With one hand tied behind their back

This opinion piece appeared in the Australian Financial Review on 22 June, 2004.

The ACCC needs more than the Howard Government's planned changes to the Trade Practices Act to protect us from emerging industry oligarchies, says Australian Workers' Union National Secretary Bill Shorten.

The Australian Competition and Consumer Commission (ACCC) urgently needs extra resources so that it can properly and vigorously investigate potentially anti-competitive merger transactions.

New research for The Australian Workers' Union suggests that significant extra funding is needed if the ACCC is to protect businesses, consumers and employees from the new would-be Rockerfellers.

The AWU's research indicates that the ACCC's mergers branch is poorly resourced by international standards and dwarfed by the global corporations involved in many takeovers and mergers.

The Federal Government's planned TPA changes will do little if anything to relieve the pressure on the ACCC, which would carry the expensive burden of proof in appeals from the new "formal" stream for assessing takeovers.

The strain on the ACCC will intensify if the United States Senate approves the Australia-US Free Trade Agreement, cutting the Foreign Investment Review Board's controls over the giant pool of potential US investment in Australian takeovers.

The AWU understands that the ACCC's mergers branch has approximately 25 staff and a budget of between $2 million and $3 million per year. Much of the ACCC's total budget of around $75 million goes on litigation and specific responsibilities in telecommunications, electricity, gas and aviation.

The mergers branch reviews about 250 proposed takeovers per year - at an average cost of around $8,000 per merger. That compares to around $US116,000 per merger in the United States. Companies employing teams of lawyers and accountants spend hundreds of thousands, or even millions, of dollars on a single merger transaction.

In the US, companies must pay significant fees to regulators for their competition assessments. Filing fees are based on the transaction amount of the merger and follow a three-tiered structure - $US45,000, $US125,000, and $US280,000. The fees are divided equally by the Federal Trade Commission and the Department of Justice, which share responsibility for merger enforcement. In 2003, these filing fees totaled US$113 million - or on average US$116,000 per merger. The fees are used by the agencies to fund comprehensive merger investigations.

It is difficult and time consuming to assess the competitive impacts of mergers properly. Given the relatively low budget and staff allocation to the ACCC's mergers branch, some matters are unlikely to receive the scrutiny they deserve.

The AWU is increasingly involved in advocacy to the ACCC on decisions affecting industries employing union members. Despite some exceptions, the Commission has let down both workers and the wider public with a recent series of pro-merger rulings.

The combination of major takeovers and creeping acquisitions in Australia has resulted in a duopoly in large scale civil construction, and increasing concentration in grocery retailing (where Coles and Woolworth's control approximately 75% of the market), and petrol retailing (where Caltex, Shell, Exxon Mobil and BP control approximately 80%).

The origins of the civil construction duopoly provide a worthwhile case study. In 2002 the ACCC allowed the acquisition of Transfield Construction by the Leighton Group on the basis that: "it is unlikely that the proposed acquisition would result in a substantial lessening of competition ... In relation to larger scale projects, fewer competitors exist in the markets, but still sufficient number to constrain the merged entity."

Ten months later, in allowing the merger between Baulderstone Hornibrook and Abigroup Limited (Leightons' major competitors), the ACCC had a very different view and stated: "the proposed acquisition may have pro-competitive effects in the supply of road and bridge construction services involving large projects as it may constrain the market dominance of Leighton Group."

So in only 0 months, the ACCC's assessment moved from one of a competitive market to one of "market dominance." Of course this dominance was increased by Leighton's earlier acquisition of Transfield. If the ACCC had been better equipped to deal with the takeover, a more competitive industry could have been maintained.

Without significant additional funding, the ACCC simply cannot afford to comprehensively investigate all mergers notified to it. John Howard talks a lot about his commitment to competition and small businesses. The latest TPA review provides a perfect opportunity for the Federal Government to urgently increase the ACCC's budget.