Growth or Anti- Competition – The Story of Grab & Uber’s Merger
On 5 July 2018, the Competition and Consumer Commission of Singapore (“CCCS”) issued its Proposed Infringement Decision (“PID”) against Grab and Uber in relation to Uber’s sale of its Southeast Asian business to Grab in return for a 27.5% stake in Grab.
While the full content of the PID has not been made known to the public, what is clear is that CCCS has intervened in this transaction based on its provisional finding that Grab and Uber’s transaction has led to a substantial lessening of competition in relation to the provision of ride-hailing platform services in Singapore. Meanwhile, the exact remedies and sanctions to be imposed on Grab and Uber remains up in the air.
Background
On 9 March 2018, CCCS took the pre-emptive step of sending a letter to both Grab and Uber. In this letter, CCCS explained the ‘merger notification regime’ in Singapore, as well as CCCS’ corresponding powers in relation to anti-competitive mergers in Singapore. Despite this, on 26 March 2018 Grab announced on its website that it would be acquiring “Uber’s Southeast Asia operations”, and that “Grab will integrate Uber’s ride sharing and food delivery business in the region”[1]. As part of this acquisition by Grab, “Uber will take a 27.5% stake in Grab and Uber CEO Dara Khosrowshahi will join Grab’s board”. This merger transaction between Grab and Uber was completed on the same day as the transfer of assets. Prior approval from CCCS was not obtained for the merger. CCS has found that Grab and Uber had carried out their merger despite having anticipated potential competition concerns.
This announcement by Grab and Uber was followed by swift investigation by CCCS, which commenced on the very next day on 27 March 2018. To ensure that the ride-hailing platform services market in Singapore remained open and contestable, the CCCS had on 13 April 2018 put in place various key interim measures[2]. These key interim measures include the removal of exclusivity obligations on drivers, the prevention of Uber’s operational data form being used by Grab to enhance its current market position, and ensuring that drivers are free to drive for any ride-hailing platform. These key interim measures would remain in place until the completion of CCCS’s investigation and/or resolution of any competition concerns.
Grab and Uber only submitted a joint ‘section 58 notification’ to CCCS on 16 April 2018 requesting for CCCS’ decision whether their transaction infringed Singapore’s Competition Act. Grab and Uber were both informed by CCCS that such a notification was unnecessary as the consumer and competition watchdog had already commenced its investigations into Grab and Uber’s transaction.
Provisional breach of merger provisions in Singapore’s Competition Act
Section 54 of Singapore’s Competition Act expressly prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any goods or services market in Singapore.
Section 54(2) of the Competition Act goes on to explain the various situations where a merger is deemed to have taken place. While the exact details of CCCS’ PID has not been disclosed to the public, one suspects that the sale of Uber’s Southeast Asian business to Grab would fall squarely within the definition of a merger. What is not so clearly defined is the meaning of the phrase “substantial lessening of competition”. Understandably, this would depend on the specific facts of each case since the level of competition inevitably differs from product to product. Nevertheless, CCCS has helpfully provided a general guideline that competition concerns are unlikely to arise unless (a) the merged entity has/will have a market share of 40% or more, or (b) the merged entity has/will have a market share of between 20% to 40%, and the post-merger market share of the 3 largest firms is 70% or more. With traditional taxi booking services constituting less than 15% market share in Singapore, coupled with the finding that Grab and Uber were the 2 closest prevailing competitors in the ride-hailing platform services market, CCCS has now decided that Grab and Uber’s merger raises serious competition concerns.
What’s next for Grab and Uber?
Grab and Uber now have until 26 July 2018 to submit written and oral representations in response to CCCS’ PID issued on 5 July 2018.
While CCCS clearly finds Grab and Uber’s merger to infringe Singapore’s competition laws, the exact remedies and sanctions are not yet clear. Under Section 69 of the Competition Act, the CCCS has a wide discretion to give directions that it considers appropriate to bring the infringement to an end. This wide discretion includes the authority to require the infringing party to take the necessary actions to remedy, mitigate and/or eliminate any adverse effects of its infringement, and to prevent the recurrence of such infringement in future.
This wide discretion in terms of the remedies and sanctions has led to CCCS’ public consultation issued on 5 July 2018. This is a call to the public to give its feedback on the various remedies that have been proposed by CCCS to address the damage to competition caused by Grab and Uber’s merger.
CCCS’ proposed remedies essentially come in 2 forms: ‘structural’ remedies that aim restore the ride-hailing platform services market to pre-merger conditions, and ‘behavioural’ remedies that aim to improve market contestability going forward. CCCS’ preference is for ‘structural’ remedies that maintain a competitive environment in Singapore.
One remedy proposed by CCCS is to unwind Uber and Grab’s merger. While this might sound ideal, it might not be possible in practice as many Uber drivers (approximately 9,000 out of the original 10,000) and customers have already moved over from Uber to Grab.
The other remedies being considered by CCCS are:
- The removal of exclusivity obligations, lock-in periods and/or termination fees on all drivers to improve market contestability.
- The removal of Grab’s exclusivity arrangements with taxi/chauffeured private hire car operators so as to improve market contestability.
- The maintenance of Grab’s pre-merger pricing algorithm and driver commission rates so as to alleviate the increase in fares and commissions that have occurred since the merger.
- Requiring Uber to sell its car hire business (Lion City Rentals) to a potential competitor.
CCCS also proposes to impose financial penalties against both Grab and Uber. Under Singapore’s Competition Act, the quantum of such a financial penalty cannot exceed 10% of the entity’s total turnover in Singapore for each year of infringement, up to a maximum of 3 years. It would appear that this financial penalty was probably already factored in by Uber and Grab when they made the decision to merge.
Lessons for future mergers?
Companies looking to merge in future would do well to learn from this transaction between Grab and Uber. CCCS will not stand idly by whilst mergers that impede on competition are pursued. The sanctions that can be imposed by the CCCS against infringing parties under the Competition Act are not restricted to financial penalties. Indeed, the CCCS can also impose conditions on the infringing party’s future conduct as it sees fit.
To avoid such situations, Singapore’s Competition Act provides for pre-emptive steps that companies looking to merge may take. To err on the side of caution, a company that believes its merger might cause a “substantial lessening of competition” should voluntarily notify the CCCS of the proposed merger. As part of this notification process, the CCCS may then give its decision whether the proposed merger infringes Section 54 of the Competition Act or impose conditions on the same. If CCCS finds that the proposed merger is a prohibited one, the party involved may then apply to the Minister for the merger to be exempted on the grounds of any public interest considerations.
For further information contact:
Suressh S.
Partner, Eversheds Harry Elias
suressh@eversheds-harryelias.com
+65 6361 9883
Wei Cheang Yeo
Associate, Eversheds Harry Elias
weicheangyeo@eversheds-harryelias.com
+65 6361 9346
[1] https://www.grab.com/sg/press/business/grab-merges-with-uber-in-southeast-asia/
[2] https://www.cccs.gov.sg/media-and-publications/media-releases/uber-grab-imd-13-april-18