Introduction

Merger control is one of the key pillars in Singapore’s antitrust framework. Its main objective is to preserve the competitive landscape of markets despite mergers, takeovers or the formation of long-lasting joint ventures.

Given that Singapore has a voluntary merger control regime, merger parties generally have the freedom to complete a merger without incurring administrative time and costs in the process of notifying the Competition and Consumer Commission of Singapore (CCCS). This position stems from a pro-business objective which seeks to reduce onerous obligations and unnecessary costs for businesses.

However, oblivious to many, there are several risks merger parties assume when an anti-competitive merger goes un-notified. Such risks have not been fully explored until the Uber-Grab merger in 2018.

Summary of the Decision

The following provides a recap of the events leading up to the issuance of CCCS’s infringement decision and subsequently, the Competition Appeal Board’s (CAB) decision:

• 26 March 2018: Grab acquires Uber’s Southeast Asia operations and immediately commences integration of Uber’s business in the region with its own. This was undertaken without any formal notification filed with CCCS and despite CCCS’s earlier notice to the parties explaining Singapore’s merger notification regime.
• 27 March 2018: CCCS announces that it has opened investigations into the transaction. Meanwhile, it issues a direction for proposed interim measures to be taken by the parties to preserve competition and market conditions during the course of the investigations.
• 16 April 2018: Merger parties submit a joint notification pursuant to Section 58 of Singapore’s Competition Act (the Act) for a decision on whether the transaction has infringed Section 54 of the Act. CCCS informs the parties that a notification was unnecessary, and subsequently rejects it since it had already commenced an investigation. However, CCCS informs the parties that the information provided in the notification would be taken into account for its ongoing investigation.
• 5 July 2018: CCCS issues its proposed infringement decision and the parties are given the opportunity to respond to CCCS’s proposed findings and to engage with CCCS on the voluntary commitments to be offered by the parties.
• 24 September 2018: CCCS issues its infringement decision and proceeds to impose financial penalties of approximately S$6.5 million on each party. It also ordered directions which varied from the third set of commitments that were offered by the parties.

Whilst Grab had accepted the infringement decision, Uber proceeded with an appeal to the CAB on several grounds. In December 2020, two years after the sale of Uber's Southeast Asian business to Grab, CAB affirmed the decision of CCCS thus confirming that the transaction had violated Section 54 of the Act which prohibits anti-competitive mergers which substantially lessen competition (SLC) in a market in Singapore. Importantly, the CAB decision highlighted the following salient points which merger parties should consider in their transactions:

1. Notifying the CCCS pre-merger: Despite Singapore’s notification regime being voluntary, merger parties should consider pre-emptively notifying the CCCS prior to completing the transaction.
2. CCCS’s review procedure: In the event that CCCS initiates an investigation into a transaction, it has the discretion to deviate from the procedure and stipulated timelines of a notified pre-merger inquiry as provided for in its guidelines.
3. No obligation to engage in discussions for voluntary commitments: Where the merging parties are given prior and adequate understanding of the competition concerns identified by CCCS in their transaction, CCCS is not obliged to continually engage the merging parties to eventually implement the voluntary commitments. This is even if the voluntary commitments may be sufficient to mitigate the anti-competitive effect of the transaction.
4. Using realistic market definitions: In assessing whether the transaction will result in a SLC in the relevant market, potential merging parties will need to take a realistic approach in defining its market definition. CCCS may reject the merging parties’ definitions where they have taken an overly broad and self-serving approach.
5. “Margin of appreciation” in imposing a penalty: CCCS has a “margin of appreciation” in imposing a penalty where it finds that a transaction has breached the Act. The CAB will not intervene in appeals concerning the quantum of the penalty imposed where the CAB is satisfied that on the whole, the penalty imposed is just and proportionate

Clarifications for Singapore’s voluntary notification regime

Pre-merger Notifications

Notwithstanding Singapore’s voluntary notification regime, the CAB’s decision highlights that merger parties may run the risk of violating Section 54 of the Act where they choose not to notify CCCS prior to the consummation of the transaction. Reiterating the position taken by the then-Minister of State for Trade and Industry, Mr. Lee Yi Shyan, the CAB confirmed that even though Singapore has a voluntary notification regime, merger parties should conduct their own assessment and due diligence of any potential anti-competitive effects that may result from their transaction.

Following a cogent self-assessment (based on a realistic market definition), if merger parties are genuinely unclear if the transaction would give rise to an SLC, it would be wise for merger parties to err on the side of caution and seek CCCS’s guidance via the confidential process (provided the qualifying conditions are met) or for merger parties to proceed with a formal notification prior to the completion of the transaction.

A key point to note is that merger parties who violate Section 54 of the Act face several risks including but not limited to the risk of an investigation by CCCS, financial penalties (if the transaction is found to have been undertaken intentionally or negligently) and directions to alter their behaviour through contractual obligations and even structural directions such as divestments. It is therefore clear that the only way to address such risks is to notify and obtain clearance from CCCS.

CCCS’s review procedure

• CCCS’s discretion to deviate from its guidelines: CCCS has a discretion to deviate from its published guidelines. In determining whether it will exercise this discretion, CCCS will consider the facts and circumstances of each case, such as whether the inquiry by CCCS is an investigation as opposed to a pre-merger notification inquiry.
  
  In its appeal decision, CAB upheld CCCS’s exercise of its discretion to deviate from its published timelines set out in its guidelines when it initiated its investigation of the Uber-Grab transaction. CAB found that CCCS was justified in adopting the adversarial approach of an investigation due to the fact that the transaction had already closed (i.e. employees, drivers and other data had shifted to Grab’s platform), whereas the timelines set out in the guidelines generally applied to pre-merger notifications.
  
  Under circumstances similar to the Uber and Grab case, merger parties can expect CCCS to undertake an expedited investigation since it will need to obtain information from third parties promptly, as compared to a more conciliatory approach of notified pre-mergers whereby all parties are working together towards the stipulated timelines set out in the guidelines.
  
  Nevertheless, CCCS has also proposed changes to its Guidelines on Merger Procedures to clarify that it will not be obliged to observe the process stated therein where it involves an un-notified merger.
• A merger notification or investigation: If merger parties structure their transaction to be irreversible and then submit a merger notification after closing where anti- competitive effects are likely to occur, CCCS may reject the merger notification and instead initiate an investigation against the merged parties. This is because the completion of the merger transaction would likely have caused an SLC in the relevant market to take hold immediately, thereby resulting in adverse effects, to the detriment of consumers (as seen in the significant price increments following the closing of the Uber-Grab transaction).
• The starting point of CCCS’s assessment: The CAB found that the appropriate method for the assessment of transactions should start from the transaction that the parties had contractually agreed upon before considering the appropriateness of any voluntary commitments offered to mitigate the competition concerns arising from the transaction. By considering the transaction as the parties had intended, CCCS will then determine whether a SLC will result. If CCCS finds that there is no SLC, it will not need to conduct further enquiries or consider or invite voluntary commitments. However, if following its determination, CCCS finds that there will likely be a SLC from the transaction, it can then invite the merger parties to submit voluntary commitments to address its concerns.

No obligation to engage in discussions for voluntary commitments

As noted above, Uber and Grab had put forth several voluntary commitment proposals to CCCS, which ultimately did not mirror the directions ordered by CCCS in its infringement decision. In its decision, the CAB confirmed that CCCS had the discretion to halt discussions with Uber and Grab relating to the proposed voluntary commitments after giving sufficient and reasonable opportunities for Uber and Grab to put forward such commitments as they deemed appropriate. Accordingly, the position is clear, CCCS has no obligation to accept voluntary commitments offered by merger parties.

Generally, CCCS will have regard to the voluntary commitments offered by the merging parties, though this is underpinned by CCCS’s statutory power to consider the suitability of the voluntary commitments offered. To determine whether the voluntary commitments proposed by the merger parties are adequate, CCCS will not only consider whether the voluntary commitments address the SLC arising from the transaction, but whether it does so in a sufficiently timely and effective manner.

Therefore, when merging parties proceed with a transaction without prior notification to CCCS, they will be at further risk of CCCS finding that the voluntary commitments offered by the merger parties post-completion are inadequate or inappropriate to address the CCCS’s concerns.

To address this point, CCCS has proposed to amend its Guidelines on Remedies, Directions and Penalties to clarify the discretion held by CCCS, and the process and timeline within which commitments shall be proposed by merger parties and the market testing process of such commitments volunteered.

Using realistic market definitions

Another salient point to note is that the definition of the relevant market applied in a self-assessment should reflect the realities of the markets within which the merger parties compete in. In the case of Uber and Grab, they had sought to include alternative intra-city transportation options such as street-hail taxis, public transportation and private cars in the definition of its relevant market. This was significant as they concluded that their combined market shares would fall below the jurisdictional thresholds set out in CCCS’s guidelines. Their assessment of the relevant market also considered that taxi operators offering street-hail services would provide sufficient competitive constraints on the merged entity.

However, both CCCS and CAB found that the inclusion of these alternative intra-city transportation options into the relevant market definition did not truly reflect the parties’ operations and the services that they provided. The parties’ services were more akin to a platform matching service rather than a transportation service provider, based on inferences from various sources including but not limited to the parties’ terms of use and third party feedback.

This highlights the importance of merger parties identifying a realistic market definition since this affects the cogent self-assessment that parties undertake to determine whether the jurisdictional thresholds set out in CCCS’s guidelines are met. Acknowledging the challenges that merger parties may face in arriving at an appropriate market definition, particularly for multi-sided e-commerce platforms, CCCS’s proposed amendments to its Guidelines on Market Definition seeks to offer greater guidance on the fluidity of market definitions particularly in markets characterised by innovation.

“Margin of appreciation” granted to CCCS in imposing financial penalties

The Act provides that CCCS may impose a financial penalty on any person whose conduct infringes Section 54 of the Act, provided that the infringement has been intentionally or negligently committed. The maximum penalty imposed may be up to 10% of the turnover of the business of the merger party in Singapore for each year of infringement.

In determining an appropriate amount, CCCS may consider the seriousness of the infringement, the relevant turnover of the merger parties, the duration of the infringement and other relevant factors such as whether policy objectives of punishment and deterrence are adequately achieved.

In its decision, the CAB confirmed that a margin of appreciation is granted to CCCS in determining the financial penalty so long as the financial penalty imposed is just and appropriate – which was found to be so in this case. Furthermore, the CAB highlighted, amongst other points, that the parties’ conduct in structuring the transaction to be irreversible was particularly egregious and that there was a need to deter merger parties from entering into irreversible transactions which give rise to a SLC. This would be in line with the policy objectives of imposing financial penalties.

Conclusion

A voluntary merger notification regimes provides much convenience and cost savings to the majority of merger transactions that do not raise competition issues. This then fosters a pro-business environment, as Singapore’s Parliament had intended. However, the decision on the Uber appeal by the CAB has highlighted that where transactions are likely to raise competition issues, the notification regime becomes more mandatory rather than voluntary. This mirrors the approach adopted by UK’s Competition and Markets Authority as they have become more hands-on in reviewing and assessing transactions, whether they are voluntarily notified or not. As global M&A activity has seen an increase in monopoly power across multiple markets and the creation of “super apps”, CCCS may increase its surveillance for transactions that are potentially anti-competitive to maintain and enhance efficient market conduct and to promote overall productivity, innovation and competition in the Singapore markets. Therefore, the only way to avoid the perils of an un-notified merger is to seek guidance early on in the transaction.