This article by me was first published in Retail Banking Review here.
In 2008 when the Australian Competition and Consumer Commission (ACCC) did not oppose the Commonwealth Bank’s merger with BankWest and Westpac’s merger with St George, there was speculation that the ACCC’s merger policy for banks had relaxed.
The Treasurer was forced to announce the Rudd Government would maintain the existing Four Pillars policy for the banking sector.
In April this year the ACCC decided to oppose National Australia Bank Ltd’s (NAB) proposed acquisition of AXA Asia Pacific Holdings (AXA), and not to oppose AMP Limited’s (AMP) competing proposed acquisition.
The Trade Practices Act test is that the ACCC will only grant clearance to a proposed acquisition if it is satisfied that it would not have the effect, or likely effect, of substantially lessening competition in a substantial market or markets for goods and services in Australia. The ACCC must be satisfied that the acquisition will not have such an effect, and so justify the clearance.
Mergers may have anti-competitive effects by altering the structure of markets and consequently the ability and/or incentives for businesses to behave in a competitive manner.
If a clearance is granted by the ACCC, then section 50 of the Act, which prohibits anti-competitive acquisitions of shares or assets, does not prevent the acquisition of shares or assets in accordance with the clearance.
What markets did the ACCC review for the proposed AXA acquisition?
When the ACCC reviewed competition effects across a range of markets including superannuation, insurance and banking, it did not identify any competition concerns with respect to the NAB offer in these markets. The key focus however, was retail investment platforms which provide a central hub for investors to access a range of investment products, and allow for consolidation of client information and reporting on these assets.
The ACCC found that a merger between NAB and AXA would result in a substantial lessening of competition in the market for retail investment platforms for investors with complex investment needs. On the other hand, the ACCC found that an independent AXA or a merger between AMP and AXA would not have this effect.
The ACCC considered that a merger of NAB and AXA would remove competitive tension which was the driver behind AXA’s development of its platform. It said that in the absence of competitive pressure from AXA’s platform, the ACCC considered that existing platform providers were either unlikely to have the incentive to drive innovation in the foreseeable future, or lacked the capacity to do so and that new entrants were unlikely to emerge because of the high barriers to entry.
Since August the ACCC has been consulting the market on proposed undertakings offered by NAB and AXA to address the ACCC’s competition concerns that the proposed acquisition of AXA by NAB would be likely to result in a substantial lessening of competition.
The undertakings provide for the divestiture of the North platform administration business carried out by AXA using the Bluedoor software (owned by DST Global Solutions) to IOOF Limited (IOOF).
Submissions closed on 23 August, and on 9 September the ACCC decided to reject the proposed undertakings, including IOOF as a proposed purchaser of the divestiture business.
In the past ACCC has reminded businesses that the ACCC is concerned with the impact on competition not public benefits.
The main arguments relate to the ACCC’s market definition.
In its Merger Guidelines the ACCC says:
“The ACCC’s view is that the substantiality criteria could be satisfied in many ways including by reference to the size of the market in terms of number of customers, total sales or geographic size. A market that is ‘small’ in some sense may still be substantial…
In particular, substantiality of a market is not necessarily related to geographic size. A market may be small geographically (for example, a local market) but may also be substantial within the region in which it is located. Alternatively, a market for the supply of a product that is an essential but small ingredient in the production of one or more other products sold in large markets may be considered substantial.”
Certainly in this instance the ACCC has narrowly defined the market. Its conclusion as to the availability of products as a result of a merger will be watched with interest.
UPDATE: The NAB and AXA Agreement was terminated on 14 September.See here.