Taking control of mergers

THERE is talk in the grapevine that Grab Holdings Ltd is looking to buy TFP Retail Sdn Bhd (The Food Purveyor) from private equity firm Navis Capital Partners.

It remains unsubstantiated news, but it did hit a nerve, at least for me.

The reason: if successful, Grab would control a significant market share of the premium supermarkets in the country and potentially reduce competition.

Jaya Grocer (acquired by Grab in 2021) and Village Grocer (sold to Navis Capital in 2014) remain the two key premium supermarket chains in the Klang Valley and other key cities.

The competition between the two is healthy and palpable, thus a merger would be very worrying. In most developed countries, and even in other Asean countries, such a merger would need the green-light of a competition authority.

Not in Malaysia.

We do not have an overarching merger control legislation.

Merger control legislation is essentially a body of laws and regulations that allows authorities to review proposed mergers and acquisitions (M&As) to prevent them from harming market competition, to ensure consumers aren’t hurt by reduced choices or higher prices.

Strangely enough, the move for this amendment to Malaysia’s Competition Act 2010 (CPTA) began back in 2020. But Covid-19 plus political changes seem to have stymied its passing.

It does boggle the mind why this amendment wasn’t passed this year. Officials have indicated multiple times that merger control amendments to the CPTA would be passed this year.

In February, there were reports that it would be passed.

In August, Datuk Armizan Mohd Ali, the Domestic Trade and Cost of Living minister stated that merger control would be tabled before year-end to prevent cartels and monopolies.

The amendment was drafted by the Malaysia Competition Commission (MyCC), in consultation with industry as well as the Attorney General’s Chambers, which has greenlit it for tabling.

Merger control is important. If any merger or acquisition (M&A) among companies in similar industries hit a certain threshold in value, they would need to notify the MyCC first.

The regulator would then make an assessment if there will be a substantial lessening of competition. If there is, the proposed merger can be rejected.

In the United States, where competition regulations are very rigorous, we often hear of big M&A deals being scuppered by the authorities there on grounds of lessened competition.

The United States has both the Federal Trade Commission and the US Department of Justice’s Antitrust Division. The two agencies coordinate before opening an investigation to avoid duplicating efforts.

MyCC CEO Iskandar Ismail has noted before that the planned merger control regime in Malaysia will impact all companies whose M&A deals hit certain thresholds.

The threshold, he said, could amount to the “hundreds of millions of ringgit”.

It isn’t clear if that refers to the turnover of the companies being merged or their joint revenues. But it does mean that small deals would not be captured and understandably so, because small companies do not control significant market share of their sectors.

Iskandar has also said that in some cases, approvals could be given with certain conditions. Plus, there are certain industries that would be exempt from the merger control regulation because they have their own regulators.

But this is where a problem could lie. Having the ability to make determinations of anti-competitive behaviour is no easy feat. One would need a lot of resources, from having particular industry expertise, to deep market research abilities, not to mention sharp legal and financial acumen.

Why then is this determination going to be done by separate bodies? Malaysia should be looking to consolidate all that anti competition resources.

The industries that have their own anti-competition enforcement today include telecommunications, banking, aviation, media and even water.

Perhaps, all those regulators could work closely with the MyCC to come up with key determinations when companies in their sectors are involved. This way, industry expertise and market knowledge could come from the industry regulators while MyCC provides its more general competition knowhow, for the best determinations.

Coming back to the supermarket story, it needs to be repeated that the idea of Grab buying Village Grocer and merging it with Jaya Grocer is merely an illustration of what could happen in the absence of merger control.

As it stands now, anti-competitive behaviour can only be addressed after a merger. Evidence needs to be collated in order to show that there has been substantial lessening of competition, a process which could take years.

This is why most countries have merger control laws.

Malaysia’s lack of general merger control stems partly from its historical reliance on state-owned enterprises to drive industrialisation. But post that period, the country has been slow in breaking down monopolistic entities.

But some green shoots are visible. Take the case of Puspakom, which held a three-decade monopoly on vehicle inspection services in Malaysia until its concession ended last August.

It no longer has a monopoly and over 10 companies have applied for licences to carry out inspections.

But what if, one day, Puspakom decides to acquire a few of those thriving new entrants.

It would make perfect business sense but it would be anti-competitive and we would be back to square one.

Only merger control laws can nip such behaviour in the bud.