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• Competition Policy

• Commerce Act Pts 4/4A/5 Review

• Authorisation and Clearance

• Cabinet Paper
• RIS/BCCS
• Submissions
• Discussion Document
• Terms of Reference

Background

36. The Commission may grant a clearance or authorisation to a proposed merger, subject to an undertaking to dispose of assets or shares. The undertaking is an integral part of the decision to clear or authorise a merger. Failure to dispose of the shares or assets within the specified time limit means that the merger will not have been protected by the clearance or authorisation and is therefore open to be challenged in the High Court.

37. There has been one example in recent years where a divestment deed of undertaking was not given effect to. A merger of Pernod Ricard and Allied Domecq was cleared by the Commission subject to an undertaking to sell various assets within 12 months of the acquisition taking place.¹⁵ This undertaking was voluntarily provided with the clearance application at the outset. The Commission did not indicate to the applicant that an undertaking would be required to address competition concerns. The Commission investigated under section 47 and decided not to take further action.

Issues

38. The following two issues relating to the enforcement and variation of undertakings have been brought to our attention for consideration:

Issue C1: Enforceability of undertakings

39. It is not an offence to fail to comply with a divestment undertaking. Therefore they are unenforceable. The Commission can seek an order from the Court under section 85 to divest the assets or shares. However, section 85 only applies to contraventions of the substantive merger prohibition appearing in section 47. The Commission would need to prove to the Court that the merger was anticompetitive. This would be a lengthy and resource-intensive process.

Issue C2: Variation of undertakings

40. There is no scope for the Commission to amend an undertaking once the clearance or authorisation decision has been made. This can mean that the acquirer will lose the protection provided by the approval if it does not implement the merger strictly in accordance with the approved undertaking. Thus, the immunity from legal challenge by a third party would be lost even if a variation would have no adverse impact on competition.