By Alan Arnott and Michael Langenheim.
In March 2015, TPG entered into an agreement with iiNet where, subject to iiNet shareholder approval, TPG would acquire 100% of the share capital in iiNet (TPG already owned 6.25% of iiNet).
In July 2015, just over 95 per cent of iiNet shareholders voted in favour of the takeover by TPG. However, the deal still needed to be reviewed by the Australian Competition and Consumer Commission (ACCC) and approved by an order of the Federal Court.
Review of mergers in Australia
Under s50 of the Competition and Consumer Act 2010 (CCA), certain acquisitions are prohibited if they will have the effect or likely effect of substantially lessening competition in any market.
It is possible to obtain a review (formal or informal) or authorisation for proposed mergers but it is not mandatory to do so. Proceeding without regulatory approval, however, may put the merger parties at risk of the ACCC or another interested parties taking legal action claiming the merger breaches s50 of the CCA.
Merger parties may approach the ACCC as soon as there is a real likelihood that a proposed merger may proceed to seek an informal review. The ACCC may also itself initiate an informal review in response to information from, for example, complainants or the ACCC’s own monitoring activities.
The informal review process provides the parties with the ACCC’s informal view on whether a merger proposal is likely to breach s50 of the CCA. A decision not to oppose a merger after an informal review does not provide the parties with protection from legal action by the ACCC or other parties but it does give the parties comfort that the ACCC considers the merger is unlikely to breach s50 of the CCA.
The ACCC’s informal review of TPG’s merger with iiNet
The ACCC commenced a review of the proposed merger in April 2015 and issued a Statement of Issues on 11 June 2015 (Statement of Issues) inviting submissions from interested parties.
The ACCC did not make the submissions available to the public but according to Chairman Rod Sims the majority of the submissions were against the merger.
The ACCC noted that there were 5 main suppliers in the retail fixed broadband market: Telstra, Optus, iiNet, TPG and M2 and that the market was already relatively concentrated. After the merger, the ACCC estimated that the merged entity would have the second largest market share (27%) behind Telstra (41%) with Optus third (14%).
The ACCC also indicated that its preliminary view was that the acquisition of iiNet “may lead to a substantial lessening of competition, potentially resulting in higher prices and/or degradation of the non-price offers available in the market, including customer service”.
However, on 20 August 2015, the ACCC announced that it would not oppose TPG’s proposed acquisition of iiNet noting that while the ACCC was concerned that the merger may lessen competition in the retail fixed broadband market, particularly in the short term, it concluded that this would not reach the threshold of a ‘substantial’ lessening of competition under s50 of the CCA.
The ACCC stated that it considered that the “combined competitive constraint from the other major retail fixed broadband suppliers, Telstra, Optus, and M2 (which operates brands including Dodo and iPrimus) would be likely sufficient to limit the harm to competition from this merger.”
However, the ACCC also noted that any future merger between two of the remaining four large suppliers of fixed broadband would be likely to raise “serious competition concerns”.
The ACCC concluded that the acquisition of iiNet by TPG will not substantially lessen competition in the market for wholesale transmission services.
The merger has significant implications for TPG’s rivals who will now have to compete against a stronger entity with a combined market share of around 27%. The decision also flags potential significant hurdles for any future mergers between the top four suppliers in the retail fixed broadband market.