In July 2008 the Commerce Commission released its Draft Merger and Acquisitions Process Guidelines. While useful in terms of providing transparency of process, senior associate David Blacktop outlines why the guidelines are unlikely to speed up the clearance process and will not fundamentally change the current regime from a merger participant's point of view.
Criticisms of current regime
During the last half of 2007, the Commerce Commission commissioned an external review of the way in which it goes about the merger clearance process. The clearance process allows parties seeking to make an acquisition to apply to the Commission for a clearance which provides an immunisation for the acquisition from later challenge by the Commission or another party.
The clearance regime has been criticised in some quarters as being too slow (with frequent extensions asked for), uncertain and, because the Act requires the Commission to be satisfied that no anti-competitive effect would occur, biased against acquisitions. Our experience is that clients are also concerned about a lack of access to Commissioners directly.
What can the review achieve
The Commerce Commission must work within the framework provided by the Commerce Act. MED is currently reviewing the legislation governing the clearance regime. The Commission's review can therefore only address the processes it adopts in terms of setting timeframes and expectations for merger participants.
The guidelines have an extensive discussion of pre-merger notifications. There are two parts to this. First, the Commission suggests parties that are intending to file a clearance application notify the Commission at an early stage so that it can expect a clearance. This enables the Commission to plan its resourcing appropriately and this suggestion simply formalises current best practice.
The second part of the process covers the current practice of senior management meeting with senior Commission staff, and in many cases the Chair, to inform them directly of the matter. While these "fireside" chats have in our experience little bearing on the overall outcome, they are valued by clients who feel that these meetings are their only chance to meet with Commission members directly.
The draft guidelines suggest these meetings would only occur with Commission staff in the future and would not involve Commissioners.
The Commission has also suggested that, prior to any pre-meeting with Commission staff, parties must file a:
"...substantially developed draft application form at least two working days before the prenotification discussion meeting. However, a longer timeframe may be appropriate for more complex mergers. This allows the Commission sufficient time to review the draft application form in preparation for the meeting."
In practice, the request for a draft clearance application may be problematic because there may well be changes to the application put forward prior to the filing of a clearance. The Commission would rightly question why changes have been made and this might mean that parties will be reluctant to engage in this process.
Proposed timeframes: 8 – 12 weeks for a clearance
The proposed timeline adopted by the Commission anticipates a clearance will take 8-12 weeks to achieve. This reflects the current timeframes. The timeframes anticipate at after eight weeks the Commission will be in a position to either clear a transaction or, alternatively, say "we have some concerns and need more time". In that case the Commission will send a "letter of concern" to the parties and ask for a four week extension.
Letter of concern process
The Commission already adopts a letter of concern process and this is helpful for parties. The practical reality of a letter of concern is that it is incumbent on the parties to produce compelling evidence as to why there is no competitive concern – if that is not possible clearance will almost certainly be declined.
With this in mind, we note that the guidelines propose a meeting between the Commission and the merger parties five working days from receipt of a letter of concern. While we think such a meeting is a good idea, five working days does not allow parties much time to respond fully to any detailed concerns raised.
Submissions on the draft set of process guidelines and revised application form for businesses seeking clearance closed on 1 August. To access a copy of these documents visit the Commerce Commission's website at www.comcom.govt.nz.
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