Australian merger and acquisition laws will be overhauled in 2026. Is this good or bad for ASX stocks?

Nick Sundich Nick Sundich, April 15, 2024

Last week, the government introduced changes Australian merger and acquisition laws not seen in nearly 5 decades. The ACCC had long expressed that existing laws were not sufficient, allowing deals to go ahead that would worsen the state of competition – an eventuality the laws were meant to prevent.

But what changes are being made? And what will it mean for ASX companies and their investors?

 

What changes are being made to Australian merger and acquisition laws

Firstly, companies will need to notify the ACCC of any M&A deal above a certain threshold, based on the value of the deal, and the share of the market of both companies. The specific thresholds are yet to be determined.

This requirement may seem like a formality, given deals made to ASX companies are disclosed to shareholders. However, the ACCC will have the right to veto any M&A deal that goes ahead without its approval or notification. The ACCC will take 15 or 30 days to review the deal, and if there’s an issue, it has 90 years to determine if the deal lessens competition.

It remains to be seen whether companies will negotiate with the ACCC behind closed doors and not announce deals publicly until they have approval, or if the status quo will persist. What is the status quo? The companies just say the deal is subject to regulatory approval and may fight back if the ACCC tries to block the deal.

 

The onus of proof

Additionally, the ACCC will factor in all M&A deals done by both the acquirer or the target to determine whether they meet the threshold. So much for companies potentially buying up several smaller competitors over time, to become bigger slowly right under the ACCC’s nose! This is what PETstock did over time – the ACCC only realised this strategy the case when Woolworths tried to buy PETstock and saw how it had become so big under their very noses.

One thing the ACCC wanted the Albanese government to implement, but it did not get was the reversal of the onus of proof. Currently, the ACCC bears the burden of proving a deal would lessen competition, while it wanted to shoulder it on companies doing the M&A deal. Nonetheless, it has been proposed that the ACCC would have to be ‘reasonably satisfied’ that a deal would lessen competition.

When will this happen? It is proposed that they would go in place in 2026, although it needs to be signed off on by both the federal and state governments. There will also be a significant consultation period ahead.

 

So what will this mean for companies wanting to do M&A deals?

In theory, deals will take longer to complete given the ACCC scrutiny, and company efforts to be certain any M&A deal would not be blocked. It may also lead to companies hesitating to do deals in the first place. But to what extent? That remains to be seen, although Treasury expects a marginal impact (i.e. the annual average to drop from 330 to 300).

The positive is that there may be fewer sagas like ANZ’s bid to buy Suncorp that dragged on for roughly two years and ended in defeat for the ACCC. Inevitably there will be higher costs – the ACCC wants to charge $50,000-$100,000 per review. This will be penny change for most larger companies, although this is another thing for them to deal with.

It has been argued by some tech investors in Australia that it is particularly harmful to small to mid cap tech companies because they will rely on being bought, given they may not be able to scale to become a standalone business. In our view, if a business really is worth something, an acquirer will make it happen – even if the market cannot.

 

Is this good or bad for ASX stocks?

To answer the question succinctly, we think that on balance, it will be bad for ASX stocks. This does not mean there’s no prospect they’ll turn out good, or that we will notice the impact either way. It might mean there will be more caution by companies to undertake M&A deals, knowing the costs (financial and non-financial) of having a deal rejected.

 

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