This opinion article by Business Council of Australia Chief Executive Bran Black was published in the Australian Financial Review on 2 September 2024..

Last month, federal Treasury released draft merger reform laws which I’m concerned may do more harm than good when it comes to generating positive economic results for Australians.

Treasurer Jim Chalmers has called it “the biggest reforms to merger settings in almost 50 years”. These are momentums changes that will matter and cannot be passed off in silence.

Australian businesses recognise that there is a logic to some aspects of these reforms, including a mandatory merger notification scheme. However, there are three standout problems with what the Treasury has actually put to paper so far.

First, and most concerning as outlined, the draft reforms will mean that Australians lose out on potential benefits from deals which are a net positive for society.

That’s because the draft legislation changes the public benefit benchmark requirement from a merger being an overall public benefit, to a merger at minimum being a “substantial” public benefit.

As always, the devil is in the linguistic detail. Of course, we would all prefer a deal that is a substantial net positive for Australia as a society, but that’s not the point.

The point is that by lifting this bar from allowing deals that are net positive, to only allowing deals which are “substantially” net positive, we are going to lose out on good mergers that deliver real public benefits.

How can any business make its case without being able to rely on the same body of evidence on which the ACCC built its case?

We already require approval from the Australian Competition and Consumer Commission on a public interest basis to provide a net positive for Australia. Isn’t a small positive better than none at all?

The way this legislation is drafted, we will simply give up those cumulative positive benefits from good deals.

The second issue in this draft legislation is that it may create a process that eats up vastly more time, money and energy for businesses than the existing processes.

The ACCC is likely going to face significant resourcing pressures on reviewing mergers and acquisitions, with an expanded set of reviewable cases thanks to new mandatory notifications rules which Treasury has indicated could amount to up to 500 notifications a year based on historical activity.

That means it will almost certainly lean into more generous proposed “stop the clock” provisions, which will allow it to put a deal on pause for a variety of reasons.

Why should Australians care about slower merger and acquisition processes? Because they will scare off investment. Some businesses simply won’t take the risk of entering into the process, and so we may simply lose out on mergers and acquisitions which would have had an overall benefit for Australians.

Third, and in relation to a point of legal fairness with real-world implications, comes the ability for the ACCC to make decisions on mergers and acquisitions with no right for merger applicants to access evidence and arguments from the parties on which the ACCC has relied for the purpose of making its decision.

This is a plain and simple breach of basic principles of legal due process. How can any business be expected to make its case without being able to rely on or critique all of the same body of evidence on which the ACCC built its case.

Competition is good. It brings out the best in us – and there’s no better representation of that than our recent haul of Olympic gold. But the risks I have identified here, if not addressed, will result in fewer benefits for Australians.

Let’s remember, mergers play a role in driving economic growth. Effective competition between companies is one way to deliver the innovation that benefits Australians and drives up productivity, which we sorely need to grow our economy.

As Chalmers says, “most mergers aren’t bad” and are “an important feature of any healthy, open economy”.

Assistant Minister for Competition Andrew Leigh, similarly noted, “most mergers are not anti-competitive and can be beneficial to the economy”.

We need to be careful that we don’t throw out all this good. Competition reform should be about spurring on better performance from companies to build our national prosperity, not forcing them to run through mud for questionable benefit.

There are, of course, good deals and bad deals for the Australian economy, but the great majority of mergers and acquisitions actually increase competition by creating businesses that are better equipped to go toe-to-toe with peers.