On 27 March 2020, the competition watchdog published its stance on merger proposals during the COVID-19 pandemic (among other things). The Australian Competition and Consumer Commission’s (ACCC) policy statement comes in light of the impact the pandemic is having on companies’ finances and operations, which is expected to increase merger proposals and potentially anti-competitive increases in market power.
The ACCC stated:
We expect that the current market environment is also likely to result in additional merger proposals related to concerns and uncertainty regarding the ongoing financial health of some firms. Where such mergers are proposed, we will assess each on a case-by-case basis. Importantly, this will take into account not only the present situation but also the longer term impact on competition of any change in the structure of markets. This assessment goes beyond the current impact of the crisis on the profits and share value of the merger parties. 1
In short, the ACCC has indicated that proposed-merger parties should not expect relaxed treatment because a party may be struggling or approaching failure due to the economic fallout of COVID-19.
In other words, the fact a company is experiencing cashflow or financial difficulties during the pandemic does not, of itself, justify a merger. The ACCC will look beyond the immediate impact of COVID-19 on merger parties and will continue to follow its approach of evaluating the longer-term effect of the merger on competition in the respective marketplace.
The Chairman of the ACCC, Rod Sims, has previously condoned the “failing firm” justification for a merger in the context of technological disruption, stating it is ‘very much the exception’.2 It can be expected the ACCC will uphold this stance in the event “failing firms” seek merger approval to survive the COVID-19 pandemic.
Mr Sims re-affirmed the commission’s position in a speech on 30 March 2020. He said:
‘The ACCC will play its part in merger assessments. Do not expect a different, or lenient approach to merger assessments during this crisis. Our objective will be to protect the competitive structure of the economy and not to see anti-competitive increases in market power, or the rise of so-called ‘national champions’. 3
As at the date of this alert, the ACCC has not been approached with a merger proposal that has forced it to publicly apply its new policy. Nonetheless, the ACCC may expect to be making difficult decisions in the near future as the effects of COVID-19 continue to be revealed.
While upholding competition is the mandate of the ACCC, that is not to say it has remained rigid in its policies. The ACCC has authorised various companies that are in competition to co-operate and co-ordinate operations in order to address the challenges presented by COVID-19. For example, on 24 April 2020 the ACCC permitted members of the Minerals Council of Australia and other mining associations to work together to manage ‘critical services and supplies’ during the COVID-19 pandemic because of shortages and supply chain disruptions. Even so, based on the Chairman’s own words it appears unlikely the watchdog will extend such leniency to merger proposals.
If you’re considering a merger or acquisition, keep in mind the ACCC’s overarching policy, to maintain competition in the long term. This will dictate the success of your proposal, irrespective of COVID-19.
If the ACCC is already engaged with your proposal, it recommends you regularly update it with any changes to timing or the likelihood of the merger proceeding under current market conditions.
If you’re contemplating a merger or acquisition and would like further advice regarding the ACCC’s policies and how they may apply to your transaction, please contact our Mergers & Acquisitions team.
1 ACCC Media Release, “COVID-19 pandemic – what it means for ACCC merger clearances, authorisations, notifications and CTMs”, 27 March 2020, URL: https://www.accc.gov.au/update/covid-19-pandemic-what-it-means-for-accc-merger-clearances-authorisations-notifications-and-ctms
2 Australian Financial Review, “ACCC chair Rod Sims says failing firms need a better excuse to support mergers”, 9 January 2017 (interview between the Australian Financial Review and Rod Sims), URL: https://www.afr.com/companies/accc-chair-rod-sims-says-failing-firms-need-a-better-excuse-to-support-mergers-20170109-gto2pe
3 Speech by Mr Rod Sims to the Australian Financial Review Banking & Wealth Summit Crisis Briefing, “Will competition survive the current crises”, 30 March 2020, URL: https://www.accc.gov.au/speech/will-competition-survive-the-current-crises