Grab and Uber may have to revisit deal terms to avoid derailment, say experts – ANITH
post-template-default,single,single-post,postid-136180,single-format-standard,eltd-core-1.1.1,flow child-child-ver-1.0.0,flow-ver-1.3.6,eltd-smooth-scroll,eltd-smooth-page-transitions,ajax,eltd-blog-installed,page-template-blog-standard,eltd-header-standard,eltd-fixed-on-scroll,eltd-default-mobile-header,eltd-sticky-up-mobile-header,eltd-dropdown-default,wpb-js-composer js-comp-ver-5.0.1,vc_responsive

Grab and Uber may have to revisit deal terms to avoid derailment, say experts

Grab and Uber may have to revisit deal terms to avoid derailment, say experts

Grab co-founder and CEO Anthony Tan / Photo credit: Grab

It has been two weeks since Grab and Uber revealed their game-changing merger, which will see the US firm exit the ultra-competitive Southeast Asian market in return for a 27.5 percent stake in its local counterpart.

But the long-anticipated deal – which will see Uber cede its regional ride-hailing and food-delivery business to Grab, resembling exits it hashed out with erstwhile rivals Didi in China and Yandex in Russia – is now in a state of limbo. Competition regulators in Grab’s Singapore base, as well as key markets Malaysia, Vietnam, and the Philippines, are among those known to be scrutinizing the merger.

Just yesterday, Singapore’s antitrust watchdog ordered that the integration of Uber’s service into Grab’s should be postponed until May while it carries out its probe, and imposed interim measures on the two companies.

Experts tell Tech in Asia that the “Gruber” marriage is unlikely to be annulled. But regulatory agencies may compel the couple to rewrite their vows if they feel that Grab’s post-merger market share will have too much of a chilling effect on competition.

Notice not required

Singapore’s antitrust regulator – the Competition and Consumer Commission of Singapore (CCCS) – announced on March 30 that it had begun an investigation into the merger, and proposed interim measures requiring Grab and Uber to put their operational integration on hold.

Grab and Uber responded a few days later with their own proposed interim measures. Grab initially hoped to integrate Uber’s service and discontinue the latter’s app on April 8. Partly due to the concerns of CCCS and other watchdogs, the company later postponed the integration date to April 15.

In Singapore, the CCCS agreed to this extended timeframe to consider the two firms’ proposed alternative measures, then further pushed back the date to May 7. It also imposed interim measures that compel Grab and Uber to maintain their respective pre-transaction pricing and product options as well as to refrain from exchanging confidential information with one another while the investigation proceeds.

These developments have left some observers wondering if the two firms did enough due diligence prior to sealing the deal.

Parties to a merger are not generally required to notify CCCS of their proposed consolidation, though they can do so voluntarily if they suspect that it’s covered by Section 54 of Singapore’s Competition Act – which prohibits transactions that may result in a substantial lessening of competition in the marketplace.

In situations where the parties don’t do this, “the implication is that the CCCS would have to fall back on its other statutory powers of investigation and enforcement to look into potential breaches of competition law,” explains Bryan Tan, a partner at Pinsent Masons MPillay.

It would appear that this is what’s happening now to the “Gruber” deal.

“The main advantage of making a voluntary notification is that CCCS will be able to examine the merger and give its approval prior to the closing of the transaction. If any remedial action needs to be taken to address competition concerns, it may be worked into the deal with less hassle if dealt with sooner rather than later,” Tan suggests.

He adds, “In contrast, if the CCCS only intervenes after the merger is announced or completed, the business costs of having to undo certain aspects of the transaction could be very high.”

Gerald Singham, deputy managing partner at Dentons Rodyk & Davidson in Singapore, cautions that requirements are different in other Southeast Asian jurisdictions. In Vietnam and the Philippines – two of Grab’s key markets – merger notification is mandatory.

“Malaysia does not have a specific merger control law, the equivalent of what Singapore, Vietnam, the Philippines have,” he says. As such, antitrust concerns about the Grab-Uber deal in Malaysia are “not about merger control, but sharing of anti-competitive information” between the two companies. Data-sharing issues have also been flagged by the CCCS.

Defining the market

The fact that several watchdogs in the region are now examining the deal indicates they have reasonable grounds to suspect it may be in breach of anti-competition rules.

In Singapore, the CCCS will typically attempt to determine if a merger is violating Section 54 by considering if the combination surpasses certain market-share thresholds, Tan explains.

If the combined entity will have 40 percent-plus market share, or if post-merger, the combined entity and two of its largest rivals in the market will have a total share of 70 percent or more, regulatory alarm bells are likely to start ringing.

For deals could result in 20 to 40 percent market share, parties would also be prudent to voluntarily notify the CCCS of their intentions, says Singham.

He suggests that Grab’s and Uber’s decision not to notify the CCCS indicates they may have reached an internal assessment that they didn’t cross any threshold. Whether or not the CCCS makes the same assessment waits to be seen.

However, Singham points out that the key question in this case is not so much the percentage of market share, but how you define the market.

“The jury’s out on that point. If Uber and Grab are public transport, then their market share is nowhere near 40 percent. But if you define it more narrowly – as just taxis, for example – then it becomes a question of Uber and Grab against the taxi companies. If you tighten it up even further to just ride-hailing services, it’s quite clear the merger crosses the 40 percent threshold. Globally, these debates are still going on,” he explains.

Interestingly, in explaining its grounds for imposing interim measures yesterday, the CCCS said that Grab and Uber are “each other’s closest competitors and have a significant combined market share,” adding that a surge in Uber fares following a recent outage of Grab’s app was indicative of the two companies’ “close rivalry.”

Another issue at play is Uber’s still-pending joint venture with Singapore’s largest taxi company, ComfortDelGro, that saw its drivers accepting Uber ride requests through their UberFlash initiative. Singham says that since it’s a separate transaction, we must assume that any CCCS inquiry is ongoing, unless the parties have scrapped the deal.

ComfortDelGro earlier told Channel NewsAsia that it was reviewing the joint venture in light of the merger with Grab. The taxi firm has since told its drivers to delete the Uber app.

The customer’s always right… right?

Another factor that will weigh heavily on the CCCS is the deal’s impact on consumers. The regulator will be looking out for things like price increases, diminished service quality, or restrictions in consumer choice, Tan explains.

Some consumers have expressed anxiety about the merger’s effect on pricing. An online survey of 1,000 Singaporeans conducted by research firm BlackBox found that 53 percent of respondents felt the merger should be reviewed, with 19 percent saying it should be rejected.

However, 55 percent felt the merger would have no impact on them as consumers, while 26 percent opined that the deal will be “good” or “very good” for consumers.

Tan says that the CCCS has previously accepted poll results as evidence of consumer sentiment to help it define the scope of the market that the investigated parties operate in.

“The conclusion that a majority of Singaporean consumers are against the deal may spur the CCCS to exercise its investigatory powers,” he adds.

“As a consumer, the primary concern will be about pricing, and being at the mercy of Grab,” says Singham. “But I think consumers may give a different view if commitments are made by Grab, or because of certain efficiencies that Grab can offer due to its new market power. It may even reduce rates and give more discounts.”

The situation facing Grab and Uber’s driver-partners – who, in the past, theoretically had a second company to migrate to if they weren’t happy with opportunities or treatment at the first – will also need to be considered.

Some licensed taxi companies in Singapore have reported an uptick in current Uber and Grab drivers seeking jobs with them or applying for taxi drivers’ vocational licenses since the deal was made public.

Here, too, Grab and Uber may need to make specific commitments to the CCCS to ameliorate concerns about possible anti-competitive treatment of drivers, says Singham.

Commitments and directions

According to Tan, these commitments are one of the two types of remedies that the CCCS may adopt in the event of a Section 54 infringement. The CCCS may accept certain commitments from the merging parties that address any competition concerns raised by the deal in its current form.

The other form of remedy is directions – in other words, requiring the merging parties to modify or dissolve the merger to decrease its anti-competitive effects.

“I think this deal will clear eventually,” says Singham. In his view, the merger may cross market-share thresholds, depending on what assessments are made. But if it’s seen to be in the public interest – for example, if the alternative is that Uber simply exits the market without merging, leading to its driver-partners losing jobs and a diminished service for consumers – then the regulator may seek commitments from the parties involved during the investigation to lessen anti-competition concerns, he says.

Grab did not respond to Tech in Asia’s request for comment, but it did issue a statement regarding the CCCS’ latest postponement of the merger, saying::

“We appreciate that CCCS accepted our alternative interim measures. On CCCS’ request, we have agreed to extend the Uber app to May 7 to allow for a smoother transition time for riders and drivers. We trust that the CCCS’ review takes into account a dynamic industry that is constantly evolving, highly competitive, and being disrupted by technology and new services. The interim measures should not have the unintended effect of hampering competition and restricting businesses that have already been investing in the country over the years.”

The statement also directly addressed what appear to be the CCCS’ concerns about the merger’s impact on the country’s taxi industry:

“Grab notes the CCCS’ objective of giving drivers choice, and is fully supportive of extending our platform to all taxi drivers, including ComfortDelGro drivers who are still constrained from picking up JustGrab jobs.”

In March, Grab stopped ComfortDelGro drivers from participating in its JustGrab taxi-hailing service, barely a month after allowing them to opt into it. Grab had partnered with ComfortDelGro’s five main competitors last year to open JustGrab up to their drivers.

This post Grab and Uber may have to revisit deal terms to avoid derailment, say experts appeared first on Tech in Asia.

Source link

Anith Gopal
No Comments

Post a Comment

seventeen + fourteen =

This site uses Akismet to reduce spam. Learn how your comment data is processed.