Effect on Competition of Corporate Acquisitions as a Factor in Authorisation Applications to the Trade Practices Commission
| Author | William Pierce |
| DOI | 10.1177/0067205X7800900104 |
| Date | 01 March 1978 |
| Published date | 01 March 1978 |
| Subject Matter | Article |
EFFECT
ON COMPETITION
OF
CORPORATE
ACQUISITIONS
AS
AFACTOR
IN
AUTHORISATION
APPLICATIONS TO
THE
TRADE PRACTICES
COMMISSION
By
WILLIAM
PIERCE
*
In this article the author exhaustively examines the decisions 0/
both the Trade Practices Commission and Tribunal and abstracts
from them anumber
of
general conclusions which are
of
invaluable assistance in interpreting section 50
of
the Trade
Practices Act. This discussion
is
particularly apposite in the present
economic climate when the merger
is
increasingly popular, especi-
ally
as
the
Act
has only been recently amended. The author
concentrates on Hmarket definition" in all its permutations and
discusses the various indicia
of
altered competition levels and the
consequent likelihood
of
success
of
amerger application.
As
the
author points out in his conclusion, attention to such details amply
repays the effort involved when viewed against the backdrop 0/
sanctions which the
Act
contains against those who infringe it.
This article discusses the effect on competition of corporate acqui-
sitions.
It
considers the competitive effect of proposed acquisitions as a
factor when application
is
made for their authorisation.
Section 50 of the Trade Practices Act 1974
(Cth),
as amended in
1977,
("the
Act")
prohibits, broadly speaking, those corporate acqui-
sitions which lead to aposition of control
or
dominance for the
acquiring company. However, the purpose of this article
is
not to
discuss that prohibition; it
is
to discuss only the competitive effect of the
proposed acquisition.
It
is
possible, on application to the Trade Practices Commission
("the
Commission"), to obtain an authorisation for amerger
or
other
acquisition, if the applicant can show that the proposed merger or
acquisition satisfies apublic benefit test.1
*
Of
the N.S.W. Bar.
tThe test for an authorisation
is
contained in
sub-so
90(9):
90(9) The Commission shall not make adetermination granting an authorization
under sub-section
88(9)
in
respect
of
aproposed acquisition
of
shares in the
capital,
or of
assets,
of
abody corporate unless it
is
satisfied in all the circum-
stances that the proposed acquisition would result, or be likely to result, in
such abenefit to the public that the acquisition should be allowed to take
place.
Until 1977 it was also possible to obtain aclearance for aproposed acquisition,
which the Commission would grant if it found
no
likelihood
of
substantially
lessened competition. Although clearances can no longer be obtained the Commis-
sion's clearance decisions afford useful guidance in determining the effect
on
competition as afactor on an authorisation application.
71
72 Federal
Law
Review
[VOLUME
9
Since the
Act
became law
on
1October 1974 many authorisation
decisions have been given by the Commission, and in the great majority
the effect
on
competition has been the critical
f~ctor.
If
amerger
or
other
acquisition were likely to be pro-competitive the applicant would
point to the pro-competitive effect as apublic benefit. C'onversely, any
anti-competitive effect might well outweigh any
other
public benefits,
leading to arefusal
of
authorisation.
The likely effect
on
competition has certainly proved
so
far
to be
usually the most important aspect
on
which the applicant for authoris-
ation needs to bring evidence.
The
writer believes
that
it will remain
so, notwithstanding sweeping amendments to the
Act
effective
on
1July 1977.
The
note
of
caution
that
must be sounded
is
that
the
1977 amendments make separate provision in respect of auth.orisation
of several
other
restrictive practices.
In
those cases the C'ommission
is
specifically required by the
Act
to consider the competitive effect of
the practice in question. Such adirection
is
conspicuously absent from
sub-section
90(9),
which lays down the test for authorisation
of
mergers
and
other
acquisitions. (Moreover, section 50 itself, which
until last year used to prohibit anti-competitive acquisitions, no longer
does so.) Should one therefore conclude
that
the effect
on
competition
is
now to be ignored when such authorisations are being considered?
In
the writer's view the answer must be no. Without doubt applicants
for authorisation will still seek to show
that
their
particular
acquisitions
would have apro-competitive effect,
and
that
such effect constitutes a
public benefit.
There
is
no compelling reason why the Commission
should
not
listen to such
an
argument; indeed, in fairness it must surely
do so,
and
if it does
it
would doubtless be obliged to take equal
cognisance
of
any anti-competitive detriment shown to be alikely
result
of
aproposed merger
or
acquisition. Moreover, the Commission
is
expressly required by sub-section
90(9)
of the
Act
to consider "all
the circumstances".
The
effect
of
the acquisition
on
competition
is
surely one
of
the circumstances, and thus to be taken into account.
Again,
under
the public benefit test
that
existed until the 1977 amend-
ments there was no express mention of competitive effects of aproposed
acquisition, yet the competitive effects were always considered as a
factor.
Had
Parliament wanted to exclude their consideration by the
1977 amendments it could have expressly
so
provided.
Yet
it did not do
so.
It
seems very likely therefore,
that
the effect of amerger
or
acqui-
sition
on
competition will remain avital factor in determining whether
or
not
an
authorisation ought to be granted.
The
competitive effect will
therefore continue to be
of
critical importance,
and
accordingly,
after
considering some preliminary questions, the bulk
of
this article
is
given
over to adiscussion
of
the competitive effects
of
acquisitions.
To continue reading
Request your trial