Jurisdiction - Australia
Australia – Murray Goulburn Seeks Novel Merger Clearance In Warrnambool Cheese & Butter Bidding War.

11 December, 2013




  • Murray Goulburn, an Australian dairy co-operative, has sought the first merger authorisation from the Australian Competition Tribunal since the new regime was introduced in 2007, in relation to its bid for Warrnambool Cheese & Butter.


  • Two factors appear to be critical to Murray Goulburn’s strategic decision to seek merger authorisation.
    • First, the Tribunal is the decision maker in a merger authorisation, and not the ACCC. In 2010, the ACCC published a Statement of Issues that indicated it may not clear a merger of Murray Goulburn and Warrnambool.
    • Second, the Tribunal will apply a public benefit test, and not the substantial lessening of competition test that the ACCC would utilise. This will enable Murray Goulburn to argue for the merger’s benefits for Australia’s dairy export industry.


  • The merger authorisation will make an important test case, as it is the first time the Tribunal has been called on to authorise a merger on public-interest grounds under the new regime.

Murray Goulburn Seeks First Merger Authorisation

On 29 November 2013, Australian dairy co-operative Murray Goulburn applied directly to the Australian Competition Tribunal (Tribunal) for merger authorisation of its bid for Australian cheese and dairy product manufacturer Warrnambool Cheese & Butter (Warrnambool).

Murray Goulburn’s application is the first made to the Tribunal directly under the regime introduced in 2007, and one of only a handful of merger authorisation applications in the last 30 years.

Murray Goulburn, Bega Cheese and Canada’s largest dairy processor, Saputo, have all made bids for Warrnambool. As this three-way bidding war rages on, we take a closer look at two factors that appear to be critical to Murray Goulburn’s strategic decision to seek merger authorisation.


  • First, the Tribunal is the decision maker in a merger authorisation, and not the ACCC. In 2010, the ACCC issued a Statement of Issues that indicated that it may not clear a merger of Murray Goulburn and Warrnambool.
  • Second, the Tribunal will apply a public benefit test, and not the substantial lessening of competition test that the ACCC would utilise. This will enable Murray Goulburn to argue for the merger’s benefits for Australia’s dairy export industry.

Merger Clearance Vs Authorisation – What’s The Difference?

Merger parties have several avenues available to have a merger considered and assessed on competition grounds.

Merger Clearance – Informal Review

The informal merger review process provides the merger parties with the ACCC’s informal view on whether a merger proposal is likely to breach section 50 of the Competition and Consumer Act 2010 (Cth) (CCA).

There is no legislative basis for an informal review, rather, the practice has developed over time to allow parties to seek the ACCC’s view prior to completion of a merger. Accordingly, the ACCC’s decision does not confer formal protection from legal action by the ACCC or other parties, but in practice it does provide a high level of comfort to the parties regarding the ACCC’s position.1 Merger parties use the informal review process in almost all cases.

The test used by the ACCC in its informal review of a merger is whether the merger would have the effect, or be likely to have the effect, of substantially lessening competition in any market in Australia. The ACCC will take into account many factors, including the actual and potential level of import competition, the height of barriers to entry and the level of concentration in the market.

Merger Authorisation

Alternatively, merger parties may seek protection from section 50 of the CCA by applying to the Tribunal for authorisation of the merger, under section 95AT of the CCA.

The Tribunal will only grant an authorisation if it is satisfied that the proposed merger would result, or be likely to result, in such a benefit to the public that the merger should be allowed to occur. In considering what amounts to a public benefit, the Tribunal must regard a significant increase in the real value of exports, and a significant substitution of domestic products for imported goods, as benefits to the public, and must take into account all other relevant matters that relate to the international competitiveness of any Australian industry.

Why Would Murray Goulburn Seek Authorisation From The Tribunal?

Two factors appear to be critical to Murray Goulburn’s strategic decision to seek merger authorisation.

A Different Decision Maker

First, the Tribunal is the decision maker in a merger authorisation, and not the ACCC. The ACCC’s involvement remains significant: the Tribunal must request a report from the ACCC, and the ACCC may call witnesses, make submissions and cross-examine witnesses before the Tribunal. Importantly, however, the ACCC is not the final arbiter.


Murray Goulburn’s decision is likely to be driven in part by the significant difficulties it experienced during the ACCC’s informal review of its previous bid for Warrnambool in 2010. During that review, the ACCC published a Statement of Issues outlining its concerns that the merger would be likely to substantially lessen competition, indicating that the ACCC may have refused to grant clearance had Murray Goulburn not withdrawn its application.

In particular, the ACCC reached a preliminary view in its Statement of Issues that Murray Goulburn’s acquisition of Warrnambool would be likely to substantially lessen competition in the markets for the acquisition of raw milk from farmers in the south west region of Victoria and the central and south east regions of South Australia. The ACCC found that the potential competition effects of the merger included a significant reduction in farm gate prices paid to farmers for raw milk, and reduced competition in the offer of non-price terms such as finance, field advice services and discounted hardware and grain supplies.

A Different Merger Clearance Test

Second, the Tribunal will apply a different competition test to the ACCC. While the ACCC would consider whether the merger would be likely to substantially lessen competition in any market in Australia, the Tribunal will instead consider whether the merger should be allowed to occur given its public benefits. As noted, the Tribunal must consider an increase in the international competitiveness of an Australian industry (including increasing the real value of exports) as a public benefit.

Before the Tribunal, Murray Goulburn can therefore focus on benefits to Australia’s substantial but declining position in international dairy markets, which would be an irrelevant factor under the ACCC’s standard informal clearance process.

Relevantly, Murray Goulburn states in its Application for Merger Authorisation dated 29 November 2013 (the Application) that as a result of the acquisition Murray Goulburn’s international competitiveness will improve due to increased scale, optimised product mix (including increased production of higher value products) and increased milk volumes. The Application suggests that this will “establish Murray Goulburn as a significant export company” and “reverse the trend in recent years where global demand has grown but Murray Goulburn’s exports have decreased”.

The Application also argues that, over time, the efficiencies and economies of scale available to Murray Goulburn as a result of the merger will result in an increase in its domestic sales and reverse the fall in milk supply, leading to a significant substitution of domestic products for imported goods.

These propositions will be tested in detail by the Tribunal and the veracity or otherwise of them will likely form the basis of any decision it makes.

In addition to these public benefits, Murray Goulburn also claims:


  • public benefits in the form of significantly higher farm gate prices would flow from the likely increased profitability of the post-merger firm, because of its co-operative structure and approach to setting farm gate milk prices; and
  • efficiencies in transport and logistics arising from enhanced economies of scale in milk collection.

Given that this is the first time the Tribunal has been asked to consider a merger on public-interest grounds under the new regime, the authorisation will prove to be an important case to signal the Tribunal’s approach to testing and evaluating arguments in favour of “national champion” firms.

Previous Consideration Of Authorisations By The Tribunal

Over the last 30 years, the Tribunal has considered only a very small number of authorisation applications. Of these, one has been of particular significance – the proposed Qantas/Air New Zealand alliance. This decision provides some guidance on the Tribunal’s likely approach to Murray Goulburn’s application.

In December 2002, Qantas and Air New Zealand sought authorisation from the ACCC, under the previous merger clearance regime, for Qantas to acquire a 22.5% voting interest in Air New Zealand and for both carriers to enter into certain agreements for coordination of their activities (the alliance). The ACCC refused to grant authorisation, stating that the anti-competitive effects would outweigh the limited public benefits found.

The airlines appealed this decision to the Tribunal, which ultimately granted the authorisation. The Tribunal found that although there was detriment arising out of certain anti-competitive aspects of the alliance, there were significant public benefits which outweighed that detriment.2

In making its decision, the Tribunal noted that the expression “benefit to the public” has been interpreted broadly, and would include “anything of value to the community generally”. The Tribunal formed the view that the enquiry should be:

“directed towards the extent to which the benefit has an impact on members of the community, that is society. Does it fall into the category of “anything of value to the community generally”? If it does, what weight should be given to that benefit, having regard to its nature, characterisation and the identity of the beneficiaries of it?”

The public benefits found by the Tribunal included tourism benefits, scheduling and pricing benefits of network integration, the benefits of expansion of Qantas’ domestic and international networks, the enhancement of the national interest and the benefit of cost savings that would be passed onto travellers by way of fare reductions. The Tribunal found only a relatively limited anti-competitive detriment arising out of the alliance, namely in relation to the frequencies of flights available to a time-sensitive traveller.

In balancing the public benefits and anti-competitive effects, the Tribunal noted that the public benefits needed to be assessed on a qualitative rather than on a quantitative basis. Further, it was the cumulative or synergistic effect of the public benefits combined which should be the subject of analysis and determination. As the anti-competitive detriment in this case was found to be small, the Tribunal considered it was only necessary to find a relatively small level of public benefit in order to warrant a conclusion that the authorisation should be granted.


Next Steps In Murray Goulburn’s Application

The Tribunal will conduct hearings, and can be expected to make a decision on Murray Goulburn’s application within the next three to six months.

The CCA provides that the Tribunal generally must make its decision on an authorisation application within three months. This can be extended by a further three months if the Tribunal determines that the matter cannot be dealt with properly within that period, either because of its complexity or other special circumstances. If the Tribunal fails to make a decision within this time, it is taken to have rejected the application. There is no merits review available for an authorisation decision made by the Tribunal.

Given the ACCC’s previous rejection of the merger between Murray Goulburn and Warrnambool in 2010, it is expected that the ACCC will oppose the current application. The Tribunal may also seek submissions from, or consult with, other third parties.

A case management conference is scheduled for 9 December 2013.


End Notes:

1 The ACCC may also grant a formal merger clearance under section
95AC of the CCA. Under a formal merger clearance, the acquiring
party is granted legal protection from the application of section 50
of the CCA. This process has never been used in Australia.

2 Qantas Airways Limited [2004] ACompT 9.


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Peter Armitage, Partner, Ashurst
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Bill Reid, Partner, Ashurst
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Ross Zaurrini, Partner, Ashurst
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Alice Muhlebach, Partner, Ashurst
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Darren Grondal, Partner, Ashurst
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