Merger Procedures and Substantive Analysis in Singapore Tan Jie Sheng 5 December 2007

1. Merger Procedures and Substantive Analysis in Singapore • Tan Jie Sheng • 5 December 2007

2. Outline • 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

3. Overview of the mergers cases handled by CCS • 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

4. 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

5. 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

6. 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?

7. Exclusions 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.

8. 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

9. 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

10. 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

11. The SLC Test • 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

12. 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

13. 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)

14. 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

15. 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

16. 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

17. CCS powers when assessing mergers • 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

18. 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

19. Remedies • 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 structural Rationale: • Directly addresses market structure issues • Less monitoring required

20. 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

21. THANK YOU • www.ccs.gov.sg