Transparency and mergers

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An article on page 3 of Friday’s AFR caught my eye. It relates to ACCC merger clearance. In particular, the following quotes from John Kench:

“I think the fundamental problem remains that we need to find a way to break open some of the current processes” Mr Kench said. He called for the publication of submissions and “more open discussion  of which market opponents or commentators are opposed and their reasons for opposition”

Now if John really thought this was a good idea he would also support the submissions from all parties, including the merging parties, being public. I suspect that he does not support this. If he did he would advise his clients to take the very open, very public ‘formal’ merger clearance route. Just to remind readers, this process came into law around 2006 and has never been used to clear a merger. Why? Because no merger parties have ever applied for formal clearance. In a merger, all parties want everyone else’s submissions to be public – but not their own. Under the formal process (subject to some minor exceptions) everything is public.

The informal merger process works bcause of three key elements:

  1. The ACCC keeps all submissions confidential so that suppliers, customers and competitors can put information to the ACCC without fear of market retribution;
  2. The ACCC keeps merger parties well informed during the clearance process so that they know what the ACCC’s concerns (if any) are about the merger and how they can provide information to try and clear that concern; and
  3. The ACCC casts a skeptical eye over all arguments put before it. After all, it is the ACCC who takes the relevant parties to court if they oppose a merger so it is the ACCC that has to be sure of its facts.

This mix of confidentiality, a ‘no surprises’ policy in communication with merger parties and a hurdle of ‘evidence to convince a Federal Court judge’, has worked well for the Australian business community. It means our merger clearance processes, while unique in international terms, are faster and more efficient than in other countries.

But if the business community really thinks they are broken, as John suggests, they already have a transparent alternative. In economics, we often judge preferences by what parties do, not what they say. The fact that no merger parties – including those John advises – have headed down the formal merger clearance route strongly suggests that the informal process serves the business community amazingly well.

4 Responses to "Transparency and mergers"
  1. Let’s see, Stephen, your argument is:
    1.  Suppliers, customers and competitors don’t want their M&A submissions to the ACCC made public because of fear of retribution  – [gee, sounds like somebody might have a lot of market power and might (mis)use it]
    2.  Therefore people choose the informal clearance process
    3.  Your conclusion: the informal process serves the business community amazingly well because they choose the informal process.
    So don’t mention fear of retribution, huh?  That’s your advice?
    Doesn’t the problem START with fear of retribution and how that situation has come about? Solve that problem and people might be more willing to take the formal clearance route.
     
     
     

  2. Let’s face it. in the real world, firms under merger scrutiny have some market power. And if you were a supplier who relied on one of the merging parties for a reasonable share (say 30%) of your sales, why would you upset that customer by publicly opposing their merger?
    Anyone who thinks that there would not be ‘consequences’ from publicly opposing a merger involving a significant customer or supplier is simply naive. And if you think such retribution could be prevented – well that is even more naive. Market competition is not cosy and pleasant. it is harsh and tough. That is why it usually works in the best interests of customers. But let’s not pretend we live in some textbook world of perfect competition. If we did, we wouldn’t need the Trade Practices Act.
    The informal merger process serves the business community well in the real world.

  3. See points 1-3 in my earlier comment.  Your logic is circular, at best, Stephen.
    You seem to be accepting, if not condoning, misuse of market power by large companies to settle scores with smaller customers/suppliers/competitors, regardless of the validity of their complaints.  Are these people not entitled to the protection of the law?
    Instead, you simply make excuses for such behaviour by reference to your imaginary “real world”.  When people are knifed by thugs in the street, the police should simply point out that it’s “harsh and tough” out there?  No further action required?
    Odd also, that you consider the ACCC to be utterly incapable of protecting complainants.  That’s not an admirable quality in a regulator with the power to compel a witness to give evidence.
    You don’t even suggest that such bully-boy behaviour by big companies should not occur.  Not even in principle.
    Finally, how did we arrive at the circumstance where big companies are so big that “fear of retribution” guides the behaviour of their suppliers, customers and competitors. regardless of right or wrong?  How did these companies get so big?   Umm, I’d suggest it has been largely the result of ACCC decisions in M&A cases.  You know, Stephen, the process you say works so well for everyone.
     
     
     
     
     
     

  4. Stumped
    You seem to be confusing illegal behaviour with behaviour that is legal but tough. For example, I am a retailer and you supply me. I have four alternative suppliers to you. You oppose my merger. Three months later, your supply contract goes up for retendering. I choose one of your competitors. I argue (and document) that they provide a better product and better service to me.
    Is this retribution or competition? If you would outlaw this behaviour then you may as well just get rid of markets altogether.
    There is often a thin line between illegal abuse of market power and tough competition. If you don’t believe this, go back and read Goldberg’s excellent Federal Court judgement in the Safeway bread case.
     
    The ACCC should vigorously pursue breaches of s.46. But to say that the law is imperfect is not condoning abusive market behaviour. It is recognising reality.

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