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The Australian Competition and Consumer Commission (ACCC) is seeking to overturn a government decision to allow gambling companies Tabcorp Holdings Ltd. and Tatts Group Ltd. to merge, saying the ruling would hurt Australia’s competition law.
The ACCC’s appeal is a potential turning point for the competition enforcer since the law changed in 2007 to give Australia’s Competition Tribunal, and not the ACCC, the authority to approve mergers. This is the first time the ACCC has appealed a merger decision made by the Competition Tribunal.
The ACCC needs to win its appeal, Melbourne Law School Professor Julie Clarke told Bloomberg BNA, because the Australian Parliament is poised to pass legislation this year returning the ACCC’s power to authorize mergers. If the law passes, the ACCC will be in the awkward position of having its decisions reviewed by the Competition Tribunal under what it sees as an erroneous standard.
“The ACCC will need to be mindful of the Tribunal’s view on the matter,” she said.
ACCC Chairman Rod Sims said in a July 10 statement that the ACCC felt it had no choice but to appeal the Tribunal’s decision because it misapplied legal principles that impact “all future merger and non-merger authorisation assessments.”
“This affects our decision-making in a very large way,” Sims added in a subsequent interview with The Australian newspaper.
Merging companies in Australia aren’t required to notify regulators of their tie-ups, but many voluntarily file for review with the ACCC. If they don’t, they run the risk of completing their deal only to have ACCC challenge the merger in court.
The gambling companies broke with tradition by bypassing the ACCC and going straight to the Competition Tribunal after the ACCC indicated in March that it had problems with the proposed $4.9 billion deal. Tabcorp and Tatts had received a statement from the ACCC listing a set of concerns about the competitive impacts. The regulator said those concerns could be remedied by steps such as divestitures.
Tabcorp and Tatts’ gamble was unusual and it paid off. The Tribunal held that the companies can merge, saying it saw no substantial impacts in the wagering, racing media, and gaming industries. It said the merger would provide substantial benefits to the public and “no material detriments.”
Since Australia’s competition law shifted, only three other pairs of merging companies have asked the Tribunal for clearance. All of them got it, but this is the first time that merging parties skipped over the ACCC before it was done looking at the deal.
The problems the ACCC expressed with the deal were minor, according to Clarke. The regulator “identified only one key concern with it [that] was thought would be fairly easily resolved,” she said. “It was surprising to most observers that Tabcorp withdrew from that process and proceeded directly to the Tribunal.”
The ACCC can’t appeal the merits of the Tribunal’s decision, so its appeal is limited to legal grounds underpinning how the Tribunal reached its decision.
The ACCC is now arguing in court that the Tribunal made three legal errors that incorrectly measured the detriments and benefits to society from the merger.
First, the ACCC said that the Tribunal erred by only weighing a “substantial lessening of competition” as a detriment. Instead, the ACCC said any reduction of competition is a detriment to society, based on its past decisions and those of the Tribunal.
Second, the ACCC said the Tribunal gave too much weight to the alleged private benefits of the gambling tie-up. Benefits like cost savings and revenue synergies should have less weight than benefits that apply to consumers more broadly, like price reductions. The Tribunal erred by leaning heavily on benefits that accrue only to the merging parties and not weighting detriments to society equally, the ACCC argued.
Finally, the ACCC said the Tribunal failed to consider the market both with and without the merger to gauge its impacts. “The ‘future with and without’ comparison is, however, fundamental to the assessment of likely detriment in all competition cases,” ACCC said. “Without this analysis, it is impossible to isolate and assess the impact of a merger from other factors in the market that would occur absent the merger.”
Tabcorp stated it will fight the ACCC’s appeal and will seek an expedited review, if any, of the Tribunal’s decision. “The factual findings by the Tribunal of substantial public benefits and of no, or insignificant, detriment arising from the transaction are not in issue in the judicial review application,” Tabcorp said in a statement.
Even if the ACCC wins, Tabcorp added, the Tribunal will just review its holding in light of the court’s ruling, not start from scratch.
Tabcorp and Tatts still expect they can complete the merger by the end of 2017. The parties “remain committed to the transaction.”
Establishment of the correct public benefit test matters to the ACCC even if the legislation to allow it to authorize mergers fails to pass.
A similar public benefit test applies to other applications the ACCC reviews, such as those for cartels. “It’s the Tribunal (which) authorises mergers, but we authorise a whole range of other non-merger anti-competitive conduct,” Sims told The Australian.
“The Tribunal’s decision will influence how the ACCC treats public benefit claims in those other cases,” Clarke added.
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