The Australian Competition and Consumer Commission is seeking industry submissions on Lion’s proposed acquisition of Fermentum Pty.
The ACCC is undertaking an informal public review of the merger of the big brewer’s takeover of Stone & Wood’s parent company after the deal was announced two weeks ago.
In his request for quotes, the ACCC has said it wants to focus on the impact of the merger on competition, as Fermentum and Lion both manufacture and distribute a range of alcoholic and non-alcoholic beverages, including beer, cider, alcoholic seltzer, and kombucha.
The Commission is seeking opinions on whether Lion and Fermentum compete closely for the supply of beer, the likely impact of the proposed acquisition on the price or service levels for the supply of beer, and the availability of alternatives to customers and the ability of those alternatives to expand.
The ACCC legal test applies, he says, to Article 50 of the Competition and Consumer Law 2010 which prohibits acquisitions likely to have the effect of significantly reducing competition in the market.
What is an informal merger review?
According to Rob Nicholls, associate professor of regulation and governance at UNSW Business School, there are two processes available in Australia during a merger process.
âThere is an informal review and a formal review, although for all intents and purposes, formal reviews don’t happen often. They have arrived but they are so rare that in a competition law course they do not have to teach them.
âFor most mergers, the informal review is done very quickly, and there isn’t often consultation with the public or interested parties, although this is not unusual.
“The idea behind the Australian system is that it is fast, cheap and in the vast majority of mergers it ends with a letter from the ACCC saying they see no reason at the moment that the merger would lead less competition. “
In the case of the takeover of Fermentum and Lion’s, a consultation is in progress.
âThe only test the ACCC will consider in this merger is to ask the question ‘Will the acquisition of assets result in a substantial lessening of competition in any market? “
âIn most cases, ACCC receives a brief from the merging parties and it may raise some issues that there is little chance of reducing competition, but probably not, and that is rejected.
âWhen there is something contentious, and there are clearly conflicts in this area, then the ACCC will do what is called a market investigation, and that is what it is. acts.
Part of this competitive consideration will be a surrogate test of the entire market.
“Does Carlton Draft replace Coopers?” Is Coopers a replacement for Carlton Draft? Probably not, or not necessarily. And this lack of substitution is what defines the markets.
“It would be feasible and possible for a series of craft breweries or the trade association to submit a bid that distinguishes between craft and classic beers.”
After the ACCC consultation, the next step is the organization’s publication of a problem statement.
âThis is where you get some potential for change. Once ACCC has received the submissions and analyzed them, it presents a problem statement, which contains the competition concerns, and they are coded in red, orange, or green.
âGreen indicates that they have looked at the problem but it’s not a problem. The oranges indicate where there is a risk of substantial lessening of competition, but include a potential mitigation of that risk and they indicate what it could be.
âIf it’s red and ACCC says there is no mitigation, that’s when ACCC will try to ban the merger.
âIf the statement of the problems is green, it will not oppose, if it is a mixture of orange and green, the merging parties will find a solution for the oranges. Usually it’s a commitment, and it’s a promise to do something to alleviate the problem, which could lead to less competition. “
This was also the case following the acquisition of Carlton & United Breweries by Asahi Beverages.
The ACCC also sought industry advice on the deal and as a result Asahi Beverages was forced to offload Stella Artois and Becks as well as a number of cider brands to Heineken in order to ensure that it met the conditions imposed by the ACCC.
But one of the questions that will be considered is whether, if the deal does not take place, would Fermentum grow further with the planned $ 50 million brewery in Murwillumbah, and the role of valve contracts in their relationship after it was revealed that Lion was excluding Stone. & Wood faucet contracts.
âA really interesting answer to that is no, it wouldn’t, as Lion is potentially engaging in anti-competitive behavior in terms of casks, meaning that Fermentum had no choice but to accept the merger.
“It’s that kind of submission that ACCC might scratch its head.”
A broader competitive landscape
While it is likely that the ACCC will not oppose the merger, it comes at an interesting time for the competitive market, Nicholls explained.
âIn this case, he has a very big context. Three weeks ago Rod Sims [chair of the ACCC], delivered a major speech to the Law Council of Australia calling for a substantial overhaul of merger authorization laws in Australia.
“This included doing and having the obligation to notify mergers [which is currently not the case]. “
In the speechSims said the current merger laws “do not adequately protect competition,” saying the ACCC does not have the capacity to approve mergers – so as not to disagree with them.
“We have serious concerns about the level of competition in our economy and our ability under current law to prevent further consolidations through anti-competitive acquisitions,” said Sims.
Sims raised a key issue, Nicholls explained – that of “murderous acquisitions.”
“[This is when a] a very large business buys a very small business and does one of the following two things.
âThey could invest heavily in using the branding of this small business to increase product availability and increase the cost of the product, or never let it see the light of day.
âThese are competing things – if small upstarts threaten the big players and have the opportunity to buy them out, that could limit the extent of competition.
âOn the other hand, if I want to sell a lot of money, I want to be able to sell to a big company, because no one has the money to buy me out at those kind of multiples. So you have this weird balance.
âSo Rob Sims called for significant changes to merger laws and, in fact, this is the first merger to go through the public process since that speech.
âThe speech and this merger are not unrelated,â Nichols said.
“But this is precisely the type of non-big-tech fusion that should be thought about more clearly.”
Nicholls said this could be an opportunity for the craft beer industry to raise competition issues in the sector.
âThe marketing inquiries letter isn’t the only thing, ACCC will do its own research, but it is reasonably relying on other people who are going to be affected to say that is what is happening.
âThis is not a case where sitting down will lead to a different outcome.
âIf you have a position, if you have a point of view, if you have evidence, it is important to submit.