An overview of the current issues and methodology for obtaining a merger and acquisition clearance from the Australian Competition and Consumer Commission in Australia.

1. FINANCIAL INSTITUTIONS
ENERGY
INFRASTRUCTURE, MINING AND COMMODITIES
Obtaining M&A clearances in 2012:
TRANSPORT
TECHNOLOGY AND INNOVATION
PHARMACEUTICALS AND LIFE SCIENCES
Adopting an ACCC strategy and other practical issues
Dr Martyn Taylor
Partner
August 2012
© Norton Rose Australia

2. Overview
1. When do competition issues arise in M&A ?
2. The nature and role of the ACCC
Dr Martyn Taylor
3. Obtaining regulatory comfort Partner
+61 2 9330 8056
martyn.taylor@nortonrose.com
4. Merger guidelines and analysis
5. Strategy for mergers with significant competition issues
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3. When do competition issues arise in M&A ?

4. Pre-contractual phase
SCOPING 1. Ensure any exclusivity is reasonable and proportionate.
• Exclusivity agreement 2. Do not allow competitors to share or discuss price sensitive
information (includes structures, discounts, rebates, credits).
• Confidentiality agreement
3. Identify if an ACCC clearance is likely to be required.
• Negotiation records
4. If the merger will raise significant ACCC issues, take early
• Term sheets steps to educate deal team and maintain legal privilege.
1. Expressly include ACCC clearance conditionality: some
PREPARATION types of options are still treated as acquisitions of an
equitable interest by Competition & Consumer Act 2010.
• Heads of agreement
2. Competitors must remain at arms length until deal is
• Due diligence completed with no co-ordination of activities or sharing of
competitive information. Likewise with vertical supply.
• Acquisition finance
3. Norton Rose has a precedent titled “Protocol for Accessing
• Document negotiation Information Pre-completion” (#13360652).
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5. Due diligence
1. Any unidentified contraventions of the Competition & Consumer Act ?
• any co-ordination between competitors, particularly pricing, bidding, supply or customers
• joint ventures in respect of joint marketing only, with no joint production or supply
• long-term contracts covering a large proportion of market output
• key facilities to which competitors are being denied access, notwithstanding requests
• third line forcing (force to buy from others) or resale price maintenance (specify resale price)
2. Any identified contraventions of the Act, litigation or compliance concerns ?
• any mentions of correspondence with the ACCC
• any current or historical ACCC investigations or litigation in which target has been involved
• check for existence of a compliance programme or evidence of compliance training
3. Any historic undertakings given to the ACCC (or conditional authorisations received from
ACCC) that may restrict business activities ?
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6. Competition advice
Policy mischief:
• Firms with substantial market power (SMP) can raise prices
and reduce output to extract value from consumers.
• Firms can achieve SMP by acquiring their competitors (or by Statutory elements:
vertically integrating across markets).
1. Acquisition of shares or
assets
Section 50 of the Competition & Consumer Act 2010 (Cth):
2. Actual or likely effect on
• A corporation/person must not directly or indirectly acquire: an Australian market
• shares in the capital of a body corporate/corporation; or:
3. Substantial lessening of
• any assets of any corporation/person, competition in market
• if the acquisition would:
• have the effect; or CCA does regulate
• be likely to have the effect, offshore acquisitions in
some circumstances.
• of substantially lessening competition in a market.
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7. Implementation
Method of acquisition Key consequence if competition issues arise
Private treaty (e.g., asset An ACCC clearance condition should be included as a condition
sale; or share sale for precedent in the share or asset sale and purchase agreement.
unlisted coy ≤ 50 members)
Off-market (friendly) An ACCC clearance condition should be included in the bidder‟s
takeover bid statement as a defeating condition of the takeover bid.
Off-market hostile takeover As above, but a strategy will also be required to manage the risk of
bid the target company adversely lobbying ACCC and raising concerns.
Market (takeover) bid Conditions are not permitted, hence any ACCC clearance must be
obtained before an on-market takeover bid is made.
Scheme of arrangement An ACCC clearance condition should be included in the scheme of
arrangement as a defeating condition.
19% then „creep‟ at 3% Analysis required to determine when an ACCC clearance is
every 6 months required. Potential to be converted to market bid (see above).
Not a substantial The low voting shareholding is unlikely to raise any concerns, but
shareholder (<5% voting s50 does not have shareholding thresholds (rather whether a
interest) competition issue arises is determined on the facts).
NB. The ACCC clearance condition may need to contemplate alternative strategies to obtain regulatory comfort for more
complex mergers, or the parties may waive the ACCC clearance condition if successful with an alternative strategy.
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8. M&A in joint ventures
• Joint ventures will be caught under the merger provisions of the
CCA where they involve the acquisition of shares or assets, eg: JV co-ordination
arrangements need to
• assets may be acquired by an incorporated JV entity; be carefully structured
given the risk of
criminal liability for a
• joint venturer in an unincorporated JV may take a
contravention of the
participating interest (as tenant in common) in assets. cartel provisions.
• Other provisions of the CCA will also normally need to be This requires, for
considered in relation to JVs, including: example, that relevant
JV provisions are in a
• cartel provisions and exclusionary provisions (e.g., joint contract and for the
pricing, joint marketing, joint supply/acquisition, co- purpose of a supply or
ordination of output); production JV.
• various defences that are available for JVs; and The provisions must
not have the likely
• provisions dealing with anti-competitive arrangements. effect of substantially
lessening competition.
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9. Restraints of trade in S&P contracts
• Two issues with restraints in sale and purchase (S&P) contracts:
• must fall within exemption in Competition & Consumer Act (CCA); and
• must comply with common law doctrine of restraint of trade.
• CCA, s51(2)(e) - “In determining whether a contravention of a provision of
this Part… has been committed, regard shall not be had…in the case of a
contract for the sale of a business or of shares…to any provision of that
contract that is solely for the protection of the purchaser in respect of Example of restraint:
the goodwill of the business”.
Vendor agrees not to
• Common law doctrine, in effect, requires restraints to be reasonable and compete with
proportionate to their purpose. Requires some thought as to appropriate Purchaser for a
period of 3 years
breadth of the restraint to protect the goodwill of the business (e.g., what is
throughout Australia
area of competition, geographic extent, appropriate duration).
in markets X, Y, Z.
• Ladder and severability clauses are frequently included where the breadth Is this reasonable to
of the restraint could be unreasonable under common law doctrine. protect the goodwill
of the business
• NOTE: Clauses that involved protections to persons other than the being acquired ?
purchaser (e.g., related body corporate) are not within the CCA exemption.
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10. The nature and role of the ACCC

11. What is the ACCC’s role ?
• Australian Competition & Consumer Commission (ACCC) is responsible
for the administration of the Act, including section 50.
• The ACCC receives information from a variety of sources and
determines if a particular merger gives rise to competition concerns.
• If concerns are identified, the ACCC notifies the parties of those
concerns and alerts them to the risk of contravening the Act.
• If the parties proceed with a merger that is opposed by the ACCC, the
ACCC can obtain an interlocutory injunction to block the merger.
• Most mergers are time sensitive, hence an injunction is normally
sufficient to scuttle the merger.
• The ACCC does not need to give any undertaking as to damages
and can obtain an injunction relatively easily based on the balance
of convenience.
• The ACCC prefers not to allow a merger to proceed and then
seek divestiture, given „unscrambling the omelette‟ following a
merger.
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12. ACCC investigative powers
• Possible breaches of competition law come to the ACCC‟s attention
through complaints and information from members of the public, the
media, ACCC staff and other agencies.
• ACCC‟s Infocentre provides the initial response for all inquiries and
complaints. In 2011, it received 145,000 calls, 42,000 emails and
2,200 letters. Most of these were retail and consumer oriented.
• If a matter is sufficiently serious, the case is referred to the relevant
ACCC staff for investigation.
• The ACCC staff have formal powers under section 155 of the Act to:
• require persons to answer written questions and provide
documents (e.g., emails, board papers); and
• require persons to appear and provide evidence.
• In the last financial year, the ACCC issued around 270 of these
„section 155‟ notices. The compliance burden for recipients can be
very substantial indeed, including identifying any privileged documents.
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13. ACCC enforcement powers
• ACCC may take enforcement action in the Federal Court as a plaintiff in civil jurisdiction:
– The ACCC applies its compliance and enforcement policy when decision-making.
– Criminal prosecutions are undertaken by the Director of Public Prosecutions
• Statutory remedies:
– In a merger context, injunctions (but also divestiture and pecuniary penalties)
– Pecuniary penalties can apply to firms and individuals per contravention
– Firms: greater of up to $10 million, or 3 times benefit (or 10% of group turnover)
– Individuals: up to $500,000 per contravention
– Disqualification orders against officers and directors
– Imprisonment for up to 10 yrs for individuals engaging in cartel conduct (not mergers)
– Provisions of contracts may be unenforceable
• Other concerns
– Costs of an ACCC investigation can be substantial (eg section 155 notices).
– Distraction of senior management, cost of litigation and damage to reputation.
– Private and class actions by injured parties for damages or other remedies.
– Forfeiture of proceeds from criminal conduct under Proceeds of Crime Act.
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14. How does the ACCC operate ?
• The ACCC comprises an independent statutory Commission of six Commission
Members and four Associate Members. Full
Commission
• ACCC decisions are made through formal Commission meetings.
Only the Commission may decide to approve or oppose a merger or
commence legal proceedings. Mergers
Committee
• The Commission has a Mergers Committee comprising at least two
Members that have delegated powers to make most merger
decisions on behalf of the full Commission. Staff
Mergers &
• The Commission is supported by around 800 staff structured into a Adjudication
number of Divisions and Groups. Group
• The staff of the Mergers and Adjudication Group are responsible for
investigating mergers and making recommendations to the Mergers
Committee via a „staff paper‟. A „staff paper‟ is
confidential but can
• Merger decisions are referred by the Mergers Committee to the full sometimes be obtained
Commission where they are opposed, the matter is complex, there via an FOI or in
is high public scrutiny, or if there are special circumstances. litigation discovery.
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15. Voluntary pre-notification
• Notifying a merger to the ACCC is voluntary in Australia, although
most countries operate mandatory pre-notification regimes.
• ACCC expects to be notified in any of the following circumstances: An Australian market
share of 20% is the
• merger would result in the Acquirer achieving an Australian „notification threshold‟,
market share, by any measure, of 20% or more; but ultimately whether
to notify is a matter of
• merger would result in a substantial conglomerate effect;
judgement.
• merger would result in significant increase in vertical
integration;
• complaints to the ACCC by third parties are likely; or
• ACCC has previously notified the parties, or the industry
generally, that the ACCC expects to be notified.
• All Foreign Investment Review Board (FIRB) submissions are
automatically notified to the ACCC by FIRB.
• The ACCC may also self-initiate a review if it becomes aware of a
merger that is likely to raise concerns.
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16. How many M&A transactions raise concerns?
Mergers reviewed in 2010-11
62% No concerns or need for public review
29%
Unconditionally cleared after public review
Withdrawn
Allowed to proceed with undertakings
Confidentially opposed
Publicly opposed (including Metcash)
4%
3%
1% 1%
Of the 377 mergers considered for compliance by the ACCC in 2010-11, only 3 were publicly opposed.
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17. Pragmatic and commercial focus
In 2011, the ACCC lost a Full Federal Court decision in which Metcash sought to
overturn the ACCC‟s opposition to its acquisition of Franklins supermarkets:
• The practical outcome is that the Court expects any competition analysis to be
more pragmatic and commercially focussed.
• The Federal Court confirmed that economic theory must be linked to
commercial reality. Any competition analysis must apply theory in light of
actual market circumstances as supported by objective evidence.
• The ACCC subsequently issued a press release to confirm it would undertake
competition analysis based on commercially relevant facts, assessments and
evidence and not speculative possibilities.
A pragmatic and commercially focussed approach is fact intensive:
• We anticipate a greater focus on ACCC information gathering to support any
future competition analysis.
• The ACCC may issue more statutory „s155‟ notices to compel the disclosure
of information.
• The ACCC could encourage third parties to substantiate their submissions
during the ACCC „market inquiry‟ consultation processes so that the ACCC
has cogent evidence of anti-competitive effects.
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18. Change in approach at the ACCC
• Graeme Samuel ended his 8 year tenure as Chairman of the ACCC
and was replaced by Rod Sims around a year ago:
• Rod Sims expects the ACCC to be strategic, not reactive.
• Rod Sims will continue to give priority to those areas that have
the greatest potential for consumer detriment or where market
structures need most support. Rod Sims, ACCC Chairman
• Rod Sims believes the ACCC should litigate more frequently. He
is prepared to take action even if the law is unclear and success
is not assured, suggesting a tougher enforcement approach.
• Following the recent Metcash decision, the ACCC will test the
commercial veracity of its competition theories to a higher degree.
• Commentators have speculated that the ACCC under Rod Sims may
be more pragmatic and commercially nuanced in its analysis of
competition issues. Graeme Samuel has responded that the ACCC was
already pragmatic and commercial nuanced during his tenure.
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19. Obtaining regulatory comfort

20. Different strategies to obtain regulatory comfort
The Acquirer in a merger has a number of potential merger strategies: Almost all mergers
notified to the ACCC
1. „Do nothing‟ and proceed with the merger, normally only where there involve either a
are no competition concerns. courtesy notification
or a request for
informal clearance.
2. Courtesy notification / pre-assessment, typically a letter to the
ACCC explaining merger and identifying there is no section 50 issue.
The formal
3. Informal clearance, normally where the ACCC expects to be notified clearance process
or there are any material competition issues. has never been used
given its inflexibility.
4. Formal clearance, involving a statutory merger review procedure Declaratory relief
with appeal rights, granting statutory immunity. was sought by AGL
when acquiring an
5. Authorisation, involving a request for statutory immunity from the interest in the Loy
Tribunal on the basis that there are net public benefits. Yang power station.
6. Declaratory relief, involving an application for a court declaration to During litigation, an
the effect that there is no contravention of section 50. undertaking would be
given not to complete
7. Force an injunction, by threatening to proceed with a merger that is to avoid a
opposed by the ACCC and then contesting the injunction in court. contravention.
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21. Informal clearance
• If clearance is granted, Acquirer obtains a non-binding “letter of Three types of reviews:
comfort” (i.e., representation) that ACCC will not oppose acquisition but
reserves the right to do so should new information come to light Confidential review
takes 2-4 weeks, results
• Santos – Sagasco (1992) only instance where ACCC resiled on letter. in a highly qualified view.
Becomes a basic review
• Informal clearance provides significant procedural flexibility: once the merger enters
the public domain.
• The procedure is documented in the ACCC‟s Merger Review
Process Guidelines but has no formal statutory basis Basic review
takes 2-6 weeks, results
in a letter of comfort or a
• Application involves Acquirer providing the ACCC with a detailed
written submission. Vendor normally comments on the draft. statement of issues.
• For more difficult submissions, executives of Acquirer and Vendor and Comprehensive review
their lawyers may meet with the ACCC to answer questions. takes as long as is
necessary and may
• If ACCC has concerns, greater scope for parties to make involve negotiation of
submissions and negotiate undertakings to resolve concerns. undertakings, but results
in a letter of comfort or
• No appeal rights from ACCC‟s decision, so a non-complex an expression of ACCC
decision is normally swift and is final. opposition to merger.
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22. Informal clearance - procedural guidelines
Stage 1
Public informal Confidential informal
clearance application clearance application
submitted submitted
Confidential
review
Decision not to No concerns ACCC staff initial ACCC staff provide
oppose and informal competition an
clearance granted assessment indicative, confidenti
al view
Concerns
No concerns
Basic Mergers Committee Staff paper
review Market inquiries and
or full Commission
public consultation Once merger is public, ACCC
decision
commences market inquiries
Stage 2 Concerns
Further market
Statement of issues
inquiries and
Comprehensive published on ACCC
negotiation of any
review website
undertakings
Staff paper
Decision not to No concerns Concerns Decision to oppose
Full Commission
oppose and informal and informal
decision
clearance granted clearance not granted
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23. Formal clearance
• Historically, concerns expressed regarding absence of accountability in
informal clearances, particularly insufficient ACCC transparency.
• From 2007, a „formal clearance‟ process was introduced into CCA:
• Formal clearance results in statutory immunity for the Acquirer as long
as the merger occurs within the scope of the clearance.
• ACCC has a statutory time frame of 40 days to make a
decision, although can extend this by agreement (which would
normally be given by Acquirer given alternative is a deemed ACCC
refusal).
• Decision of ACCC may be appealed to Australian Competition Tribunal:
• Only the Acquirer can appeal to the Tribunal. No fresh evidence may
be submitted. Review is conducted on the papers.
• Tribunal must make decision within 30 days, extendable to 60 days
• In the meantime, the ACCC increased the transparency of the informal
clearance procedure, hence formal clearance has never used to date.
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24. Why has formal clearance never been used?
• Formal clearance is not currently favoured for various reasons:
Generally, formal
clearance has not yet
1. ACCC has addressed most concerns with informal clearance. been used because
the ACCC has made
2. Acquirer must submit very detailed prescribed information, beyond changes to ensure
that normally required at the start of an informal clearance process. the informal
clearance procedure
3. Technically, a reversal of onus of proof if matter proceeds to litigation is more effective.
(although still burden of persuading ACCC in informal clearances).
4. Acquirer must undertake not to complete merger until ACCC makes
its decision, although this can also occur in the informal process.
5. If Acquirer wishes to amend its application, it must withdraw and If Acquirer considers
resubmit, hence less scope to negotiate undertakings with ACCC. it will receive a better
outcome from the
• However, formal clearance may be appropriate: Tribunal, another
option is public
• (in practice) Acquirer believes it may receive more favourable benefit authorisation
as this bypasses
outcome from Tribunal than ACCC (and no scope for authorisation);
ACCC entirely (see
next slide).
• (in theory) risk of competitor action requires statutory immunity.
.
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25. Authorisation, if net public benefit
• Authorisation results in statutory immunity for the Acquirer as long as the New streamlined
merger occurs within the scope of the authorisation: procedure introduced
to address concerns
• Application is made directly to the Australian Competition Tribunal. regarding significant
delays and a lack of
• Authorisation granted if net public benefit, so Tribunal considers wider success.
public benefits that may outweigh any competition concerns:
However, new
• “anything of value to the community generally”, including the procedure has not
achievement of economic goals of efficiency and progress; yet been used as it
still involves some
• increase in value of exports or import substitution; procedural rigidity.
• international competitiveness of Australian industry;
Tribunal must seek a
• economic concept of increases in productive and dynamic efficiency report from ACCC.
(which outweigh any loss of allocative efficiency)
ACCC may make
• cost savings to a firm may still be regarded as a public benefit, even submissions to the
though they only ultimately benefit a firm‟s shareholders. Tribunal and may
examine witnesses.
• Tribunal must make decision within 3 months, extendable to 6 months.
Tribunal decision remains subject to ADJR.
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26. Contest any ACCC injunction (Metcash)
Metcash sought to acquire the Franklins supermarket business in NSW.
Following unsuccessful informal clearance and ACCC statement of
opposition, Metcash announced it would proceed with merger regardless:
• Statement was intended to cause ACCC to seek an interlocutory
injunction, hence ensuring the matter was heard in the Federal Court.
• Metcash subsequently indicated it would not proceed until the matter
was resolved by the court. This mitigated the risk of Metcash being
held in contravention of the Act and facing substantial penalties.
The Metcash decision
• ACCC initiated proceedings against Metcash seeking an injunction.
involved the most
significant merger
• The ACCC and Metcash obtained an accelerated hearing. The ACCC review litigation since
lost in the trial court. Metcash proceeded with the acquisition. 2003 and involved a
rare opportunity to
• ACCC appealed the decision to the Full Federal Court, but was not obtain Federal Court
successful. (If it had been successful, it may have sought divestiture). guidance on the
ACCC‟s approach to
The Metcash strategy ensures that the issues are determined by the merger review.
Federal Court, rather than the ACCC or the Australian Competition Tribunal.
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27. Declaratory relief, if no injunction (Loy Yang)
AGL sought to acquire interest in the Loy Yang power station:
• ACCC opposed the acquisition following an unsuccessful
informal clearance application. ACCC threatened to seek
divestiture if the acquisition proceeded.
• AGL used the threat of divestiture as a basis for seeking
declaratory relief that there was no contravention.
AGL had the burden of proof in evidencing no contravention:
• AGL needed to establish, on balance of probability, that the
acquisition would not be likely to have the effect of
substantially lessening competition in relevant markets.
• AGL needed to negative the existence of any real chance of
a commercially relevant or meaningful lessening of
competition flowing from the acquisition.
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28. Where does this leave us ?
Procedure When should the procedure be used ?
No approach to No material competition issues
ACCC
Courtesy No material competition issues, but FIRB clearance or likelihood of
notification attracting ACCC pre-assessment attention.
Formal clearance Third parties may litigate hence need immunity; or Tribunal may
give better outcome than ACCC (on appeal), but no net public
benefit sufficient for an authorisation
Authorisation Net public benefit which outweighs any competitive detriment
Declaratory relief ACCC opposes, but does not injunct and instead threatens
(Loy Yang route) divesture if the acquisition is completed.
Contest injunction ACCC opposes and indicates it will injunct any acquisition.
(Metcash route)
Informal clearance All other circumstances, particularly where undertakings may need
to be negotiated with ACCC or issues worked through.
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29. Merger guidelines and analysis

30. ACCC’s merger guidelines
Merger guidelines identify how the law will be applied to the facts:
• Merger analysis is highly complex and involves a particular
methodology as well as theories of competitive harm.
• Merger guidelines provide transparency in the ACCC‟s analysis
and assists parties to identify any competition issues.
Methodology for merger analysis:
1. Identify the relevant markets and any competitive overlap.
2. Identify the theory of competitive harm and the key issues.
3. Apply the statutory factors.
4. Identify any other relevant factors. Merger analysis is not
intended to be a „tick
5. Undertake a forward-looking comparison of the factual (with the the box‟ exercise: the
merger) and the counterfactual (without the merger) to determine analysis is complex
if any lessening of competition is substantial. and highly fact specific.
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31. Porter ‘5 Forces Model’ (1979)
Competition analysis involves a
two stage process to simplify a
complex analysis involving many
variables.
First, a market is defined to
identify key competitors with the
Supplier and the field of
immediate competitive rivalry.
Second, the market is used to
identify the sources of potential
competition and additional
constraints on the market power
of the Supplier.
Merger analysis essentially
follows this general approach.
.
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32. Market definition
• First stage in merger analysis is to define the markets and identify any
competitive overlap between the Acquirer and Target businesses.
Heineken
• Not intended to be „hard and fast‟, rather intended as a tool to assist
analysis of sources of market power. Premium
beer
• Four dimensions: product, functional, geographic, temporal (PFGT) Beer
• Smallest PFGT area within which monopolist could profitably sustain
a small but significant (5%) non-transitory increase in price (SSNIP). Alcoholic
beverages
• Most important consideration is product substitutability. Products
Beverages
that are substitutes are in the same market.
• Substitutability can also be applied to determine the geographic and
functional boundaries, for example
• good in Sydney not easily be substituted for a good in Perth;
• crate of apples sold at wholesale cannot be easily substituted
for single apple sold at retail (although other factors also used to
determine functional markets, such as vertical efficiencies).
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33. Theories of competitive harm
• ACCC classifies type of merger based on whether it is horizontal, vertical or conglomerate.
• Merger Guidelines identify the particular concerns and factors to be considered when
analysing each of these different types of mergers.
• ACCC analyses each merger type with regard to unilateral and co-ordinated effects..
Additional factors relevant to unilateral effects
Horizontal mergers
Horizontal Significance of the merger parties to competition focus on the removal
mergers Closeness of the merger parties competitive overlap.
Rival‟s responses
Vertical mergers focus
Vertical Incentive and ability to foreclose
on issues of vertical
mergers Likely effect of any foreclosure foreclosure.
Access to commercially sensitive information
Barriers to entry at all levels of vertical supply chain Conglomerate mergers
focus on bundling and
Conglomerate Bundling and tying of products
mergers
tying issues.
Formerly separate markets becoming single market
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34. Statutory criteria
• In order to determine the effect of a merger, the ACCC applies statutory
factors to identify the levels of market power of the parties:
1. the actual and potential level of import competition in the market; Identifies ease of
market entry by
2. the height of barriers to entry to the market; potential competitors
3. the level of concentration in the market (see next slide);
4. the likelihood that the acquisition would result in acquirer being able Identifies actual level
to significantly and sustainably increase prices or profit margins; of competitive rivalry
within and between
5. the extent to which substitutes are available in the market or are the relevant markets
likely to be available in the market;
6. the dynamic characteristics of the market, including growth, Identifies market
innovation and product differentiation; changes over time
7. the likelihood that the acquisition would result in the removal from Identifies unique
the market of a vigorous and effective competitor; and features of target
8. the nature and extent of vertical integration in the market.
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35. Market concentration (HHI Index)
Herfindahl-Hirschman Index (“HHI”): Entity Share Square
A 50% 2500
• Sum of the squares of the market shares.
B 30% 900
• Market shares may be calculated by reference to C 20% 400
capacity, sales volumes and/or sales values Pre-merger HHI 3600
ACCC unlikely to have horizontal competition concerns if: Entity Share Square
A 50% 2500
• post-merger HHI is < 2000; or
B+C 50% 2500
• post-merger HHI is ≥ 2000 with a delta < 100 Post-merger HHI 5000
Post-merger HHI 5000
HHI is consistent with approach used in US and EU.
Pre-merger HHI -3600
Not determinative of ACCC‟s view, just one of many factors HHI delta 1400
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36. Future with and without test
To determine whether a merger would substantially lessen competition, a
„future with and without test‟ is adopted.
• Future with merger is contrasted against the future without merger.
• Question asked whether any lessening in competition is „substantial‟.
Complications with the counterfactual:
• The „without‟ aspect requires identification of the counterfactual, namely
what would occur in the future if the merger did not happen.
• Inherent difficulty in predicting future events, hence necessarily based on
extrapolation of current market situation.
• ACCC would look at evidence as to what the parties intended to do.
• In most cases, the counterfactual will involve a continuation of the status
quo. Significant complications will arise where the status quo will
change and there are number of different possible future permutations
(e.g., competitive bidding situation, such as Metcash).
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37. Strategy for mergers with significant
competition issues

38. Use of economists - ‘dirty’ and ‘clean’
• If the acquisition raises complex competition issues (or if it is clear that
the ACCC will not be easily persuaded), it is common for the legal
team to engage the assistance of economists.
• Generally, an economist that has assisted in the preparation of
submissions would normally be regarded as a „dirty‟ expert:
• If the matter proceeded to litigation, they would not be called as
expert witnesses given they would have difficulties presenting
evidence as an independent expert.
• An economist that provides an independent report to support an
application would normally be regarded as a „clean‟ expert:
• If the matter proceeded to litigation, they could be called as an
expert witness to provide independent evidence.
• When engaging an economist, it is important to determine whether or
not they will be treated as „dirty‟ or „clean‟, as only the former should be
permitted to assist with preparation of submissions.
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39. Market inquiry process and spoiling tactics
• The ACCC will not normally make a public decision in a merger clearance
until it has undertaken public consultation (known as “market inquiries”) .
• Generally, the ACCC will identify all key persons affected by the
merger and write to them seeking their input. Normally, the request
for input comprises a letter with questions in an annexure.
• A response is voluntary, but normally parties respond to maintain
amicable relations with the ACCC (and given the potential for a s155
notice if the ACCC needs the information).
• Persons opposed to a merger may make submissions against it.
The most effective submissions are substantiated with evidence.
• Where information sought by the ACCC is confidential to third parties and No!
protected by contractual obligations, it is possible for a party to solicit a
„friendly‟ s155 notice to mandate information disclosure to the ACCC.
• In a hostile takeover context, lobbying of the ACCC may be an important
aspect of a merger defence. Part of that lobbying can include agitating
third parties to make adverse submissions during market inquiries.
39 Obtaining M&A clearances in 2012

40. Negotiation of section 87B undertakings
• ACCC may decide not to oppose the merger on the condition that the
parties comply with court-enforceable undertakings.
• Undertakings are voluntary and typically involve restructuring the
acquisition to address ACCC competition concerns.
• ACCC favours structural solutions (such as divestiture of assets)
rather than behavioural undertakings (such as price and service
guarantees), as the latter can be inflexible and difficult to monitor.
• ACCC will consider the effectiveness of the remedy, how difficult it
will be to administer, the ability of the firm to deliver the required
outcomes, and monitoring and compliance costs.
• ACCC normally undertakes market inquiries on undertakings.
• Section 87B undertakings are public. They may be enforced in court by
the ACCC, including via compliance orders and damages.
• ACCC favours divestment before or at completion, or independent
manager or administrator must be appointed for „hold separate‟ period.
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41. Hypothetical and questions

42. Hypothetical example
Example
Origin Energy Limited (ASX:ORG) makes an off-market hostile takeover bid for 100% of the shares
in Santos Limited (ASX:STO), conditional on ACCC clearance or authorisation.
Issues
1. What is the business rationale for the acquisition ?
2. What are the relevant markets and areas of actual or potential competitive overlap ?
3. What is the likely impact of the acquisition on competition in each market ?
4. Do market concentration, or other vertical, horizontal or conglomerate competition
issues, arise such that informal or formal clearance should be sought from the ACCC ?
5. If so, when and how should the ACCC be approached, given confidentiality issues and ASX
takeover processes?
6. Can undertakings be offered to the ACCC to address any adverse issues and secure a
regulatory clearance ?
7. How will likely spoling tactics be addressed during market inquiries?
8. If clearance by the ACCC is unlikely, should an authorisation be sought and, if so, what public
benefits arise ?
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43. Questions?
43 Obtaining M&A clearances in 2012

44. Our international practice
Disclaimer
The purpose of this presentation is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Norton Rose LLP, Norton Rose Australia or Norton Rose
OR LLP on the points of law discussed. No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of Norton Rose Group (whether or not such individual is
described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this presentation. Any reference to a partner or director is to a member, employee or consultant with equivalent
standing and qualifications of, as the case may be, Norton Rose LLP or Norton Rose Australia or Norton Rose OR LLP or Norton Rose South Africa (incorporated as Deneys Reitz Inc) or of one of their respective affiliates.
44 Obtaining M&A clearances in 2012