PNG has introduced new merger control rules. PNG’s competition regulator, the Independent Consumer and Competition Commission (ICCC), must now be notified of a merger or acquisition, in advance, if certain thresholds are met.

This is a significant change to the former voluntary notification regime.

Overview

Last week, the Independent Consumer and Competition (Amendment) Bill 2018 (Bill) was passed by the Parliament of Papua New Guinea, introducing mandatory pre-merger notification requirements if:

• the transaction value of the proposed acquisition exceeds PGK 50 million; or
• the proposed acquisition is likely to result in a market share increase of 50 percent or more of the acquirer.

Failing to notify the ICCC of an acquisition results in a default penalty of PGK 750,000.

Why has the law changed?

The Second Reading speech for the Bill said that the changes were required to give "teeth" to the merger notification process, and that "having a voluntary system of premerger notification [had] not worked well for [PNG’s] economy”.

The Second Reading speech said that:

• there was high non-compliance by companies in relation to their obligations to apply for clearance or authorisation for potentially anticompetitive business acquisitions;
• there were some potentially anticompetitive acquisitions that proceeded without prior approval from the ICCC;
• there was a high cost to the state for the ICCC having to investigate consummated acquisitions in the courts; and
• it takes longer for the ICCC to investigate consummated acquisitions due to the unwillingness of the parties to cooperate and provide information to the ICCC.

The Second Reading speech also said that "there have been many acquisitions that have slipped through the ICCC’s radar that now pose significant competition concerns in our economy today".

The passing of the Bill follows recent investigations by the ICCC against companies which it alleges have breached the Independent Consumer and Competition Commission Act 2002 (ICCC Act) by entering into transactions that would be likely to have the effect of substantially lessening competition in a market. Earlier this month, the ICCC said that it would investigate the acquisition of a PNG fast moving consumer goods business by another PNG FMCG business.

The new thresholds

The original proposal was for pre-merger notification to be required if one of three threshold tests were met:

"1. the transaction value of the proposed acquisition exceeds the value of PGK 50 million; or

2. the total share is 40% or more of the total shares in the company whose shares are being acquired; or

3. the proposed acquisition is likely or would likely to result in a market share increase of 50 percent or more of the person who is acquiring."

When the Bill was passed the second of these proposed thresholds was removed from the legislation.

It is conceivable that the final threshold – an increased market share of 50 percent for the acquirer – will result in mergers being notified to the ICCC even if the merger will not have a significant impact on competition in a market.

The new process

The new process requires the acquirer to submit a notice seeking clearance for the acquisition to the ICCC if one of the thresholds is met.

The ICCC then has the power to:

• clear the acquisition;
• decline to clear the acquisition; or
• direct the acquirer to give the ICCC a notice seeking authorisation for the acquisition, if the ICCC reasonably believes the proposed acquisition requires it.

Previously, a party could apply directly to the ICCC for authorisation.

The changes to the law also give the ICCC power to impose conditions on a clearance or authorisation, and to revoke a clearance or authorisation if a condition is not complied with.

Background to the changes

Since 2002, the ICCC has been responsible for administering and enforcing PNG’s competition and consumer laws under the ICCC Act.

In 2015-16, the PNG Department of Treasury led a comprehensive Consumer and Competition Framework Review and a final report was released in May 2017. The final report recommended that the ICCC Act be amended to require mandatory pre-notification to the ICCC of mergers and acquisitions that exceed specified thresholds. In May 2018, the Department of Treasury issued a public consultation paper on PNG’s National Competition Policy and proposed that the recommendation be given effect to by new legislation.

The Bill was passed on 25 July 2018.

What was the position in PNG previously?

The notification of mergers and acquisitions in PNG was formerly voluntary, and there were no minimum turnover or other monetary thresholds for notifying mergers to the ICCC.

Instead, and comparable to Australia, merger parties could voluntarily seek clearance or authorisation for mergers from the ICCC, ordinarily if there was a risk that the merger would be likely to have the effect of substantially lessening competition in a market.

Significance

Mandatory pre-merger notification is required in numerous jurisdictions worldwide including the European Union, the United States and China.

Parties considering mergers and acquisitions which effect PNG markets must now factor in the notification and timing requirements for interacting with the ICCC before proceeding with a transaction.