Government ponders stricter takeover legislation

Posted by Daniel Palmer on 1st September 2008

Creeping acquisitions are under the spotlight again as the Government promises reform to honour their election commitment.

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen MP, today released a discussion paper calling for public comment on the best way forward for a creeping acquisitions law.

Creeping acquisitions refer to the cumulative effect of a number of small, individual transactions which, when considered in isolation, might not be captured by the existing mergers and acquisitions test under section of the Trade Practices Act. There have been concerns raised that some major retailers have been able to gradually increase their market share via a series of small acquisitions, with competition potentially declining over time.

In its Grocery Report, the ACCC described creeping acquisitions as a ‘series of acquisitions of smaller competitors over time which individually do not raise competition concerns, but which when taken together may have a significant competitive impact. Creeping acquisition might also refer to a player with existing market power making a small acquisition, even though the small acquisition does not substantially lessen competition in itself’.

The Grocery Report did, however, suggest that competition in the grocery sector remained “workably competitive”.

“The Government recognises concerns that the mergers and acquisitions provisions of the Trade Practices Act do not enable the ACCC to effectively deal with incremental acquisitions,” Mr Bowen said. “Consideration of the need for legislative reform in relation to creeping acquisitions is an election commitment, and the release of this discussion paper is an important step in ensuring that all the issues can be examined.”

The Government has floated two possible legislation options, referred to as the “aggregation model” and the “substantial market power model”. The aggregation model will look into the number of acquisitions made within a specified period and, essentially, it will block the latest in a series of acquisitions.

The “substantial market power” model, on the other hand, would result in an update to Section 50 of the Trade Practices Act. Any company that has substantial market power would be prohibited from making an acquisition if the acquisition would result in any lessening (as opposed to a substantial lessening) of competition in the market.

Public submissions are welcomed until Friday 10 October 2008.
Copies of the discussion paper can be obtained from the Treasury website: www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1409.