantial, or designed to fly under the ACCC radar, businesses that engage in serial acquisitions pose a significant threat to s50 of the Competition and Consumer Act 2010. 

Cass-Gottlieb says, “Where a business undertakes a series of acquisitions over time, these serial acquisitions cumulatively have the potential to enable the acquiring firm to achieve a position of substantial market power, and potentially erode competition in that market.”

“Serial acquisitions have been prevalent across a broad range of industries in Australia, including grocery retailing, funeral homes, childcare, pathology, fuel retailing, hardware, liquor retailing, large digital platform service providers, pet supplies and services, and cancer treatment.

“In some of these markets, despite the appearance of competition because of multiple brands, consumers are not aware that they are in fact choosing between multiple brands owned by the same firm or a small number of firms.”

As a spokesperson for the ACCC tells LSJ, their submissions refer to multiple cases that exemplify the shortcomings in current merger regime.

Their January 2024 submission contains examples of challenges of the current merger regime, including non-notification of mergers such as the case of Primary Healthcare Limited and Healthscope (which resulted in Primary Healthcare Limited to divest pathology services to Medlab Pathology Pty Ltd to comply with section 50).  The ACCC found that Healthscope’s pathology business in Queensland provided a significant competitive constraint on Primary and Sonic Healthcare Limited, the two major full-service pathology providers in that state.

In December 2023, the ACCC accepted a court-enforceable undertaking from Petstock Pty Ltd to divest a package of sites and assets, including 41 retail stores, following the ACCC’s enforcement investigation into past acquisitions by Petstock. These acquisitions only came to light after Woolworths’ proposed acquisition of 55 per cent of Petstock Pty Ltd.

“Shortly after the ACCC commenced its review of Woolworths’ proposed acquisition of a majority interest in Petstock, it emerged that Petstock had completed a large number of acquisitions in the pet industry in recent years that had not been notified to the ACCC. In March 2023, the ACCC began investigating those previous acquisitions,” Cass-Gottlieb said.

After the ACCC raised these competition concerns with Petstock and Woolworths, they each offered to provide court-enforceable undertakings to resolve the concerns.

“Under the current informal merger regime in Australia, there is no law requiring merger parties to notify the ACCC of proposed mergers and acquisitions or to wait for clearance before they can proceed,” Cass-Gottlieb said.

“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.”

The January submission also raised concerns over the timing pressures on the review and threats to complete mergers without approval.

Major IVF providers Virtus and Adora proposed to complete the merger transaction despite an incomplete review by the ACCC in October 2021. Consequently, then-ACCC Chair Rod Sims said, “Situations like this demonstrate why we believe Australia needs a formal merger regime, under which companies cannot complete transactions which raise potential competition issues before they allow adequate time for ACCC approval.”

In their January 2024 submission, the ACCC argued that “the current informal voluntary enforcement-based regime is no longer fit for purpose. The Competition Taskforce’s data analysis confirms that the ACCC only has partial visibility of merger activity in Australia – with many more mergers occurring each year over the past decade than the number notified to the ACCC under the informal merger regime.”

Apart from Petstock and Healthscope, another merger not notified to the ACCC was Qantas’ acquisition of a 19.9 per cent holding in Alliance Airlines.

At present, the ACCC is seeking public response before March 28 2024 to the proposed merger of Sigma Healthcare Limited and CW Group Holdings Limited (Chemist Warehouse).

ACCC priorities for 2024

As addressed in the ACCC submissions of both March and December 2023, a spokesperson for the ACCC tells LSJ the three key steps to a more functional and effective competition regulatory approach in Australia would require:

  • An administrative regime with the ACCC as the first instance decision maker, with review by the Tribunal available to merger parties and third parties. This would address some of the issues regarding the enforcement-based model and information deficiencies during the review stage;
  • A mandatory and suspensory regime: A requirement for merger parties to notify the ACCC of mergers that meet clear, certain and objective thresholds for notification; and not to complete the transaction without ACCC or Tribunal approval and;
  • An updated approval test that more appropriately places the risk of uncertainty about the future with the merger parties rather than consumers and suppliers, including farmers, small business and manufacturers.

Earlier this month, Cass-Gottlieb announced consumer and competition issues in the supermarket sector and essential services including electricity and financial services are among the ACCC’s compliance and enforcement priorities for 2024.

“We recognise the importance of strong enforcement outcomes in achieving specific and general deterrence of conduct prohibited by the Act and in ensuring that consumers, business and the wider community continue to have confidence in our market economy,” she said.