Mergers that take place in Singapore, or which may affect markets in Singapore, are subject to the merger control regime established by the Competition Act, Chapter 50B of Singapore (the Act), unless excluded or exempt under the Act. The Act is administered and enforced by the Competition Commission of Singapore (CCS) which was established on 1 January 2005 as a statutory body under the Ministry of Trade and Industry. Section 54 of the Act prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore for goods and services.
i Definition of a merger
Pursuant to Section 54(2) of the Act, a merger is deemed to occur if:
- a two or more undertakings, previously independent of one another, merge;
- b one or more persons or other undertakings acquire direct or indirect control of the whole or part of one or more other undertakings; or
- c the result of an acquisition by one undertaking (the first undertaking) of the assets (including goodwill), or a substantial part of the assets, of another undertaking (the second undertaking) is to place the first undertaking in a position to replace or substantially replace the second undertaking in the business or, as appropriate, the part concerned of the business in which that undertaking was engaged immediately before the acquisition.
The following are excluded from the prohibition under Section 54 of the Act:
- a mergers that are:
• approved by any minister or regulatory authority (other than the CCS) pursuant to any requirement imposed by written law;
• approved by the Monetary Authority of Singapore pursuant to any requirement imposed under any written law; or
• under the jurisdiction of another regulatory authority under any written law or code of practice relating to competition;
- b mergers involving any undertaking relating to any specified activity as defined in paragraph 6(2) of the Third Schedule to the Act; and
- c mergers with net economic efficiencies (e.g., lower costs, greater innovation, greater choice or higher quality).
Mergers that are under the jurisdiction of another regulatory authority under any written law or code of practice relating to competition may be subject to pre-merger notification or approvals as set out under such written law or code of practice.
ii Applicability to joint ventures
A joint venture may be subject to the prohibition under Section 54 of the Act if it is considered a merger. In order to be considered a merger, a joint venture must fulfil the following criteria:
- a joint control must exist, where two or more parties have the possibility of exercising decisive influence (including negative control) over that undertaking;
- b the joint venture must perform all the functions of an autonomous economic entity, where the joint venture operates on a market and performs the functions normally carried out by undertakings operating on that market, including having a management dedicated to its day-to-day operations and access to sufficient resources, including finance, staff and assets (tangible and intangible); and
- c the joint venture must be intended to operate on a lasting basis.
A joint venture that merely takes over a specific function (e.g., research and development or production) of its parent companies' business activities without having access to the market is not considered a merger.
No special substantive test is applied for joint ventures which are considered a merger under the Act. Whether a joint venture is prohibited under Section 54 of the Act will depend on whether it results, or may be expected to result, in a substantial lessening of competition within any market affecting Singapore, and whether any exemptions or exclusions apply.
iii Foreign-to-foreign mergers
The prohibition under Section 54 of the Act may apply even where the merger takes place outside Singapore or where any merger party is located outside Singapore, so long as the merger could have effect on any market affecting Singapore (whether as part of a global, regional or local market).
iv Jurisdictional thresholds
There are no jurisdictional safe harbours where mergers which do not trigger specified quantitative thresholds are exempt or excluded from the prohibition under Section 54 of the Act.
Generally, the CCS is likely to give further consideration to the merger if it meets the following quantitative thresholds:
- a the merged entity has a market share of 40 per cent or more; or
- b the merged entity has a market share of between 20 and 40 per cent and the post-merger market share of the three largest firms (i.e., the concentration ratio of the three largest firms) is 70 per cent or more.
The quantitative thresholds are based on the relevant markets defined in accordance with the rules set out in the gazetted CCS Guidelines on Market Definition.
The CCS also considers mergers that satisfy the following de minimis thresholds to be of more concern:
- a the turnover in Singapore (i.e., turnover booked in Singapore as well as turnover from customers in Singapore) in the financial year preceding the transaction of at least one of the parties exceeded S$5 million; or
- b the combined worldwide turnover in the financial year preceding the transaction of all of the parties exceeded S$50 million.
The CCS has stressed that it may also investigate transactions that fall below the indicative market share thresholds and the de minimis thresholds. Parties must conduct a self-assessment to establish whether their merger could give rise to a substantial lessening of competition within any market affecting Singapore and whether a merger notification should be made to the CCS.
II YEAR IN REVIEW
The merger regime under the Act came into force in 2007. As at 31 May 2017, the CCS has received 60 merger control notifications, of which, the CCS had proposed to move to a Phase II review for 11 transactions, and commitments were considered for no less than five transactions.
The CCS has also exercised its powers to issue provisional decisions to prohibit mergers, arising from horizontal and non-horizontal (i.e., vertical and conglomerate) effects. The most recent being in 2015 when the CCS issued a provisional decision to block Parkway Holding's Ltd's proposed acquisition of RadLink-Asia Pte Limited in the healthcare sector in Singapore in view of, among others, vertical effects. The CCS had also, in the past 18 months, cleared a merger conditional on Singapore-specific behavioural and divestiture commitments, and conducted extended Phase I reviews for three transactions.
Statistics on merger filings with the CCS: 1 July 2007 to 31 May 2017
Merger filings lodged with the CCS
Merger filings which the CCS had proposed to move to Phase II
Merger filings where commitments were considered
Merger filings where CCS took a decision to block
Merger investigations by the CCS*
No less than five
* Where the CCS probes or challenges a merger which has not been notified, such a process is confidential.
In addition to the review of notified mergers, the CCS has also been actively investigating transactions which have not been notified. Such investigations may be triggered by the CCS through its market intelligence function or by third party complaints.
i Revised CCS guidelines
On 1 December 2016, the CCS Guidelines on the Substantive Assessment of Mergers 2016 came into effect. The key additions with practical impact on the assessment of the antitrust risk for mergers in Singapore, and the need for merger notifications to be made, include clarifications on:
- a minority shareholdings giving rise to control, in particular, in view of attendance and voting patterns at shareholders' meetings, and the wide dispersion of shares;
- b a substantial lessening of competition being deemed to arise even if it is not felt across the entire market or all dimensions of competition, which supports a market segmentation approach in the assessment of mergers;
- c additional evidence required in supporting a failing firm defence;
- d additional evidence required in supporting a defence on countervailing buyer power of customers; and
- e additional types of net economic efficiencies to be considered by the CCS, and the supporting documentary and quantitative evidence required.
ii Merger clearances
The CCS had received total of seven merger filings between 1 June 2016 and 31 May 2017, among which transactions notified in other jurisdictions include Tullet Prebon/ICAP, Nippon Yusen Kabushiki Kaisha/Mitsui O.S.K Lines/Kawasaki Kisen Kaisha, Nissan/Mitsubishi, SK Holdings/LG Siltron, among others. Within the same period, the CCS had issued a total of eight clearance decision, all of which are Phase I clearances not requiring any commitments.
III THE MERGER CONTROL REGIME
i Voluntary regime
Under the Singapore merger control regime, a merger notification to the CCS is voluntary, but advisable and expected if the merger may potentially result in a substantial lessening of competition in any relevant market or a market segment (defined in accordance with the rules set out in the gazetted CCS Guidelines on Market Definition).
In the absence of a filing, the merger parties bear the antitrust risk as there is no limitation period on the time frame after which the CCS may cease to have the power to investigate a transaction. There is accordingly an evergreen risk of an investigation and subsequent divestments or other remedies to the transaction, even where the transaction has been implemented for some time. The CCS has stated that it will generally not consider the costs of divestment which the merger parties would have to incur, as it would have been open to the merger parties to notify the merger to the CCS for a decision. The only way to close off the antitrust risk is to undertake a merger notification and obtain a clearance decision from the CCS.
Risks of not filing: investigation risk
As part of its statutory remit in the context of merger control, the CCS keeps markets under review to ascertain which mergers and acquisitions are taking place.
Where the CCS identifies transactions that it considers may potentially raise concerns, the CCS will approach the merger parties and third parties to gather further information about the transaction and the effect on competition. A formal investigation may be triggered under Section 62 of the Act if there are reasonable grounds for suspecting that a merger has infringed, or that an anticipated merger, if carried into effect, will infringe, the prohibition under Section 54 of the Act. Where the CCS investigates a transaction, the CCS may publish the fact of its investigation on its website.
The CCS may be prompted to investigate:
- a following consistent complaints, or one or two substantiated complaints, from third parties;
- b where there are preliminary indications that the CCS's indicative market share thresholds are likely to be crossed;
- c where customers in Singapore appear, post-merger, to have limited choice; or
- d for vertical mergers, where there is a possibility of competitors being foreclosed.
The CCS has previously raised serious doubts as to the compatibility of transactions with Section 54 of the Act even where:
- a mergers by the same parties, or involving the same industry, had received clearances in other jurisdictions;
- b there are no significant issues identified within the wider defined relevant markets, but the CCS has reviewed whether there may be competition issues within narrower market segments, on a global or Singapore-specific basis; or
- c the CCS's indicative market share thresholds are not crossed.
Risks of not filing: closing risk
A CCS investigation may be triggered at any point pre or post-closing of the transaction. There is no administrative timetable for an investigation, and the investigation can take several months. This may adversely affect the timeline for closing of the transaction or for implementation of the transaction post-closing.
Risks of not filing: burden of proof risk
Where the CCS investigates, the CCS would already have formed its theories of harm and the burden of proof will be on the merger parties to demonstrate why the CCS is wrong. From our experience, this burden of proof is significantly harder to discharge.
The temperament of the merger review process is also materially harsher in cases of investigations. The extent and volume of documents requested for also tends to be much wider.
While merger notifications to the CCS are voluntary, the CCS requires all parties to mergers to conduct a self-assessment on whether a merger filing is necessary, in accordance with the methodologies in the guidelines published by the CCS, read with its decided cases. Where the CCS investigates a merger that was not notified, the CCS would expect the parties to explain why the merger was not brought to their attention and why a merger filing was not made.
In the event of a CCS finding that the transaction gives rise to an infringement of the prohibition under Section 54 of the Act, it will consider whether the infringement was intentionally or negligently committed in determining whether financial penalties should be levied on the parties, apart from other directions and remedies. The CCS may impose financial penalties of up to 10 per cent of the turnover of the undertaking in Singapore for each year of infringement, up to a maximum of three years, and remedies on parties to the transaction, such as a direction for the merger to be unwound or for divestments to be carried out. A contemporaneous self-assessment documented at the time of the transaction would be considered as a first line of defence to the CCS that the infringement was not entered into intentionally or negligently.
In the context of cross-border transactions, the prohibition under Section 54 of the Act may apply even where the merger takes place outside of Singapore, or where any party is located outside Singapore, so long as the merger has effect on any market affecting Singapore (whether as part of a global, regional or local market). In its assessment of the potential impact of global mergers, the CCS will also consider Singapore-specific factors. It is accordingly necessary to include an assessment of any Singapore-specific effects in the self-assessment as to whether the merger may give rise to a substantial lessening of competition within any market affecting Singapore.
ii Timing for notification
The Act specifies no deadline for notification. If the parties wish to notify their merger, they may do so at any time before, during or after the merger.
To apply to the CCS for a decision on a merger or anticipated merger, the Form M1 (the first notification form) must be completed and submitted to the CCS together with the prescribed fee. Once the CCS receives the complete Form M1 and the requisite filing fees, it will commence its Phase I review of the merger.
For anticipated mergers, an application can be made only once the parties have a good-faith intention to proceed with the transaction and the merger has been made public (or if the parties have no objection to the CCS publicising the merger).
In the case of completed mergers, an application may be made at any time - although parties are encouraged to notify as soon as possible after completion.
iii Time frame for review
There are no statutory deadlines for the CCS's review process. That said, the CCS Merger Procedure Guidelines 2012 prescribe an indicative time frame of 30 working days within which the CCS should complete its Phase I review, starting from the date on which a complete Form M1 is submitted and the requisite filing fee is paid.
The indicative time frame for a Phase II review is 120 working days, commencing from the date on which the CCS receives a complete Form M2 (the second notification form) and a satisfactory response to its Phase II information request. Although the indicative time frame for a Phase II review is 120 working days, the CCS has been cited stating that it will consider reasonable requests by merging parties for shorter timelines for assessment on a case-by-case basis.
In both the Phase I and Phase II review, the CCS may require the applicant to provide additional information. If the applicant is unable to provide the requested information by the deadline stipulated by the CCS, an extension may be requested. If the CCS extends the deadline, it may stop the clock until the requested information is provided, thereby extending the 30-working day (Phase I) or 120-working day (Phase II) indicative review period.
At any time during the Phase I or Phase II review process, the parties (which may not be limited to the applicant if a sole filing is made) may offer commitments to the CCS to remedy competition concerns on the adverse effects of the transaction. In order to accommodate the commitments procedure in a Phase I review - including for public consultation on the proposed commitments - the CCS is likely to extend the indicative timeline by 20 working days or more, at its discretion. An extension may also be required in a Phase II review.
There are no formal avenues for parties to accelerate the review procedure, similar to, for example, the simplified procedure available for the European Commission. There is, however, the confidential advice process and the availability of pre-notification discussions (elaborated below), which are avenues that could be explored to engage the CCS earlier, to expedite the overall review time frame in certain cases.
The CCS provides for a confidential process for businesses to approach it for advice, typically issued within 14 working days of the application. The confidential advice includes an indication of whether a merger is likely to raise competition concerns in Singapore and whether a notification to the CCS is advisable, on the basis that such advice is provided without having taken into account third-party views.
This process is available only for transactions:
- a that raise a genuine issue relating to the competitive assessment in Singapore;
- b where there is a good-faith intention to proceed with the transaction; and
- c that are not in the public domain.
Confidential advice is not binding on the CCS and the CCS reserves the right to investigate the merger situation where the statutory test for doing so (i.e., reasonable grounds to suspect that the prohibition under Section 54 of the Act may be infringed) is met.
This option is generally most useful for foreign-to-foreign mergers with a tangential effect on markets in Singapore. It may also be helpful in cases where parties may not agree on the findings of the self-assessment, and therefore wish to obtain a non-binding guidance from the CCS, on whether a merger notification would be necessary.
iv Pre-notification discussion
Where parties have decided to file, they are also encouraged to approach the CCS before filing for a pre-notification discussion to discuss the content and timing of their notifications. This is to identify further information that the CCS may require in assessing the filing. Where possible, the CCS will also indicate gaps in the information provided in the draft notification form. Such discussions can help the CCS to plan its work and facilitate an expeditious merger review process.
In the context of such discussions, the CCS does not give views on whether a merger would likely require a Phase II assessment or would result in a substantial lessening of competition.
v Non-suspensory regime
There is no requirement to suspend implementation of a merger or anticipated merger before clearance by the CCS. However, parties that give effect to or proceed with mergers before CCS clearance should note that they do so at their own commercial risk, as the CCS has the power to unwind a merger that has already been effected and - in the case of intentional or negligent infringements - to impose financial penalties if it decides that the merger infringes the prohibition under Section 54 of the Act.
vi Commitments and remedies
At any time during the Phase I or Phase II review process, the parties (which may not be limited to the applicant if a sole filing is made) may offer commitments to the CCS to remedy competition concerns on the adverse effects of the transaction.
Where the CCS proposes to make an infringement decision at the end of the Phase II review, it will issue a notice to the applicant setting out its provisional statement of decision. The applicant's written response to the provisional statement of decision will be its last opportunity to propose commitments or give its views on the remedies proposed by the CCS. However, even where the parties propose commitments, the CCS may consider and impose alternative remedies.
In relation to commitments and remedies, the CCS's starting point is to choose the remedial action that will restore the competition that has been, or is expected to be, substantially lessened as a result of the merger. There are broadly two types of remedial action that the CCS may consider - structural and behavioural.
The CCS prefers structural remedies to behavioural remedies, as they tend to address the competition concerns more directly and require less monitoring.
The CCS has formed a commitments and remedies unit to independently assess the suitability of proposed commitments and remedies.
Typically, structural remedies require the sale of one of the overlapping businesses that have led to the competition concern. The sale should be completed within a specified period and the CCS must approve the proposed buyer before the sale of any business in order to ensure that it has the necessary expertise, resources and incentives to operate the divested business as an effective competitor in the marketplace.
Where appropriate, the CCS may also consider other structural or quasi-structural remedies - for example, divestment of the buyer's existing business (or part of it) or an amendment to IP licences.
The CCS will consider behavioural remedies in situations where divestments are considered to be impractical or disproportionate to the nature of the concerns identified. Where appropriate, the CCS may also implement behavioural remedies to support structural divestment.
In CCS Case No. 400/004/14 - Proposed Acquisition by Seek Asia Investments Pte Ltd of the Jobstreet Business, the CCS took the view that the significant market power possessed by the merged entity could give rise to non-coordinated effects post-merger. The CCS accepted the following behavioural commitments, in addition to structural commitments, to address the CCS's competition concerns:
CCS's competition concerns
Merged entity has the ability and incentive to provide loyalty rebates, exclusive contracts or bundling and tying of its products across its two brands that would prevent - or would be likely to prevent - customers from switching away.
Not to enter into exclusive agreements with employer and recruiter customers for a period of three years.
Merged entity has the ability and incentive to impose price increases.
To maintain the current pricing of services capped at present-day rate cards or current-day negotiated prices, subject to Consumer Price Index changes for a period of three years.
In CCS Case No. 400/003/15 - Proposed Acquisition by ADB BVBA of Safegate International AB, the CCS took the view that the proposed acquisition may significantly reduce the level of competition in the affected markets, and may lead to price increases and deterioration in quality or technical support. Following public consultation, the CCS accepted the following behavioural commitments to address the CCS's competition concerns.
CCS's competition concerns
Significant post-merger price increase due to substantial reduction of competition in the short to medium term.
Certain products and spare parts of the parties sold directly or indirectly to any airport operator for use in Singapore will be, for specified periods, subject to pre-merger prices and adjusted for inflation.
Reduced supply of spare parts and technical support to customers.
The parties commit to supply all required spare parts for specific products sold to any airport operator for use in Singapore for a period of 10 years from the completion of the proposed acquisition. The parties will also supply any technical support required for these products to the airport operators.
Possible ‘lock in' of third party contractors and suppliers in Singapore using exclusive agreements.
To facilitate entry by competing airfield lighting system suppliers into the Singapore market, for the period of four years commencing from the completion of the proposed acquisition, the parties commit not to enter into any agreements with any third-party contractor or supplier in Singapore that expressly prevent or have the effect of preventing third-party contractors or suppliers from carrying, promoting or offering alternative competing products and services.
Possible retroactive termination of, or jeopardising of, agreements concluded before the completion of the proposed acquisition.
The parties will ensure that any contracts or agreements relating to the sale of specific products entered into between the parties or a third party and an airport operator in Singapore on or before the completion date of the proposed acquisition shall continue in full force and effect post-transaction.
Ensuring compliance with the proposed commitments.
The parties will regularly provide the CCS with an independent audit report.
vii Third-party access to file and rights to challenge mergers
Third-party access to file
There is no third-party access to file. For notified transactions under section 57 or 58 of the Act, only the applicant and those persons whom the applicant identified in the application as being the other parties to the anticipated merger or the other parties involved in the merger, as the case may be, will be given an opportunity to inspect the documents in the CCS's file. The CCS may withhold any document to the extent that it contains confidential information, or which is an internal document.
It should also be noted that access to the CCS's file is also only granted where an unfavourable decision is made (i.e., where the CCS proposes to make a decision that an anticipated merger, if carried into effect, will infringe Section 54 of the Act, or a decision that a merger has infringed Section 54 of the Act).
Third-party rights to challenge notified mergers
During the CCS's public consultation process at the start of its merger review (see Section IV.ii, infra), third parties are invited to provide comments to the CCS on the merger, via an invitation to comment on the CCS website, and would be able to challenge a notified merger through this process.
Once the CCS has issued a favourable decision, it will not take further action unless it has reasonable grounds for suspecting that:
- a information on which CCS has based its decision (which may include information on the basis of which a commitment was accepted) was materially incomplete, false or misleading;
- b a party who provided a commitment failed to adhere to one or more terms of the commitment; or
- c where a favourable decision was given for an anticipated merger to proceed, the merger so effected is materially different from the anticipated merger.
The CCS would generally publish detailed decisions on the notified merger, the CCS's grounds for issuing a favourable decision, as well as details of any commitments entered into. Accordingly, third parties may be able to challenge a merger after a favourable decision is issued, if they are able to support any of the grounds above for the CCS to take further action in relation to the cleared merger.
Third parties have no right to appeal to the CCS or the Competition Appeal Board (CAB) against any decision by the CCS in respect of a merger situation or any direction imposed by the CCS. Please see below for further information on appeals generally.
Third-party rights to challenge un-notified mergers
For un-notified mergers, third parties are able to make a complaint to the CCS at any time pre or post-closing of the merger. There is no limitation period on the time frame after which the CCS may cease to have the power to investigate a transaction and to impose directions (e.g., for the transaction to be unwound or divestments to be made, or financial penalties). Each complaint will be assessed by the CCS on its merits taking into account, among others, the strength of any supporting evidence. As discussed above, the CCS has stated that it may be prompted to investigate following consistent complaints, or one or two substantiated complaints, from third parties.
Where the CCS proposes to make an infringement decision, it will issue a notice setting out its provisional statement of decision. The applicant may then apply to the Minister for Trade and Industry for the merger to be exempted on the grounds of any public interest consideration (i.e., national or public security, defence and such other considerations as the Minister for Trade and Industry may gazette). Should the application to the Minister for Trade and Industry be unsuccessful, the CCS will make a final decision on the merger, after having taken into account any oral and written representations made by the applicant.
There is a right of appeal to the CAB against any decision of the CCS in respect of a merger situation or any direction (including interim measures) imposed by the CCS. Any party to the notified merger may appeal the CCS's decision in respect of a merger situation, while an appeal of a direction may be made by the party to which the CCS issued the direction. The notice of appeal must be lodged within four weeks of either the date on which the appellant was notified of the contested decision or the date of publication of the decision (whichever is earlier). On the application of the appellant, the CAB may, in its discretion, extend the time frame for lodging the notice of appeal.
There is no right to appeal the CCS's refusal to accept any commitments offered, but the parties may appeal against its refusal to vary, substitute or release existing commitments.
The parties to the CAB proceedings may further appeal the decision of the CAB to the High Court and thereafter to the Court of Appeal, but only on points of law and the quantum of the financial penalty.
As of 31 May 2017, the CAB had received 13 appeals and issued eight decisions. The CAB had not received an appeal in respect of a merger situation as of 31 May 2017; the 13 appeals received by the CAB related to either Section 34 (against anticompetitive agreements) or Section 47 (against abuse of dominance) of the Act. In the eight CAB decisions issued, the CAB generally upheld the findings and decisions of the CCS. Of these, the CAB reduced the financial penalty that was initially imposed by the CCS in six decisions.2
ix Sectoral regulators
Industry sectors, such as telecommunications, media, post, airport, gas, electricity and financial sub-sectors have sector-specific laws or code of practice on competition, which include merger control laws or rules. These industry sectors are carved out from the merger control regime under Act in the Third and Fourth Schedules to the Act, and the sectoral regulators enforce their respective industry-specific competition rules. For example, the telecommunications sector is regulated by the Code of Practice for Competition in the Provision of Telecommunication Services and the media sector is regulated by the Code of Practice for Market Conduct in the Provision of Mass Media Services. Both these industries are regulated by subsidiary legislation which is industry-specific and includes prohibitions on unfair methods of competition, predatory pricing and general misuse of market power.
On cross-sectoral matters, the CCS has stated in the CCS Guidelines on the Major Provisions that the CCS will work with the relevant sectoral regulator to determine which regulator is best placed to handle the case in accordance with the legal powers given to each. The lead will be taken by the agency best positioned, in terms of ability and scope, to investigate the alleged anticompetitive conduct and impose any necessary remedies. To prevent double jeopardy and to minimise the regulatory burden, the CCS and the sector-specific regulators will cooperate and coordinate closely in dealing with the case.
IV OTHER STRATEGIC CONSIDERATIONS
i Navigating multi-jurisdictional reviews
As the Act has an extra-territorial application, merger parties should factor in the self-assessment for Singapore when conducting the multi-jurisdictional analysis on where merger control filings should made, at an early stage of the transaction being contemplated. In particular, and as highlighted in Section II above, un-notified mergers continue to be a key area of focus for the CCS in its merger enforcement efforts.
While the regime in Singapore is non-suspensory, to avoid deal and timing uncertainty (see Section III, supra), merger parties may wish to budget the Singapore clearance time frame into the overall global regulatory approval time frame.
Other substantive and procedural issues to be considered in coordinating multi-jurisdictional review and filings are set out below.
Concept of ‘control'
In determining whether the transaction may constitute a reviewable merger in Singapore, the structure of the transaction should be considered, bearing in mind that the concept of ‘control' may differ across jurisdictions.
The ‘control' test under the Act applies a similar concept of ‘decisive influence' as that adopted under the European Union merger control regime.
Section 54(3) of the Act states that ‘control' over an undertaking is regarded as existing if decisive influence is capable of being exercised with regard to the activities of an undertaking. The CCS Guidelines on the Substantive Assessment of Mergers further illustrates that ‘control' can be legal or de facto. Legal control arises where there is decisive influence and the CCS considers that decisive influence is deemed to exist if there is ownership of more than 50 per cent of the voting rights. Where ownership is between 30 and 50 per cent of the voting rights of the undertaking, there is a rebuttable presumption that decisive influence exists.
However, the aforementioned thresholds are only indicative and it is necessary to consider all the relevant circumstances on a case-by-case basis. Control may potentially be established at levels below these thresholds if other relevant factors provide strong evidence of control. De facto control may arise, for example, via financial arrangements, rights to veto strategic and commercial decisions of an undertaking, or other agreements such as long-term supply agreements.
In relation to minority shareholders, it is possible that decisive influence may be capable of being exercised by an undertaking which acquires a minority interest. For example, control may exist where minority shareholders have additional rights that allow them to veto decisions that are essential for the strategic commercial behaviour of the undertaking, such as the budget, business plans, major investments, the appointment of senior management or market-specific rights.
Within the CCS Guidelines on the Substantive Assessment of Mergers 2016, the CCS has clarified that the acquisition of minority shareholdings may lead to decisive influence, for example, depending on the patterns of attendance and voting at shareholders' meetings, resulting in a reviewable merger.
Consistency in merger assessment
Procedurally, the Form M1 requests for a waiver allowing the CCS to exchange confidential information with competition agencies in other jurisdictions in respect of the notified merger, and the CCS would generally expect such waivers to be granted. It is therefore critical to ensure that the key defences and competitive assessment of the relevant markets are consistent across jurisdictions in which the transaction is notified.
From a practical perspective, a centralised assessment on competitive effects, market definition, the parties' business and activities, and the transaction, which is used as a starting point to take into account jurisdiction-specific characteristics, would also minimise duplication and time required for the relevant business personnel to provide the information required.
As explained above, there is no requirement to suspend the implementation of a merger or anticipated merger before clearance by the CCS. Parties that give effect to or proceed with mergers before CCS clearance by the CCS do so at their own commercial risk, as the CCS has the power to unwind a merger that has already been effected and - in the case of intentional or negligent infringements - to impose financial penalties where it decides that the merger infringes the prohibition under Section 54 of the Act.
There is no express prohibition against, and it is therefore possible for merger parties to have, agreements to carve out Singapore while the transaction closes in other jurisdictions, as a means of managing the risk of financial penalties, directions or remedies imposed by the CCS if the CCS has concerns regarding the transaction specific to Singapore.
ii Publicity and confidentiality
Merger parties should be aware of the following considerations on publicity and confidentiality in making merger notifications to the CCS. Such considerations may have particular implications for transactions involving listed entities, in terms of the disclosure and timing of the parties' own announcements.
Upon acceptance of a complete Form M1, together with the necessary supporting documents and prescribed fees, the CCS will publish a summary of the merger on the public register on its website. The summary is provided by the applicant as part of the Form M1. The recent practice of the CCS has been to issue a media release together with acceptance of the notification published on the public register.
Third parties are invited to provide comments to the CCS on the merger, and any commitments contemplated, via an invitation to comment on the CCS website.
The CCS will update the status of its review on the public register - for example, when it is considering commitments, when it is proceeding to a Phase II review and when it makes a decision on the notified merger.
In submitting the Form M1, Form M2 and any other submissions to the CCS, applicants are required to provide both confidential and non-confidential versions, as well as of the supporting documents. The CCS is obliged under Section 89 of the Act to preserve the secrecy of confidential information that it receives.
The confidentiality claims of the applicants are subject to acceptance by the CCS. The CCS must also consider the extent to which disclosure is necessary for the purposes for which it proposes to make the disclosure.
If the confidentiality claims are accepted, the CCS will not generally disclose any confidential information received to any other parties. Instead, the CCS may use the non-confidential version of the submissions and supporting documents both to facilitate its discussion with third parties and to enable the CCS to publish a non-confidential version of its decision without delay.
In the event that any confidentiality claims are not accepted by the CCS, the CCS will generally liaise with the applicant before any disclosure to consider how any detriment to the applicant could be minimised.
The CCS will also generally provide applicants with the opportunity to review its decision to ensure that confidentiality claims and the accuracy of factual statements have been maintained before publishing a merger decision.
iii Special circumstances
Failing firm situations
The CCS will consider, has accepted, the failing firm defence in its assessment of mergers. On 28 November 2014, the CCS announced the clearance of the proposed acquisition of Tiger Airways Holdings Limited by Singapore Airlines Limited. The CCS agreed that the transaction would be less detrimental to competition in Singapore as compared to the scenario where Tiger Airways Holdings Limited would have exited its operations in the absence of the transaction, which would have also caused disruptions to passengers and to the connectivity of the Singapore air hub. This marked the first merger notification for which the CCS granted clearance on the basis of the alternative exit argument.
To qualify for the failing firm defence, the CCS has stated that the following conditions are required to be met:
- a first, the firm must be in such a dire situation that without the merger, the firm and its assets would exit the market in the near future. Firms on the verge of judicial management may not meet these criteria, whereas firms in liquidation will usually do so. Decisions by profitable parent companies to close down loss-making subsidiaries are unlikely to meet these criteria;
- b second, the firm must be unable to meet its financial obligations in the near future and there must be no serious prospect of reorganising the business, for example, a liquidator has been appointed pursuant to a creditor's winding up petition; and
- c third, there should be no less anticompetitive alternative to the merger. Even if a sale is inevitable, there may be other realistic buyers whose acquisition of the firm and its assets would produce a more competitive outcome. Any offer to purchase the assets of the failing firm at a commercially reasonable price, even if the price is lower than that which the acquiring party is prepared to pay, will be regarded as a reasonable alternative offer. It may also be better for competition that the firm fails and the remaining players compete for its customers and assets than for them to be transferred wholesale to a single purchaser.
The party claiming the failing firm defence is therefore required to provide supporting evidence that:
- a the undertaking is indeed about to fail imminently under current ownership (including evidence that trading conditions are unlikely to improve);
- b all re-financing options have been explored and exhausted; and
- c there are no other credible bidders in the market (by demonstrating that the firm has made good faith and verifiable efforts to elicit reasonable alternative offers of acquisition).
A non-exhaustive list of evidence that the CCS may consider when assessing a failing firm scenario could include:
- a timelines of critical events and decisions of the failing firm;
- b internal documents, such as briefing and board papers for the board or senior management;
- c audited financial statements, including notes and qualifications in the auditor's report;
- d projected cash flows, projected operating income or losses, projected net worth;
- e credit status;
- f reduction in the firm's relative position in the market; and
- g changes in the firm's share price or publicly traded debt of the firm.
As the evidentiary threshold for claiming the failing firm defence is high, it is advisable for parties wishing to claim the failing firm defence to consider the available supporting facts and evidence early in the notification process.
Hostile takeover situations
The CCS's regime allows for sole notifications to be made by a potential acquirer. In hostile takeovers, it may be difficult for the potential acquirer to obtain and provide certain information on the target undertaking in making a sole merger notification to the CCS. In such situations, the CCS has powers to issue formal information requests to the target for the CCS's assessment of the merger.
V OUTLOOK & CONCLUSIONS
With the CCS Guidelines on the Substantive Assessment of Mergers 2016 in effect since December 2016, the inclusion of additional forms of supporting evidence required by the CCS points towards a materially stricter enforcement stance by the CCS towards mergers, consistent with the trends in remedies and commitments, and increased complex reviews and blocked mergers observed.
Allen & Gledhill LLP
Daren Shiau, PBM, is co-head of competition and antitrust at Allen & Gledhill LLP. He is a competition law specialist, and his practice covers antitrust litigation, international cartels, merger control and sectoral competition regimes.
In 2012, Daren was named one of the world's most talented competition lawyers under the age of 40 by Global Competition Review: 40 Under 40, and considered in Who's Who Legal 100 2013 to be ‘very skilled' and ‘one of the finest antitrust lawyers in the region'.
Daren has worked in London and Brussels competition practices on European Commission and Office of Fair Trading matters. He is Singapore's first non-governmental advisor at the International Competition Network.
He has advised on a significant majority of Singapore's competition law cases including close to 75 per cent of merger filings filed with the Competition Commission of Singapore (CCS), and also acted for parties in the CCS's first international cartel investigation, and the only abuse of dominance appeal to Singapore's Competition Appeal Board.
Daren is also a commissioned trainer of the high-level ASEAN Experts Group on Competition, and has unparalleled experience in competition law and policy in South-East Asia.
Daren graduated on the Dean's List of the National University of Singapore, and is District Councillor of the Central Singapore District.
Allen & Gledhill LLP
Elsa is a partner in the corporate and commercial department. She is also co-head of the firm's competition and antitrust practice, and its public policy practice.
In 2013 and 2016, Elsa was featured in the 100 elite women globally in the field of competition law by the Global Competition Review (GCR) in their Women in Antitrust 2013 and 2016 peer-nominated surveys. Elsa is also regularly recognised as a leading competition economist in Who's Who Legal Competition: Economists since 2010, Who's Who Legal Consulting Experts: Economic Consulting - Competition Economists, Euromoney Guide to the World's Leading Competition and Antitrust Lawyers and Economists, and Expert Guides' Women in Business Law.
Elsa regularly assists clients on complex antitrust matters, including global cartel and abuse of dominance investigations. Her record includes the first and only provisional infringement decision of the Competition Commission of Singapore (CCS) to be successfully overturned (Greif/GEP), and the first CCS conditional merger clearance requiring local commitments (SEEK/JobStreet). In 2013, Elsa led the team in a matter that was conferred the GCR Award 2013: Behavioural Matter of the Year (Asia-Pacific, Middle East and Africa).
A recipient of the Prime Minister's Book Prize, Elsa graduated summa cum laude with a double degree in economics and international relations from Tufts University, Massachusetts, and was placed yearly on the Dean's List. She holds a postgraduate degree from the London School of Economics and Political Science, and an LLM with a specialisation in competition law.
Allen & Gledhill LLP
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Tel: +65 6890 7188
Fax: +65 6327 3800
1 Daren Shiau and Elsa Chen are partners at Allen & Gledhill LLP.
2 Of the remaining two decisions, the CCS dismissed the appeal against the quantum of financial penalty in one case, and set aside the appeal in the other case on the basis that the applicant had no right of appeal against the decision of the CCS.