RECENT TRENDS IN COMPLEX ACCC MERGER REVIEW CASES FEBRUARY 2017

Transcription

1 RECENT TRENDS IN COMPLEX ACCC MERGER REVIEW CASES FEBRUARY 2017

2 AUTHOR THIS REPORT SAR KATDARE Partner T sar.katdare@jws.com.au Sar has over 17 years experience advising multinational and ASX-listed clients on all aspects of competition and consumer law. He has been involved in landmark cases relating to mergers, cartels, misuse of market power and access to infrastructure. He is consistently ranked in international directories including Chambers (Asia Pacific) and Legal 500 and was the 2017 winner of the Client Choice Awards for Antitrust/Competition. ACKNOWLEDGEMENTS We are pleased to share with you our inaugural report on recent trends in complex merger review cases by the Australian Competition and Consumer Commission (ACCC). This report provides a complete statistical analysis of ACCC merger review decisions which involve the publication of a Statement of Issues (SOI) since they were first published in 2005 and the use of the traffic light system to indicate the ACCC s preliminary competition concerns. Generally, the ACCC will only issue a SOI in relation to transactions that raise serious or complex competition concerns. Accordingly, SOIs make up a small proportion of the total number of transactions considered by the ACCC in any given year. A SOI provides a strong indication of the ACCC s preliminary views as to whether a proposed transaction may have competition concerns or is likely to be granted informal clearance. The ACCC s views in a SOI are classified under the following traffic light system: issues likely to be of concern (red light); issues that may be of concern (orange light); and issues unlikely to be of concern (green light). This report outlines the recent trends in complex merger cases including a statistical analysis of the likelihood of SOI transactions being cleared or opposed, with or without remedies on the basis of their classification under the traffic light system. The report also provides a statistical analysis of the timing of the ACCC informal merger review process, based on the traffic light system. The findings in this report should not be relied upon as an accurate predictor of future ACCC merger decisions. Rather they should be considered together with a legal analysis of the substantive competition law issues involved in any particular case. A special thank you to the tireless efforts of Jaime Campbell and Jesse McNaughton over the course of many months in preparing and finalising this report. Thanks also to Tara Gazzard, Jessica Mitchell and Jessica Proudman for their invaluable contributions. 2

3 COMMENTARY Introduction For many years, the ACCC s informal merger review process has been the most important regulatory process in Australia in ensuring that transactions result in efficient market outcomes and do not substantially lessen competition in any relevant market. That process has developed and changed over the last decade both with the economy and the sophistication of merger parties and the ACCC itself. While the significant majority of transactions are cleared by the ACCC without the need for a SOI, there are several transactions each year that result in the ACCC publishing its preliminary concerns in a SOI. In relation to these more complex transactions (where a SOI is involved), what are the latest trends? The ACCC is generally taking longer than ever before to make a final decision for a SOI transaction. Indeed, in 2016, the average time taken to make a final decision for a SOI transaction was the fourth highest in history and almost one month above average. There are likely to be many reasons for why the ACCC is taking longer to make its decisions in SOI transactions: firstly, the ACCC is increasingly clearing transactions without public review. This means that those transactions that justify the publication of a SOI are generally the most complex. As a result, even though the number of SOI transactions are not increasing, the average time taken by the ACCC to consider them has generally increased. Secondly, in 2010, the ACCC amended the informal review process to improve the transparency of its decision-making (by ensuring competition concerns were set out in writing). Since that time, there has been a clear trend of SOI transactions taking much longer. Thirdly, while the total number of transactions before the ACCC has not materially changed over time, the rigour with which the ACCC examines transactions has increased. This, combined with the practice of Chairman Rod Sims (since 2011) of allowing parties to stop the clock on transactions rather than pushing through to decision (which was the practice of the former Chairman, Graeme Samuel), has resulted in more time for the consideration of SOI transactions. Finally, increased concentration in key markets as a result of merger activity over time in those markets has resulted in the ACCC having to address more complex issues for each successive merger in such markets. This has naturally resulted in increased timeframes in SOI transactions. Red lights are not fatal half have been cleared and only one quarter blocked. Since 2005, of all transactions with one or more red lights have been cleared by the ACCC while only 26% have been blocked. Red lights do not necessarily mean that the offer of remedies is the only way to obtain clearance. Since 2005, almost half (41%) of all cleared transactions with one or more red lights have not required any remedy. The ACCC still prefers divestments over behavioural undertakings. This is not surprising given that the ACCC is often reluctant to be tasked with monitoring compliance with undertakings. While several years ago there was a view that the ACCC was more willing to accept behavioural remedies, our analysis does not reflect this. In fact, for almost half of all cleared transactions with one or more red lights, a divestment remedy was required. Only 4 of 34 red light cleared transactions involved behavioural remedies (with 1 of 34 cleared with a combination of both). The large majority of orange light (no red light) transactions have been cleared by the ACCC. 68% of all transactions with one or more orange lights (but no red lights) have been cleared by the ACCC while only 13% have been blocked. Almost every orange light transaction that has been cleared by the ACCC did not require a remedy. 94% of all cleared orange light transactions (30 of 32) did not require any remedy. The remaining two transactions required remedies (one divestment, one behavioural). 3

4 KEY OBSERVATIONS RED LIGHT TRANSACTIONS of all transactions with a red light have been cleared by the ACCC. 26% of all transactions with a red light have been blocked by the ACCC. Of all cleared red light transactions, 41% did not require a remedy. Of all cleared red light transactions, 44% required a divestment remedy. ORANGE LIGHT TRANSACTIONS 68% of all transactions with an orange light have been cleared by the ACCC. QUALIFICATIONS 13% of all transactions with an orange light have been blocked by the ACCC. Of all cleared orange light transactions, 94% did not require a remedy. Of all cleared orange light transactions, 6% required a remedy. All data has been sourced from SOIs available on the ACCC s mergers register since 2005 as at 31 January Data only relates to transactions where a SOI has been issued and the traffic light system has been adopted. Transactions that have been cleared by the ACCC without a SOI have not been considered. While these may include global mergers or transactions where remedies have been offered upfront, our findings are unlikely to change materially even if we considered these transactions. For timing statistics, withdrawn merger applications have not been considered. Statistics are based on figures that have been rounded to the closest month. SOIs which do not classify the ACCC s concerns under the traffic light system have not been considered. Industry categories do not necessarily match the industry designated by the ACCC. AVERAGE TIMING FOR ACCC DECISIONS 4.7 months for all ACCC decisions (with SOI). 5.1 months where the SOI has a red light. 5.3 months for all cleared ACCC decisions where the SOI has a red light. 5.8 months where the SOI has a red light and remedies were required. 4.6 months where the SOI has a red light and no remedies have been required. 4.1 months where the SOI has an orange light (but no red light). 4

5 KEY OBSERVATIONS cont. INDUSTRY ANALYSIS Transactions in the following industries have received the most SOIs: grocery, health, retail, industrial, media and infrastructure. These sectors make up 51% of all SOIs since Transactions in the following industries have had the lowest ACCC clearance rate: grocery (42%) and finance (38%). Transactions in the following industries have had the highest ACCC clearance rate: media (89%), and transport and tourism (71%). YEAR BY YEAR The ACCC is generally taking longer to consider SOI transactions. For example, since 2005 the time taken has increased from: -- 3 to 5 months (approximately) for all decisions; -- 4 to 7 months (approximately) for red light transactions; and -- 2 to 4 months (approximately) for orange light transactions. The number of SOIs issued in any given year does not necessarily correspond to the length of time taken by the ACCC to make a decision. 5

6 RED LIGHT STATISTICS CLEARANCE ANALYSIS There have been 115 SOIs published by the ACCC since Of those 115 SOIs, 68 had one or more red lights. Of those 68 red light SOIs: 34 were not opposed 18 were opposed 16 were withdrawn Not opposed Opposed Withdrawn 6

7 RED LIGHT STATISTICS cont. REMEDY ANALYSIS There have been 115 SOIs published by the ACCC since Of those 115 SOIs, 68 had one or more red lights. Of those 68 red light SOIs, 34 were not opposed. No remedy Divestment Behavioural Combination Of the 34 red light SOIs that were not opposed: 14 required no remedy 15 required divestments 4 required behavioural undertakings 1 involved a combination of remedies 7

8 ORANGE LIGHT STATISTICS CLEARANCE ANALYSIS There have been 115 SOIs published by the ACCC since Of those 115 SOIs, 47 had one or more orange lights (but no red lights). Not opposed Opposed Withdrawn Of those 47 orange light SOIs: 32 were not opposed 6 were opposed 9 were withdrawn 8

9 ORANGE LIGHT STATISTICS cont. REMEDY ANALYSIS There have been 115 SOIs published by the ACCC since Of those 115 SOIs, 47 had one or more orange lights (but no red lights). Of those 47 orange light SOIs, 32 were not opposed. No remedy Divestment Behavioural Of the 32 orange light SOIs that were not opposed: 30 required no remedy 1 required divestments 1 required behavioural undertakings 9

10 INDUSTRY STATISTICS Telecommunications 2.6% Entertainment 2.6% Energy 2.6% Petrol 2.6% Grocery 10.4% Agriculture 4.3% Liquor 3.5% Industrial 8.7% Resources 4.3% Transport & Tourism 6.1% Health 8.7% SOIs BY INDUSTRY There have been 115 SOIs published by the ACCC since Below is a breakdown of SOIs by industry: Grocery 10.4% Transport & Tourism 6.1% Food & Beverage 6.1% Media 7.8% Industrial Health 8.7% 8.7% Resources Agriculture 4.3% 4.3% Media 7.8% Liquor 3.5% Packaging 7. Infrastructure 7.8% Infrastructure Retail Finance 7.8% 7.8% 7.1% Entertainment Energy Telecommunications 2.6% 2.6% 2.6% Finance 7.1% Retail 7.8% Packaging Food & Beverage % Petrol 2.6% 10

11 INDUSTRY STATISTICS cont. ACCC CLEARANCE RATE NUMBER OF SOIs PUBLISHED Not opposed (percentage) Opposed/withdrawn 11

12 TIMING STATISTICS AVERAGE TIME ALL SOI DECISIONS Filing to SOI SOI to decision Total time Mean line MONTHS Note, only completed decisions are included in timing statistics. Withdrawn applications are not included. 12

13 TIMING STATISTICS RED LIGHTS AVERAGE TIME RED LIGHTS AVERAGE TIME CLEARED RED LIGHTS MONTHS AVERAGE TIME CLEARED RED LIGHTS (WITH REMEDIES) MONTHS MONTHS MONTHS Filing to SOI SOI to decision Total time Mean line AVERAGE TIME CLEARED RED LIGHTS (WITHOUT REMEDIES) Note, only completed decisions are included in timing statistics. Withdrawn applications are not included. For years with no plot points there were no recorded decisions for that year. 13

14 TIMING STATISTICS ORANGE LIGHTS Filing to SOI SOI to decision Total time Mean line AVERAGE TIME ORANGE LIGHTS AVERAGE TIME CLEARED ORANGE LIGHTS MONTHS MONTHS Note, only completed decisions are included in timing statistics. Withdrawn applications are not included. 14

15 YEAR BY YEAR STATISTICS MONTHS NUMBER OF SOIs PUBLISHED MONTHS NUMBER OF RED LIGHT SOIs PUBLISHED Note, only completed decisions are included in timing statistics. Withdrawn applications are not included. 15

16 INDUSTRY STATISTICS AGRICULTURE Of the 5 decisions in the agriculture industry, 3 were red light SOIs. Of the 3 red light SOIs: 1 was not opposed 1 was withdrawn ENERGY Of the 3 decisions in the energy industry, all 3 were red light SOIs. Of those 3 red light SOIs: 1 was not opposed 1 was withdrawn ENTERTAINMENT Of the 3 decisions in the entertainment industry, 2 were red light SOIs. Of those 2 red light SOIs: 1 was not opposed FINANCE Of the 8 decisions in the finance industry, 3 were red light SOIs. Of those 3 red light SOIs: 2 were opposed 1 was withdrawn FOOD & BEVERAGE Of the 7 decisions in the food & beverage industry, 5 were red light SOIs. Of the 5 red light SOIs: 3 were not opposed 1 was withdrawn RED LIGHTS Not opposed 33% 33% 34% 33% 33% 34% 33% 67% Opposed Withdrawn 33% 33% ORANGE LIGHTS 2 Not opposed Opposed Withdrawn Of the 5 decisions in the agriculture industry, 2 were orange light SOIs. Of those 2 orange light SOIs, both were not opposed. Of the 3 decisions in the energy industry none were orange light SOIs. Of the 3 decisions in the entertainment industry, 1 was an orange light SOI. That orange light SOI was not opposed. Of the 8 decisions in the finance industry, 5 were orange light SOIs. Of those 5 orange light SOIs: 4 were not opposed Of the 7 decisions in the food & beverage industry, 2 were orange light SOIs. Of those 2 orange light SOIs: 1 was not opposed 16

17 INDUSTRY STATISTICS cont. GROCERY Of the 12 decisions in the grocery industry, 6 were red light SOIs. Of those 6 red light SOIs: 2 were not opposed 4 were opposed HEALTH Of the 10 decisions in the health industry, 7 were red light SOIs. Of those 7 red light SOIs: 3 were not opposed 2 were opposed 2 were withdrawn INDUSTRIAL Of the 10 decisions in the industrial industry, 8 were red light SOIs. Of those 8 red light SOIs: 5 were not opposed 3 were withdrawn INFRASTRUCTURE Of the 9 decisions in the infrastructure industry, 5 were red light SOIs. Of the 5 red light SOIs: 4 were not opposed 1 was withdrawn RED LIGHTS 33% 43% 29% 37% % 2 Not opposed Opposed Withdrawn 67% 29% 63% 8 ORANGE LIGHTS Not opposed Opposed Withdrawn 33% 17% 33% 67% Of the 12 decisions in the grocery industry, 6 were orange light SOIs. Of those 6 orange light SOIs: 3 were not opposed 2 were withdrawn Of the 10 decisions in the health industry, 3 were orange light SOIs. Of those 3 orange light SOIs: 2 were not opposed Of the 10 decisions in the industrial industry, 2 were orange light SOIs. Of those 2 orange light SOIs: 1 was not opposed Of the 9 decisions in the infrastructure industry, 4 were orange light SOIs. Of those 4 orange light SOIs: 2 were not opposed 2 were withdrawn 17

18 INDUSTRY STATISTICS cont. LIQUOR Of the 4 decisions in the liquor industry, 2 were red light SOIs. Of those 2 red light SOIs: 1 was not opposed 1 was withdrawn M E D I A Of the 9 decisions in the media industry, 5 were red light SOIs. Of those 5 red light SOIs: 4 were not opposed PACKAGING Of the 8 decisions in the packaging industry, 2 were red light SOIs. Of those 2 red light SOIs: 1 was withdrawn PETROL Of the 3 decisions in the petrol industry 2 were red light SOIs. Of those 2 red light SOIs: 1 was not opposed 2 2 RED LIGHTS Not opposed Opposed Withdrawn 8 ORANGE LIGHTS Not opposed Opposed Withdrawn 33% 10 67% 10 Of the 4 decisions in the liquor industry, 2 were orange light SOIs. Of those 2 orange light SOIs: 1 was withdrawn Of the 9 decisions in the media industry, 4 were orange light SOIs. Of those 4 orange light SOIs, all were not opposed. Of the 8 decisions in the packaging industry, 6 were orange light SOIs. Of those 6 orange light SOIs: 4 were not opposed 2 were withdrawn Of the 3 decisions in the petrol industry, 1 was an orange light SOI. That orange light SOI was not opposed. 18

19 INDUSTRY STATISTICS cont. RESOURCES Of the 5 SOI decisions in the resources industry, 1 was a red light SOI. That red light SOI was withdrawn. RETAIL Of the 9 SOI decisions in the retail industry, all 9 were red light SOIs. Of those 9 red light SOIs: 6 were not opposed 2 were opposed 1 was withdrawn TELECOMMUNICATIONS Of the 3 decisions in the telecommunications industry, 2 were red light SOIs. Of those 2 red light SOIs: 1 was not opposed 1 was withdrawn TRANSPORT & TOURISM Of the 7 decisions in the transport tourism industry, 3 were red light SOIs. Of those 3 red light SOIs: 1 was not opposed 1 was withdrawn 11% RED LIGHTS 22% 33% 34% 33% Not opposed Opposed Withdrawn % 67% 33% ORANGE LIGHTS Not opposed Opposed Withdrawn Of the 5 decisions in the resources industry, 4 were orange light SOIs. Of those 4 orange light SOIs: 2 were not opposed 2 were withdrawn Of the 9 decisions in the retail industry, none were orange light SOIs. Of the 3 decisions in the telecommunications industry, 1 was an orange light SOI. That orange light SOI was not opposed. Of the 7 decisions in the transport tourism industry, 4 were orange light SOIs. Of those 4 orange light SOIs, all 4 were not opposed. 19

20 OUR TEAM OUR DEALS JOHN KENCH Partner T john.kench@jws.com.au ALDO NICOTRA Chairman T aldo.nicotra@jws.com.au Bayer AG Advising on ACCC clearance of proposed $88 billion acquisition of Monsanto. Brookfield Infrastructure Advised on ACCC clearance for $9 billion acquisition of Asciano. SAR KATDARE Partner T sar.katdare@jws.com.au MICHELE LAIDLAW Partner T michele.laidlaw@jws.com.au Supabarn Advised on ACCC clearance for $100 million acquisition by Coles Supermarkets. Qantas Airways Multi-jurisdictional antitrust clearances for $2-3 billion global strategic partnership with Emirates (Australia, New Zealand, EU, US). TOM JARVIS Partner T tom.jarvis@jws.com.au WOLFGANG HELLMANN Special Counsel T wolfgang.hellmann@jws.com.au Jetstar Airways Multi-jurisdictional antitrust clearances for $500 million coordination strategy between 9 airlines in Asia (Australia, New Zealand, Singapore, Taiwan, Japan, China and Vietnam). Continental AG Advised on ACCC clearance for 1.4 billion global acquisition of Veyance Technologies Inc. Yahoo! Advised on ACCC clearance for $275 million global search agreement with Microsoft. Invocare Advised on ACCC clearance for $325 million acquisition of Bledisloe. 20

21 ABOUT US JOHNSON WINTER & SLATTERY OUR MAJOR PRACTICE AREAS OUR CLIENTS OUR REPUTATION I ve never felt so comfortable with a law firm as with these guys: it feels like they re part of our team and I ve no hesitation in recommending them. Client feedback CHAMBERS GUIDE (ASIA PACIFIC) 2016 Johnson Winter & Slattery represents Australian and international clients on their most strategic, complex and demanding transactions and disputes throughout Australia and surrounding regions. Our business model distinguishes us from our rivals. At the heart of our approach is the recognition that when managing strategic and complex matters, superior outcomes are achieved through the hands-on involvement of expert senior lawyers. We therefore maintain a higher ratio of senior to junior lawyers than our rivals and focus on assignments that are well suited to this low leverage structure. With offices in Sydney, Perth, Melbourne, Brisbane and Adelaide, the firm draws upon a national team to ensure the most appropriate skills are brought to bear on each assignment. Our major practice areas reflect those aspects of corporate and commercial law most strategically important to our clients in the Australian context, namely: Corporate (mergers and acquisitions, finance, advisory and debt and equity capital markets) Competition Energy, Resources & Infrastructure Dispute Resolution Taxation These major practice areas are supported by specialist insolvency & reconstruction, employment, property, and IP lawyers. Our clients have operations in Australia and fall into four broad categories: ASX listed and foreign corporations substantial privately owned corporations not for profit organisations such as universities, industry bodies and charitable and cultural organisations Australian government, government agencies and regulators. The firm draws upon a national team to ensure the most appropriate skills are brought to bear on each assignment. They have a detailed understanding of issues facing our industry, and a deep knowledge of competition law. Client feedback THE LEGAL 500 (ASIA PACIFIC)

22 February 2017 SYDNEY PERTH MELBOURNE BRISBANE ADELAIDE jws.com.au