A report of the Australian Competition and Consumer Commission’s activities

18.Assess mergers to prevent structural changes that substantially lessen competition

The ACCC reviews mergers and acquisitions to assess whether they would be likely to substantially lessen competition.

The ACCC does this by providing the merger parties with its view on whether a particular proposal is likely to breach s50 of the CCA. This process is generally known as the ‘informal clearance’ process. Businesses may also apply to the ACCC for formal clearance of mergers.

The ACCC deals with matters expeditiously when it determines that they do not require a detailed review because of the low risk that competition concerns will be raised. As indicated in Table 1 below a significant proportion of the mergers considered by the ACCC are ‘pre-assessed’, enabling the ACCC to respond quickly when there are no significant concerns.

Table 1: Matters pre-assessed and reviews undertaken – October to December 2015

19.Significant merger decisions

ROYAL DUTCH SHELL PLC (Shell) - PROPOSED ACQUISITION OF BG GROUP PLC (BG Group) On 19 November 2015 the ACCC announced its decision not to oppose the proposed acquisition by Shell of BG Group. The ACCC’s decision came after a detailed review in which it consulted with a large number of market participants, many of whom were concerned about the competition effects of the proposed acquisition and the current state of the east Australian gas market. Shell is a global group of energy and petrochemicals companies, with a 50 percent interest in Arrow Energy Holdings (Arrow). Arrow is a Queensland coal seam gas company that produces gas in the Surat and Bowen Basins. Arrow’s gas reserves constitute the largest uncontracted gas reserves in eastern Australia. BG Group is an international explorer and producer of oil and gas and a supplier of liquefied natural gas (LNG). In Australia BG Group holds a majority stake in the Queensland LNG joint venture, QCLNG. It also holds interests in natural gas tenements and production facilities in the Surat Basin in Queensland as well as exploration rights in the Bowen and Cooper Basins through its subsidiary Queensland Gas Company Limited (QGC). The ACCC considered whether the proposed acquisition would reduce the supply of gas, or reduce competition to supply gas, to domestic customers in Queensland and eastern Australia by changing Shell’s incentives. The proposed acquisition aligned Shell’s interest in Arrow with BG Group’s interest in QCLNG. The ACCC considered whether as a result of this alignment, Shell would be incentivised to prioritise supply of gas from Arrow to the QCLNG project over competing domestic gas users. The ACCC concluded that the proposed acquisition would not change Arrow’s supply focus. With or without the proposed acquisition, Arrow’s business would be structured around meeting LNG contracts because it needs a large LNG foundation customer to underpin the capital investment required to develop its gas reserves. The ACCC concluded that Arrow was not currently focussed on supplying domestic customers and that it appeared unlikely to do so in the future. The ACCC held that aligning Arrow with a LNG operator would not change competition for the supply of gas to domestic customers. The ACCC also considered whether the proposed acquisition would be likely to substantially lessen competition for the supply of gas to domestic customers by removing the potential for competition between Arrow and BG. One of the key issues considered was whether, in the absence of the proposed acquisition, BG and Arrow would both have excess gas above their LNG and legacy domestic contractual commitments, and whether they would offer that excess gas to domestic customers. The ACCC concluded that there was too much uncertainty about the amount and timing of future gas supplies for the ACCC to be satisfied that Arrow and BG were likely to be meaningful competitors in the domestic market in consideration of the absence of the acquisition. Separate to its review of this proposed acquisition the ACCC is also undertaking a broader assessment of the competitiveness of wholesale gas supplies and prices. This includes the structure of the upstream processing transportation storage and marketing segments of the gas industry in eastern Australia (the East Coast Gas Inquiry). As part of that Inquiry, the ACCC released an issues paper in June 2015 and has conducted public hearings. The Inquiry is scheduled to release its final report in April 2016.

FOXTEL MANAGEMENT PTY LTD (Foxtel) - PROPOSED ACQUISITION ARRANGEMENTS WITH TEN NETWORK HOLDINGS LTD (Ten) On 22 October 2015 the ACCC announced its decision not to oppose the transaction between Foxtel and Ten. The transaction involved Foxtel acquiring up to 15 percent of Ten with Ten acquiring a 24.99 percent stake in Multi-Channel Network (MCN), a supplier of advertising opportunities on subscription television channels. Ten would also have the option to acquire 10 percent of Presto TV, a joint venture between Foxtel and Seven West Media. The ACCC commenced market inquiries on 25 June 2015 conducting inquiries and receiving written submissions from a range of market participants including television networks, advertising agencies, sporting bodies and other interested parties. The ACCC was primarily concerned that the transaction would result in an alignment of interests between Foxtel and Ten that may favour Ten in the bidding for sports content against other free-to-air (FTA) television providers, or reduce or even eliminate competition between Foxtel and Ten for the supply of advertising services. Although the ACCC concluded that the transaction would result in a greater alignment of the interests and incentives of Foxtel and Ten, the ACCC considered that Foxtel and Ten would continue to face competition from the remaining FTA networks, and streaming services were also likely to become an increasingly important competitive constraint particularly for the sale of sports rights. The ACCC also considered that sports rights holders have some bargaining power in their negotiations with media companies for the sale of their rights given the importance of this content in attracting viewers and driving subscriptions. The ACCC found that consumers are increasingly accessing sports and non-sports content from a range of online sources on different platforms outside of FTA and subscription television services. For example, a range of Australian sports content is streamed online and streaming services in particular – Netflix, which shows non-sports content, has experienced significant growth in Australia. Given this, the ACCC considered that the markets for the acquisition of sports and non-sports content were likely to be increasingly dynamic. In relation to television advertising services, the ACCC concluded that although the MCN acquisition was likely to increase the incentives for Ten and Foxtel to bundle advertising packages, there would remain sufficient alternatives to the merger parties offering post-acquisition. Unlike most acquisitions reviewed by the ACCC which result in the target becoming a subsidiary of the acquirer, the acquisitions did not result in the merger parties becoming related parties and so, any arrangements between them are subject to the competition provisions of the CCA. Although the ACCC considered that this market exhibited dynamic characteristics, the ACCC will continue to look closely at the effect of current and future arrangements between Foxtel and Ten which may raise competition concerns, including the MCN agreement. NORDIC CAPITAL FUND VII (Nordic) - PROPOSED ACQUISITION OF MAX-INF HOLDINGS LIMITED (Max-Inf) On 18 December 2015 the ACCC announced its decision not to oppose the proposed acquisition by Nordic of a 60 percent interest in MaxInf after accepting an s87B undertaking. Max-Inf is a Chinese manufacturer of child restraint systems. Max-Inf supplies Infa-Secure Pty Ltd (Infa-Secure) with its child restraint systems. Infa-Secure is one of three main wholesalers of child restraint systems in Australia. Britax, which is ultimately owned by Nordic, is a close competitor of Infa-Secure. The purpose of the undertaking is to ensure that Nordic, with its downstream interests in Australia via Britax, does not adversely impact competition in the market for the wholesale supply of child restraints in Australia. The ACCC considered that without the undertaking, Nordic and Max-Inf would be likely to have the ability and incentive to foreclose Infa-Secure from accessing supply of child restraint systems. For example, Max-Inf could reduce supply, or adversely change the terms of supply, to Infa-Secure. To address the competition issues identified by the ACCC, the undertaking requires that a subsidiary of Max-Inf continues to supply Infa-Secure with child restraint systems for a limited period, while Infa-Secure establishes alternative supply arrangements.

20.Merger review consultation

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