Merger Issues
A: The statutory timeframe for merger clearance determinations
The Act states that clearance decisions shall be made within 10 working days or such longer period as the Commission and the applicant may agree. However, only one of the last 52 applications has been decided within 10 working days. We conclude that the law would be improved if it more accurately reflected reality. We tentatively conclude that the 30 working days should be adopted as the default timeframe.
B: The publication of written clearance decisions
The Act does not require the Commission to publish its decisions. However, the Commission always gives its reasons in writing, but not until some time after it makes the decision. The average gap between the decision and the written reasons in recent years has been 35 working days. Concern has been expressed that the Commission's approach of releasing its reasons some time after the decision is made does not fit well with the statutory appeal provisions. Section 91(2) states that the notice of appeal must be made within 20 working days of the determination or within such further time as the Court may allow. The issue from the potential appellant's perspective is that it can be difficult to judge whether an appeal should be lodged without having the written decision.2
Our preliminary conclusion is that there is no need to change the existing law. Placing a requirement on the Commission to publish within a set number of days of the decision (e.g. 10 working days) would simply encourage the Commission to delay making decisions until they were close to finalising the written decision. Alternatively, changing the appeal right to 20 working days after the written decision was made would make no difference in practice because the Commission never objects if the applicant appeals within this timeframe. It would also mean that the Commission would be legally obliged to write up every decision.
C: The enforcement and variation of undertakings to divest shares or assets
There are no direct means for the Commission to enforce undertakings to divest shares or assets. The only option if a firm breaches an undertaking is to take a case to the High Court claiming that the merger substantially lessened competition. Taking such a case would be time consuming and expensive. We conclude that change is needed to allow the Commission to seek orders from the Court requiring compliance with undertakings along with the power to seek other orders to correct, punish and compensate.
In addition, there is no means for the Commission to amend an undertaking once a clearance or authorisation decision has been made. This can be an impediment to making sensible minor changes that have no bearing on competition. We consider that the original applicant should be able to ask the Commission to approve minor variations.
D: Behavioural undertakings
The Commission may accept undertakings to divest shares or assets as a condition for approving a merger. It cannot accept behavioural undertakings. The benefit of allowing such undertakings is that it would allow some possibly welfare-enhancing mergers to obtain immunity. However, there are a number of disadvantages. Behavioural undertakings would be tantamount to foregoing competition and replacing it with what is regulation by another name. Generally speaking, regulated monopolies do not perform as well as firms that face workable or effective competition. Allowing the Commission to decide to regulate a firm under Part 5 would also be inconsistent with the scheme of Part 4, which allocates the responsibility for determining the firms or sectors that will be regulated to government ministers.
There are other potential downsides. Market circumstances change over time and a possibly well-targeted undertaking could become ineffective or counterproductive. We also note that behavioural undertakings may not be fully effective unless they cover a wide range of potentially anticompetitive conduct and address the risks of price gouging. There could also be substantial ongoing monitoring and enforcement costs for the Commission.
Overall, our conclusion at this stage is that the Commission should not be able to accept behavioural undertakings for mergers.
E: Informal pre-merger processes
Parties to proposed mergers sometimes approach the Commission informally before deciding whether to submit a clearance application. This is also true in Australia. However, the Australian informal system is more formalised and the ACCC is prepared to give a conditional letter of comfort to the parties that it will not challenge a merger in court. The Commission does not go this far. The most it will do is to provide guidance that will help the parties to make their own assessment of any risks under the Act.
We conclude that the adoption of a letter of comfort system in New Zealand could result in speedier decisions in some cases compared with the formal clearance system appearing in the Act. However, that would be at the expense of some due process protections that underpin the Act and the legal system more generally. Our view is that the due process deficiencies need to be weighted heavily and our preliminary conclusion is that a letter of comfort system would not fit New Zealand's circumstances.
Back to Top