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Merger activity strong but frustrating

Merger activity strong but frustrating

DESPITE THE current economic climate, the ACCC said merger activity in Australia appears to have remained resilient, but the watchdog is still repeatedly frustrated by the “unlimited…

DESPITE THE current economic climate, the ACCC said merger activity in Australia appears to have remained resilient, but the watchdog is still repeatedly frustrated by the “unlimited promises” of advisors pushing to have their mergers completed.

The ACCC considered 397 mergers last financial year, up from 390 the year before, and consistent with findings that the rate of merger proposals coming before the commission is increasing year to year.

Graeme Samuel, chairman of the ACCC, outlined the results in a recent speech to the Mergermarket Australian M&A Forum: “Merger activity seems to be remaining strong, despite the current economic conditions, and may well remain so into the foreseeable future,” he said. “The last lull in the ACCC’s workload was during the second half of 2004.”

But, said Samuel, little can dispel the frustration felt by the ACCC in encountering too many examples of bad faith in the undertaking process. “Time and time again we find firms are happy to sign up to undertakings in advance, in order to address the concerns of the regulator, and as soon as things finish they start trying to chip away at the promises they made,” he said. “Some parties forget about their undertakings as soon as the ink is dry on their merger.”

Samuel is adamant that the ACCC will take, where necessary, the appropriate action to enforce and remedy compliance with merger undertakings.

In 2007-08, such a stance saw three merger matters subjected to litigation in relation to their compliance with undertakings. And if such enforcement is required into the future, Samuel said, the body will need to seriously determine if undertakings need to be removed from consideration.

Instead of relying on advisors, Samuel said that the business community needs to realise its undertakings bind their future actions. “It’s come to the ACCC’s attention that some advisors seem happy to offer virtually unlimited promises to get the deal done,” he said.

“My advice to you today is that you keep an eye on the undertakings your advisors are offering to the regulator.”

With the right amount of time to review the relevant issues, Samuel said the vast majority of mergers are not opposed by the ACCC.

Last financial year, the commission publicly opposed five mergers, confidentially opposed another six, while a further six were cleared after merger parties provided undertakings to resolve competition concerns.

Samuel said the organisation was aware that investigations can vary dramatically in length, but that the commission always aims to avoid unnecessary delays for commercial transactions. “In terms of the timeframes, uncontentious matters can be completed in as little as two weeks,” he said.

“Most significant reviews are completed within eight weeks. In the last year, over 90 per cent were completed in less than eight weeks.”

Samuel also used the presentation to outline the ACCC’s substantial review of the 1999 Merger Guidelines. He said that after releasing the draft for consultation earlier this year, the commission is now gearing up to deliberate on the findings.

The revised guidelines, said Samuel, will hold a number of messages for business. “First, the key to analysing a merger is to ask whether or not it substantially lessens competition,’ he said. “Secondly, an implication is that the ACCC must be given the information it needs for a thorough merger assessment.”

Such an assessment, particularly in relation to more contentious matters, he said, requires as much detail in board papers, sales data and other commercially sensitive information as possible. “When the ACCC requests information, it’s because we need it,” said Samuel.

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