accc accepts defeat on metcash bid but keeps t

http://www.theaustralian.com.au/business/markets/accc-accepts-defeat-on-metcash-bid-but-keeps-test/story-e6frg916-1226214574541

THE competition watchdog has abandoned its quest to stop the Metcash purchase of the Franklins grocery chain but will continue to rely on a controversial test to rule on future deals.

The Australian Competition & Consumer Commission opposed Metcash's $215 million purchase of the Franklins business because it believed the move would lead to a lessening of competition in the wholesale supply of packaged groceries to independent retailers in NSW and the ACT.

However, a Federal Court judge, and then a further three Federal Court judges on appeal, all knocked back the ACCC's case.

The commission had the option of appealing to the High Court following last week's defeat, but yesterday announced it would not, with chairman Rod Sims accepting the latest court ruling.

The ACCC appealed for two reasons: to overturn the Metcash decision and to "seek clarity" on the principles the case raised, as they would affect future merger decisions.
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During the case, the ACCC was criticised from the bench for not applying a commercial rationale to its decisions and instead relying on "economic theory".



Mr Sims said yesterday: "The ACCC agrees that in relation to any acquisition it must consider the likely effect on competition, based on commercially relevant facts, assessments and evidence, and not speculative possibilities."

Another key area of the decision was the reasoning and analysis applied to the "counterfactuals", or alternative scenarios of what would happen in the market if the sale were blocked.

One of the issues in the case was how to determine if a sale was likely to reduce competition.

But without a High Court decision, or a change in the law, the ultimate position remains unclear.

"Although not conclusively determined by the full court on this occasion, the ACCC considers there is strong judicial support for the view that 'likely' means a 'real chance'," Mr Sims said.

"The ACCC will continue to assess the likely competitive effect of an acquisition on the basis of a 'real chance test'."

Fiona Crosbie, a partner at law firm Allens Arthur Robinson, said that when the ACCC had to decide whether a merger would substantially lessen competition in a market, it must "compare the world with the transaction to the world without it".

"Previously the ACCC had adopted a counterfactual when there was, in its view, a 'real chance' that the counterfactual would eventuate but for the transaction," Ms Crosbie said.

"Following the full court's decision there seems to be general acceptance that the ACCC must establish (i) the counterfactual is more likely than not to occur (balance of probabilities), and (ii) there is a real chance of a substantial lessening of competition relative to the counterfactual.

"However, members of the full court appeared to question the intellectual consistency of merger analyses involving two different standards of proof.

"And so there appears to be a question mark as to whether the 'real chance' standard for the second limb of the test would survive an appeal to the High Court.

"The absence of an appeal means the High Court will not be able to settle the issue on this occasion," she said.