Investigating the ACCC’s shift in approach towards behavioural undertakings
The ACCC has long maintained a clear stance on undertakings offered by merger parties. Historically, the ACCC has favoured structural undertakings – which involve a divestiture of part of the merged firm to preserve or restore the structure of the market – over behavioural remedies, which entail ongoing commitments to alter the conduct of the merged firm. The ACCC emphasises in its Merger Guidelines a ‘strong preference for structural undertakings’ as they ‘provide an enduring remedy with relatively low monitoring and compliance costs’.[1] Conversely, the ACCC notes that behavioural remedies ‘may be appropriate as an adjunct to a structural remedy’, but ‘are rarely appropriate on their own to address competition concerns,’ including because of the substantial monitoring and enforcement burdens they impose.[2]
The ACCC is not alone in its aversion to behavioural undertakings in merger matters, with the UK Competition and Markets Authority (CMA) and US agencies echoing similar concerns.[3] In 2021, the ACCC, CMA and German Bundeskartellamt issued a joint statement on merger control enforcement in which they noted that:
It is widely acknowledged that complex behavioural remedies that create continuing economic links and dependencies are unlikely to recreate the pre-merger competitive intensity of the market, can raise significant circumvention risks, and can quickly become outdated as market conditions change. In some circumstances they can also distort the natural development of the market.[4]
Reflecting this perspective, the ACCC has historically adopted a stringent approach to behavioural undertakings in mergers, even being prepared to deviate from the approach taken by global counterparts such as the European Commission (EC) in relation to the same merger. A notable example is the ACCC’s review of the Google/Fitbit merger in 2020, where it rejected Google’s proposed court enforceable undertaking that it would behave in certain ways towards rival wearable manufacturers, not use health data for advertising and, in some circumstances, allow competing businesses to access its health and fitness data. These remedies were intended to address a number of ACCC concerns that were primarily related to the merged entity’s ability or incentive to foreclose Fitbit’s rivals post-acquisition.
The ACCC stated that while it was aware that the EC had recently accepted a similar undertaking, it was not satisfied that a long-term behavioural undertaking in such a complex and dynamic industry could be effectively monitored and enforced in Australia.[5]
The CMA has also historically taken a firm stance against behavioural remedies in merger contexts. For example, in April 2023, the CMA blocked Microsoft’s acquisition of Activision Blizzard, rejecting behavioural licensing remedies put forward by Microsoft to address the CMA’s concerns that the acquisition could result in the merged entity having the ability or incentive to foreclose rival cloud gaming service providers.[6] A few weeks later, the EC cleared the same deal subject to similar (albeit slightly broader) behavioural remedies.
Recent cases – a shift in the ACCC’s approach?
Despite its established public position, a number of ACCC merger decisions over the last few years suggest a renewed willingness to accept, or at the very least consult on, behavioural undertakings:
- In June 2023 the ACCC granted authorisation for the merger of Linfox Armaguard Pty Ltd and Prosegur Australia Holdings Limited after accepting a court-enforceable behavioural undertaking as a condition of the authorisation, which it considered would result in a public benefit that outweighed the public detriments associated with the transaction. The undertaking – effective for three years – includes a range of obligations which together are designed to provide continuation of services, reduce uncertainty about price and service levels and provide opportunities for other cash-in-transit providers to make use of excess equipment to expand their existing operations. Amongst other things, the undertaking requires the merged entity to continue to offer cash-in-transit services to all locations that are currently serviced, limits the merged entity’s ability to reduce service levels and raise prices for existing customers, and sets minimum terms and pricing constraints for new customers.[7]
- In October 2023, the ACCC granted authorisation for the (now abandoned) acquisition by Brookfield and MidOcean of Origin subject to conditions requiring Brookfield, AusNet and MidOcean to give and comply with certain behavioural undertakings. The commitments offered by Brookfield, which followed extensive negotiations with the ACCC, required it to reinforce and extend extensive ring fencing obligations, comply with certain reporting obligations in relation to Origin’s renewable investment program and prohibited Brookfield from selling AusNet and Origin in a manner that would result in a single corporate group holding more than a 10% interest in both.[8]
- More recently, in November 2024 the ACCC cleared the merger between Sigma Healthcare and Chemist Warehouse after accepting a behavioural undertaking from Sigma which it considered would address its concerns that a combined Sigma-Chemist Warehouse could foreclose downstream pharmacies that compete with Chemist Warehouse. The undertaking requires Sigma not to enforce contractual restrictions on exit for pharmacies it has longer term contracts with and ensures payments under contracts do not make it costly for a pharmacy to switch. The undertaking also requires Sigma to safeguard and delete the data of pharmacies that choose to switch, and requires the merged entity to continue as a pharmacy wholesaler under the Commonwealth Government’s Community Service Obligation arrangements for five years.[9]
- The ACCC also announced in late October 2024 that it was seeking market feedback on a behavioural undertaking put forward by Qube in relation to its proposed acquisition of Melbourne International RoRo & Auto Terminal Pty Ltd (MIRRAT) which operates the Roll-On Roll-Off automotive terminal at Webb Dock West. The undertaking is designed to address concerns that post-merger Qube could foreclose its downstream rivals that require access to the Webb Dock West terminal. The proposed undertaking imposes obligations on Qube’s wholly owned subsidiary AAT not to discriminate in favour of its own interests, imposes restrictions on AAT’s ability to introduce or change certain tariffs and provides for independent oversight obligations.[10]
A similar shift in the UK
Overseas in the UK, the CMA appears to be moderating its stance on behavioural remedies as well. Last month, the CMA cleared the merger between mobile network operators Vodafone and Three UK, announcing that its competition concerns would be resolved through proposed behavioural remedies.[11] These remedies require Vodafone and Three to deliver network upgrade and investment plans over the next 8 years (overseen by the CMA and Ofcom, the UK’s telecommunications regulator), cap selected existing mobile tariffs and data plans for 3 years, and offer pre-agreed prices and contract terms for wholesale services for 3 years.
The CMA has also recently signalled the potential for a broader policy shift in relation to behavioural remedies, with the CMA’s Chief Executive Sarah Cardell announcing in late November 2024 that in early 2025 the CMA will be undertaking a review of its approach to merger remedies which will – amongst other things – include a review of when behavioural remedies may be appropriate, including any distinction for regulated sectors.[12]
Why this matters, and what to expect next
While the ACCC’s recent decisions may not signify a radical departure from its historical approach to behavioural remedies, they do reflect a growing willingness to adopt a more flexible and proportionate response tailored to the specific competition concerns raised by each merger. In particular, apart from the Prosegur Armaguard merger, the other mergers identified above involved non horizontal theories of harm without direct competitive overlap between the merger parties. Unlike horizontal mergers which bring structural changes to a market (and in turn are perceived to require structural solutions to fully address the risks to competition that are generated by the competitive overlaps), competition concerns raised by vertical mergers can often be effectively addressed by behavioural commitments aimed at modifying the commercial incentives of the merged entity. In such matters, behavioural commitments can eliminate potential anticompetitive effects by reducing the ability or incentive of the merged entity to foreclose competitors, whilst still preserving valuable procompetitive efficiencies.
The ACCC’s recent openness to behavioural undertakings may also indicate a willingness to impose behavioural conditions under the new mandatory and suspensory regime established by the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill, which passed parliament on 28 November 2024. Under the new regime, the ACCC has the ability to make determinations that acquisitions can be put into effect subject to conditions (where it considers that competition concerns can be addressed or that there would be a public benefit, if the parties to the acquisition complied with these conditions). The new laws give the ACCC broad powers to determine the nature, form and scope of the conditions, and to have regard to their effect on consumers and any resulting consumer benefits. This marks a shift from the current voluntary regime, where parties can voluntarily offer undertakings to the ACCC, but the ACCC lacks the power to require such commitments.
We can expect further guidance on how the ACCC might utilise its new powers to impose conditions – as well as other important aspects of the new merger regime – early this year when the ACCC consults publicly on its draft process and analytical guidelines.[13]
[1] ACCC Merger Guidelines (2017) p 59.
[2] ACCC Merger Guidelines (2017) pp 59, 61.
[3] Competition and Markets Authority (CMA), Mergers: Guidance on the CMA’s jurisdiction and procedure (25 April 2024) pg, 71 and fn 202; Antitrust Division, U.S. Department of Justice, ‘Merger Remedies Manual’ (September 2020) pg. 4 (“Conduct remedies typically are difficult to craft and enforce. For these reasons, conduct remedies are inappropriate except in very narrow circumstances”)
[4] CMA, ACCC, Bundeskartellamt, Joint Statement on merger control enforcement (20 April 2021).
[5] ACCC, ACCC rejects Google behavioural undertakings for Fitbit acquisition (22 December 2020).
[6] Note, in October 2023, the CMA cleared Microsoft’s acquisition of Activision Blizzard under a new deal in which Microsoft would not acquire Activision’s cloud streaming rights outside the EEA.
[7] ACCC, ACCC authorises Armaguard and Prosegur’s merger, subject to undertaking (13 June 2023).
[8] ACCC, ACCC authorises Brookfield and MidOcean’s acquisition of Origin (5 June 2023).
[9] ACCC, Sigma and Chemist Warehouse proposed merger not opposed, subject to undertaking (7 November 2024).
[10] ACCC, Qube’s proposed acquisition of MIRRAT raises preliminary concerns (24 October 2024).
[11] CMA, CMA clears Vodafone / Three merger, subject to legally binding commitments (5 December 2024).
[12] Driving growth: how the CMA is rising to the challenge – GOV.UK
