Introduction
Early in 2024, the Chief Executive Officer of the Malaysia Competition Commission (MyCC), Iskandar Ismail, announced that merger control laws will be introduced through amendments to the Competition Act 2010 which are to be tabled in Parliament this year. Although the details of the merger control law remain to be confirmed, the proposed framework was made known to the public through the issuance of two documents by the Malaysia Competition Commission on 25 April 2022: Consultation Paper on the Proposed Amendments to the Competition Act 2010 and the Salient Points of the Proposed Amendments to the Competition Act 2010.
With the enactment of the merger control law, the Malaysia Competition Commission will be given the power to evaluate proposed mergers to assess their potential effects on competition and take appropriate measures to address any anti-competitive concerns. This article will explore the intersecting relationship between competition law and mergers and acquisitions (M&A), key considerations, the current regulatory framework and the key terms of the proposed merger control law to be enforced in Malaysia.
Competition Law in Malaysia
The Malaysia Competition Commission was established to enforce the Competition Act 2010 to protect the competitive process for the benefit of consumer welfare, efficiency in businesses and the development of the Malaysian economy as a whole.
The Competition Act 2010 prohibits anti-competitive practices including anti-competitive agreements, anti-competitive conduct and the abuse of dominant positions in the market. Competitive practices foster efficiency, innovation and entrepreneurship, leading to competitive prices, improvement in the quality of products and services and wider choices for consumers.
Under Section 4 of the Competition Act 2010, a horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services. In general, horizontal agreements refer to agreements between competitors whereas vertical agreements refer to agreements typically between manufacturers and distributors. In these examples, horizontal or vertical agreements may be anti-competitive if they significantly prevent, restrict or distort competition in a market.
Competition law and its impact on Mergers and Acquisitions
Mergers and acquisitions (M&A) are a common strategy for companies seeking business expansion and synergies. While these mergers can lead to growth opportunities for the companies involved, they can also raise questions about their potential impact on the competition within the relevant market and whether the merger can lead to anti-competitive effects. In order to analyse the possible consequences of the merger, there are several key indicators that will have to be taken into consideration:
- Market Concentration: Examining the level of market concentration post-merger is crucial. Market concentration refers to the number and size of participants in a particular industry. When a merger between two or more companies significantly increases the market share of the combined entities, it raises concerns about its ability to influence prices, limit the choices available to consumers and exert control over the respective market.
- Innovation: Determining whether the merger or acquisition will have an impact on innovation is another key indicator as competition between companies in the industry can encourage innovation and lead to better products or services for consumers. Mergers that discourage innovation such as through reduced research and development (R&D) innovations or by eliminating competition are harmful to consumers in the long term.
- Barriers to Entry: Before a company can compete in the market, it must be able to enter it. However, certain industries impose barriers that make it difficult for new entrants to enter the market. High barriers, such as regulatory hurdles or capital requirements, can limit new entrants’ ability to enter and compete effectively which will ultimately lead to existing companies strengthening their power in the market.
- Consumer Choice: Ultimately, the aim of competition control is to protect and safeguard consumer welfare. Any merger that results in a rise in prices, low-quality products or reduced consumer choices has indicators of anti-competitive effects.
By evaluating these factors and conducting a comprehensive analysis of the competitive effects, it can be assessed whether a merger is likely to harm competition and consumer welfare. Appropriate measures can then be taken to address any anti-competitive concerns before industry groups raise complaints or the the Malaysia Competition Commission takes action.
The Malaysia Competition Commission (MyCC) can evaluate whether a merger has anti-competitive effects and take reasonable action. An example of an enforcement action taken by MyCC can be seen in the proposed fine against GrabCar after its merger with Uber Malaysia led to Grab becoming the dominant player in the e-hailing industry. MyCC argued that Grab had imposed restrictive clauses on its drivers prevented them from promoting and providing advertising services for Grab’s competitors and has created barriers to entry. Ultimately, the High Court quashed the fine proposed by the MyCC on the grounds of procedural impropriety and breach of natural justice.
Current Merger Control
Merger control laws require an analysis of whether M&A and joint venture transactions affect competition. Presently, Malaysia does not have an umbrella merger control regime for M&A transactions, except for two industries, namely the aviation and telecommunications sectors. The industry-specific commissions, namely the Malaysian Aviation Commission (MAVCOM) and the Malaysian Communications and Multimedia Commission (MCMC), monitor merger and acquisition transactions for the entities that fall within their purview.
The merger between two giant telecommunication companies, Digi Bhd and Celcom Axiata Bhd, is an example of a recent merger control exercise. Although there were calls for MyCC to intervene in the proposed merger, the matter fell within the purview and authority of MCMC.
Pursuant to the Guidelines on Mergers and Acquisitions issued by MCMC, the assessment of such transactions is part of a voluntary notification regime. Entities are required to self-assess and notify the relevant commissions if the transaction potentially involves reducing competition in the market.
Proposed Merger Control Law
The Government of Malaysia intends to introduce a merger control regime through the amendments to the Competition Act 2010. Under the proposed merger control law, the regime will be a hybrid concept where:
- It will be mandatory for entities that intend to merge and exceed the threshold to notify MyCC; and
- It is voluntary for entities that are intending or have merged which does not exceed the threshold to notify MyCC.
For now, the threshold is unknown but it “could amount to the hundreds of millions” as stated by the CEO of MyCC in an interview with The Star. The regime will be applicable for any merger or anticipated merger which is transacted within or outside of Malaysia and will impact the competition in any market in Malaysia.
The application submitted to MyCC must include the reasons behind the merger and its impact on the relevant markets (if any). The applications that exceed the threshold will be processed within 120 days with the outcome being one of three:
- Approvals without any conditions as the merger would not affect the market;
- Approval with conditions; or
- Rejection due to findings that the merger will cause substantial lessening of competition in the relevant market.
Through the proposed merger control law, the powers of the MyCC will significantly increase. The proposed amendments will enable MyCC to scrutinise mergers, which includes the authority to request detailed information from the merging parties or seek input from the competitors of the same market. If the MyCC is of the view that a proposed merger transaction or a merger transaction has committed a violation which has substantially lessened competition, it may intervene or impose penalties. This may include imposing a financial penalty of up to ten per cent of the value of the merger transaction or issuing directions to reverse the transaction.
The proposed merger control law will offer a pathway for enterprises to be exempt from liability if they can demonstrate that the economic efficiencies of the merger or anticipated merger outweigh any adverse effects caused by a substantial lessening of competition. This provision for liability relief is also included in the Guidelines on Substantive Assessment of Mergers issued by MAVCOM.
Conclusion
As Malaysia moves towards achieving a more robust economy within the Southeast Asia region, a transparent merger control regime may foster a competitive and consumer-friendly environment. However, safeguards and a clear framework need to be implemented in order to facilitate business transactions, attract foreign investment and safeguard consumers whilst balancing the need for non-restrictive trade in Malaysia. With the implementation of the merger control regime, authorities will have the power to evaluate potential mergers and take enforcement actions if there are anti-competitive effects.
By Cassandra Thomazios and Mira Mashor
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
