Merger Regime In Singapore: Fact Sheet For Directors And Senior Executives

By Kala Anandarajah

Partner and Dominique

Lombardi, Foreign Lawyer

Rajah & Tann

October 2 006, the Competition Commission of Singapore (‘CCS’) issued various documents for consultation seeking public feedback on the proposed merger regime to be implemented under the Competition Act (‘Act’). The proposed merger regime, which will require amendments to the Act, will come into effect on 1 July 2 007. Feedback to the CCS on the consultation documents had to be submitted by 10 November 2 006. In mid-December the CCS issued Response to the Feedback that it had received.

This short note aims to provide busy directors and senior executives with a ‘snapshot’ of the proposed merger regime and how it impacts businesses. Note, however, that the content of this note is subject to the final version of the Merger Regulation to be issued next year.

Director And Senior Executive Must Know

From 1 July 2 007, Mergers will be subject to the Competition Act. The Merger Regime:

• applies to all Mergers, ie any operation that results in the acquisition of, or change in, the control of an undertaking or part of an undertaking as well as to the creation of full-function joint ventures;

• does not apply to Mergers effected, where control has passed, before 1 July 2007;

• applies to Mergers whether entered into outside Singapore or by companies which are not incorporated in Singapore so long as there is effect in Singapore;

• prohibits Mergers that result in a substantial lessening of competition (‘SLC’) in a market in Singapore;

• does not require any compulsory notification of a Merger to the CCS and, hence no clearance from the CCS is needed before entering into or implementing a Merger;

• allows voluntary notifications to the CCS and provides for a relatively short timeframe for merger review by the CCS; and

• gives ample powers to the CCS to impose interim measures, directions, financial penalties to parties to a Merger that would be found to infringe the new prohibition.

The paragraphs that follow elaborate briefly on the key facts highlighted.

The Merger Regime Applies Whenever There Is An Acquisition Or Change Of Control

• Control exists where there is an ability to exercise a decisive influence over another undertaking’s activities, ie:

- being able to impose strategic decisions on the business policy of another undertaking, or

- being able to block such strategic decisions, alone or with another undertaking.

• Control may be established on a legal or on a de facto basis:

- legal control: eg ownership of more than 50% of the voting rights or veto rights that go beyond the protection of the shareholders’ financial interest as an investor, or

- de facto control: eg the ability to control the decision making function of the Board or economic relationships creating a situation of economic dependence.

• Control may be acquired or changed in the case of:

- a merger between previously independent undertakings (amalgamation, absorption),

- the creation by two or more undertakings of a full-function joint venture, ie a joint venture that is intended to be active in a market and which has sufficient dedicated human and financial ressources to do so, or

- the acquisition by an undertaking of assets of another undertaking so as to effectively replace the second (for illustration, the transfer of the client base of a business from one undertaking to another).

The Merger Regime Applies To Operations Inside Or Outside Singapore

• The Merger Regime applies to all operations that may have an effect in Singapore. Hence:

- Mergers entered into outside Singapore or by companies which are not incorporated in Singapore may fall into the Merger Regime, and

- what counts is whether the Merger involves undertakings that supply goods or provide services into Singapore.

Regulated Mergers That May Substantially Lessen Competition In Singapore

• Three basic Merger situations may result in a substiantial lessening of competition:

- horizontal mergers (ie mergers between competitors) as they can reduce competitive pressure on the merged firm and/or increase the ability of remaining firms to coordinate;

- vertical mergers (ie mergers between undertakings operating at different levels of the supply chain of an industry) as they may lead to foreclosure of a substantial part of the market to competitors; and
- conglomerate mergers (ie mergers, other than vertical mergers, between undertakings in different markets) as they may afford the merged entity the ability to exercise portfolio power.

• Indicative thresholds are provided: a SLC is likley to happen where:

- the ‘merged entity’ will have a market share of at least 4 0%, or

- the ‘merged entity’ will have a market share of between 2 0% and 4 0%, and the post-merger combined market share of the three largest firms (CR3) is 70% or more.

Procedure For Merger Review

• No compulsory notification of the Merger to the CCS.

• No prohibition to implement the proposed Merger.

• Pre-notification confidential discussions with the CCS are possible.

• Voluntary notification to the CCS of a completed or an anticipated (if public) Merger is possible.
• Two-phase Merger review:

- Phase I: up to 3 0 working days; and

- Phase II: up to 12 0 (additional) working days.

Powers Of The CCS In Relation To Notified Mergers

• Accept commitments by the parties to a Merger in order to remedy any competition concerns identified by the CCS.

• Make a favourable decision whether or not subject to legally binding commitments by the parties to the Merger.

• Impose interim measures, including suspending the Merger.

• Make an unfavourable decision and issue all appropriate directions to remedy the competition concerns identified, including unwind the merger or impose divestiture mandates.

Concluding Words

When faced with a possible Merger, directors and senior executives must always conduct a thorough review of the competition implications of that transaction, and, if necessary, obtain professional advice.