Merger Procedures and Substantive Analysis in Singapore

Tan Jie Sheng5 December 2007

Overview of mergers cases handled by CCS

Overview of the CCS mergers regime

Notification process

Exclusions

The SLC test

CCS powers when assessing mergers

Merger remedies

Outline

Workload (as of 1 July 2007):

MU has issued decisions on 3 transactions which have been notified to CCS for decision:

– Acquisition of Solectron by Flextronics

– Joint venture between Intel & STM

– Acquisition of Danone’s biscuit business by Kraft

Transactions currently under assessment:

– Acquisition of Labroy Marine Ltd by Dubai Drydocks World

– Merger between Thomson & Reuters

Overview of the mergers cases handled by CCS

Overview of key features Mergers prohibited if they substantially lessen competition in

Singapore (SLC test) However, mergers excluded from the prohibition if economic

efficiencies outweigh anti-competitive detriment

Voluntary notification Can notify both anticipated mergers and mergers where control has

already passed

Anticipated mergers can be notified if they can be made known to the

public

Acceptance of commitments

Ancillary restrictions excluded from s34/47 Defined as agreements and conduct directly-related and necessary to

merger implementation

Notification process

Notification process broadly entails:

Parties encouraged to conduct self assessment

Pre-notification discussion (if necessary)

Merger parties submit notification form(s)

Phase 1 review: Merger allowed to proceed, or

review proceeds to Phase 2

Phase 2 review (if necessary)

Decision issued

Self-assessment

Considerations:

Is it a merger as defined under the Act?

If an anticipated merger, can it be made known to the public?

Is the merger excluded?

Does the merger cross indicative thresholds?

Merged entity will have market share of at least 40%; OR

Merged entity will have market share of between 20% and 40%,

AND post-merger CR3 of at least 70%

Does the merger raise any competition concerns?

Excluded Mergers:

Mergers are required by legislation to be approved by Minister /

regulatory authority If regulator is MAS, exclusion also applies if requirement for approval

imposed by non-legislative instruments (e.g. licenses or directives)

issued under written law

Mergers under jurisdiction of another regulatory authority (other

than CCS) under written law or code of practice, re competition E.g. Telecommunications, Media, Energy

Mergers involving undertaking relating to activities specified in para

6(2) of Third Schedule e.g. supply of piped potable water, supply of

wastewater management services, etc.

Exclusions

Pre-Notification Discussions (PNDs)

Requests for PNDs on anticipated mergers that are still

confidential will be considered

Aimed at identifying information needed to submit draft

notification, to expedite review

CCS may provide indications on potential competition

concerns where appropriate

Not binding on CCS

Depends on extent of relevant information provided

If the request is granted, draft notification form to be

provided prior to the PND

2-Phase review process

Phase 1: to allow merger situations that clearly do not pose

competition concerns to proceed quickly

Expected to complete within 30 working days

CCS will determine whether to issue favourable decision, or

proceed to Phase 2

CCS may extend Phase 1 under exceptional circumstances

When CCS is unable to form the conclusion during the

Phase 1 review that the merger situation does not raise

competition concerns, the review will proceed to Phase 2

Expected to complete within 120 working days

CCS will issue favourable or unfavourable decision

CCS may extend Phase 2 under exceptional circumstances

Third party views

Third parties may submit comments after notification is published Decision may be made early if no adverse

submissions received

Procedures for treatment of confidential

information apply Non-confidential versions may be published or

shared, to test arguments

Market definition Market needs to be defined before determining if SLC in

that market

Focus on products & geographic areas where merger parties’ activities overlap, since it is the competition in these areas that the merger impinges upon

No need to define market if clear that no SLC within any sensible market definition

The SLC Test

Types of mergers

Nature of competition concern depends on type of

merger

Three main types of mergers Horizontal mergers

Vertical mergers

Conglomerate mergers

The SLC Test

Horizontal mergers Look out for risks of

Non-coordinated effects; and Coordinated effects

Non-coordinated effects: Risk that merger will confer market power on merged entity that

allows it to independently raise prices or engage in exclusionary conduct without need for coordination with competitors

Higher risk if merger parties’ products are close substitutes Coordinated effects

Risk that reduction in no. of market players post-merger increases prospect of collusion

Depends on market conditions (e.g. transparency of market, homegeneity of products, symmetric cost structures of firms)

The SLC Test

Indicative thresholds in CCS guidelines Generally, competition concerns unlikely to arise unless

merged entity has market share ≥ 40%; OR

merged entity has market share of 20% - 40% AND post-merger CR3 ratio ≥ 70%

Where CR3 is the aggregate market share of the 3 largest players

Thresholds are merely indicators and not determinative Exceeding thresholds does not create presumption of SLC

The SLC Test

Non-horizontal mergers

Two categories of non-horizontal mergers

Vertical mergers E.g. retailer & wholesaler

Potential competition concern: foreclosure of upstream or downstream market

Conglomerate mergers E.g. mergers between firms producing complementary

products

Potential competition concern: foreclosure by product bundling

The SLC Test

Other relevant factors

When considering if merger raises competition

concerns, CCS considers other factors that may

mitigate against SLC finding

Examples Threat of entry by new rivals / expansion by existing ones

Buyer power

Failing firm / division

Efficiencies that enhance enhance rivalry, so that no SLC

Efficiencies that offset any detriments arising from SLC, so that

net economic efficiencies exclusion applies

The SLC Test

Interim directions

Parties may choose to carry anticipated merger into effect, or

proceed with further integration of merger:

without notifying merger situation to the CCS; or

after notifying but before CCS issues determination

But CCS may impose interim directions during the course of

assessing a merger situation such as issuing a direction to require

the merged entity not to proceed further with the transaction until

the notification has been determined

CCS powers when assessing mergers

Infringement Decisions

CCS will give written notice prior to making

infringement decision, upon which:

Parties allowed to make representations

Application may be made to Minister within 14 days of

notice for merger to be exempted on public interest

grounds

CCS powers when assessing mergers

Remedy can be either structural or behavioural

Structural

E.g. dissolution of merger; divestment of overlapping businesses

Behavioural

To constrain scope for merged entity to exercise market power

CCS’ preferrence is for structuralRationale: Directly addresses market structure issues Less monitoring required

Remedies

Remedies can be implemented by way of commitments or remedies Commitments

Parties may offer commitments that remedy, mitigate or prevent any SLC arising from merger situation

If CCS accepts commitment, it will issue favourable decision

Directions Issued after decision that section 54 prohibition will be or has

been infringed Examples of directions are requiring i) the merger to be

dissolved or modified and ii) the merger parties to enter into legally enforceable agreements so as to prevent or lessen the anti-competitive effects

Remedies

THANK YOU

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