A tougher line on regulating competition, mergers and takeovers and markets is starting to emerge from the ACCC.
Takeover, assets sales, spin-off are becoming more prevalent in the wake of the pandemic as costs rise thanks to the great burst of inflation in 2022-23 and then tight labour markets and rising wages.
Companies are starting to look at cost cutting through shedding jobs and businesses – some are being spun off – especially coal mining assets here and offshore, others involve companies trying to reshape themselves by getting rid of what are thought to be old or weak subsidiaries in competitive industries.
Other examples are where strong companies try to grab smaller and weaker rivals to build market share or fight off rising competition.
In many of these cases, regulatory approvals are needed from anti-trust of competition bodes such as the ACCC or the Foreign Investment Review Board or other government departments.
Three current but separate cases, as well as a speech last week by Commission chair, Gina Cass-Gottlieb, suggest the regulator is flexing its muscles and wants the Albanese government to do its bit and strengthen competition laws, as the government did in its campaign rhetoric.
Thursday’s announcement that the Commission will oppose the proposed $614 million acquisition of Alliance Aviation Services Ltd by Qantas is one of the cases, the second is the ANZ’s proposed $4.9 billion proposed purchase of Suncorp’s banking arm, while the third is the tough undertaking a foreign buyer was forced to give to get global clearance for a takeover.
As well on Friday, the ACCC called for submissions on ways of strengthening competition in bank deposits to give depositors a better deal (ie, higher rates). The Commission called “on banks, bank customers and other interested stakeholders to share their views on competition and consumer issues affecting retail deposit products.”
An issues paper published on Friday the Commission posed a number of questions about competition (and the lack of it) in this area and said it was asking for submissions that it will consider in its retail deposits inquiry, including the very tricky one, “How banks set their interest rates.”
This one is sure to attract considerable interest from the public, consumer and other groups and no doubt will see some resistance from the banks and their lobbyists.
And then there’s the speech last Wednesday in which the Commission Chair said it was hamstrung by weak laws from going after deals that will restrict competition.
Ms Cass-Gottlieb told the National Press Club, “Australia’s current laws prohibit mergers that are likely to result in a substantial lessening of competition. However, the laws do not require parties to notify the ACCC of planned mergers, or to wait for ACCC clearance before they complete the merger.
“This means that the ACCC must apply to the Federal Court to have the merger halted or unwound if parties do not abandon or revise transactions that the ACCC considers are anti-competitive.”
“The ACCC needs to have the tools necessary to be able to properly scrutinise and, if necessary, prevent mergers that are likely to substantially lessen competition,” Ms Cass-Gottlieb said.
With that background the much-delayed decision on the Qantas-Alliance deal (it was announced in May, 2022) should not be all that much of a shock. Nor should it be a surprise that the ACCC has deep reservations about the ANZ/s proposed deal with Suncorp.
The ACCC has already raised questions about the ANZ’s $4.9 billion attempt to buy Suncorp bank.
The commission has revealed its concern in a statement earlier this month when it announced it was extending its investigations of the proposal and in an issues paper issued at the same time said:
“…in assessing the Proposed Acquisition, the ACCC is closely considering the overall impact of the loss of an established independent second-tier provider in the Australian banking industry, noting expansion from new or smaller providers is likely to be limited”.
“The ACCC’s preliminary view is that despite the various developments and trends in Australian banking in recent years outlined above, there remain significant regulatory and structural barriers for new entrants and smaller providers.”
“If the Proposed Acquisition proceeds, Suncorp Bank will be removed as an established independent member of the group of second-tier banks. The ACCC is considering the extent of the impact of the removal of Suncorp Bank on competition, particularly in an oligopoly market structure where the major banks may be more likely to face competitive pressure from the second-tier banks than from other smaller providers of banking services,” the ACCC said in its issues paper.
A decision is due in early June but it wouldn’t surprise to see a further delay as Suncorp and ANZ try to change the ACCC’s thinking if the decision looks like being a ‘no’.
The smaller, $614 million Qantas bid for Alliance is the one that could end up a touchstone brawl between the Commission and the aggressively-run airline.
The Qantas-Alliance proposal first appeared in May, 2022, and after extensive investigations and extensions of deadlines, the Commission this week revealed its opposition, saying “Qantas will face limited competition if allowed to acquire Alliance”.
The Commission said Qantas and Alliance are key competitors in that they are suppliers of air transport services to mining and resource companies who need to transport ‘fly-in fly-out’ workers in Western Australia and Queensland.
After a thorough investigation of the proposed acquisition, the ACCC said it had concluded that the transaction is likely to substantially lessen competition in markets for the supply of air transport services to resource industry customers in Western Australia and Queensland.
“We consider Alliance to be an important competitor to Qantas, and the removal of Alliance is likely to substantially lessen competition threatening increased prices and reduced service quality for customers,” Ms Cass-Gottlieb said
“Qantas and Alliance currently strongly compete with each other in markets where there are few effective alternatives. The proposed acquisition would combine two of the largest suppliers of charter services in Western Australia and Queensland,” the ACCC explained in its statement on Thursday.
“Flying workers in the resource industry to and from their worksites is an essential service for this important part of the Australian economy, so it is critical that competition in this market is protected,” Ms Cass-Gottlieb said.
“For many customers, Alliance is the preferred supplier due to its large fleet capacity, customer-centric approach and high-quality service offerings, including having the highest on-time-performance in the industry and demonstrated flexibility and willingness to meet customer needs,” Ms Cass-Gottlieb said.
“Alliance doesn’t sell seats on major passenger routes, so many Australians may not have heard of them, but it is one of Australia’s most significant airlines, with 70 aircraft currently and more on order.”
“Combining such an important player with Australia’s largest airline, Qantas, would be likely to substantially lessen competition and is something we oppose,” Ms Cass-Gottlieb said.
The ACCC said it carefully considered the level of competition provided by other airlines such as Virgin Australia and National Jet Express (which was recently purchased by Rex), and other smaller market participants.
The ACCC found that it is unlikely a new or existing airline could expand quickly to a scale that would address the loss of competition resulting from the proposed acquisition.
“Qantas will face limited competition if allowed to acquire Alliance because most other airlines lack the right aircraft, fleet size, or capabilities needed to compete effectively,” Ms Cass-Gottlieb said.
“Airlines wanting to enter or expand at scale, face a combination of barriers, including incumbency advantages, the need to establish a reputation for providing a reliable service, access to and training of air crew and engineers, access to suitable aircraft and infrastructure, and the significant regulatory requirements to fly.”
Qantas arced up and said it would ask the Commission for more information and left the strong impression that it would go down the legal route and challenge the decision.
In a statement to the ASX after the Commission’s announcement, Qantas made it clear it was not going away:
“Qantas will seek more information from the Australian Competition and Consumer Commission (ACCC) about its decision to oppose the planned acquisition of Alliance Aviation Services Ltd. Qantas remains confident the acquisition would not substantially lessen competition in any market.
“As well as reviewing the announcement released today, the airline has requested a meeting with the ACCC to understand its decision, which is at odds with the increasingly competitive nature of the segment and views expressed by a competitor that the acquisition would not lessen competition.
“Australia has one of the most competitive aviation industries in the world. That competitive dynamic is intensifying with new entrants and expansion of existing carriers and significant growth in the resources sector.”
