GRAB-GOJEK MERGER | Would this transaction be anti-competitive?
By VCI Legal
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Grab-Uber Merger
The Grab-Uber merger occurred when the Law on Competition 2004 dated 3 December 2004 (“LOC 2004”) was in force. On 16 April 2018, the Vietnam Competition and Consumer Authority (“VCCA”) decided to conduct a preliminary investigation into the Transaction and made a preliminary determination that the Transaction may have violated the LOC 2004. On 30 November 2018, the VCCA issued the final determination regarding the Transaction. On 9 April 2019, the VCCA issued an additional final determination. These determinations stated that the Transaction was an acquisition of an enterprise; therefore, such merger was a form of economic concentration under Article 17.3 of LOC 2004. Such determinations by the VCCA were based on the following facts and analyses:
(a) Grab Vietnam was assigned Uber Vietnam’s rights and obligations with Uber Vietnam drivers and riders.
(b) Therefore, Grab Vietnam had the right to decide Uber Vietnam operations in relation to the ride-hailing services.
(c) As a result, Grab Vietnam completely controlled and managed Uber Vietnam’s operations.
Because Grab-Uber merger was an economic concentration, according to the VCCA, Grab Vietnam and Uber Vietnam failed to notify the VCCA of the Transaction, and the Grab-Uber merger was prohibited under Article 18 of LOC 2004. VCCA proposed monetary fines of (i) 5% of the total revenue of Grab Vietnam and Uber (Uber Vietnam and Uber B.V in the Netherlands) in 2017 for their failure to comply with the notification obligations; (ii) 5% of the total revenue of Grab Vietnam and Uber (Uber Vietnam and Uber B.V in the Netherlands) in 2017 for conducting a prohibited Transaction under the LOC 2004; and supplementary measures, including (i) maintaining pre-merger pricing algorithm and driver commission rates; and (ii) notifying VCCA and VCC for any change (increase) in the service price and driver commission rates.
On 11 June 2019, the VCC held a closed hearing between the VCCA, Grab Việt Nam, and Uber. After the hearing, the VCC issued the decision that Grab’s acquisition of Uber did not violate Vietnamese competition law. According to the VCC’s assessment, Grab Vietnam did not purchase Uber Vietnam shares, did not hold any voting rights in Uber Vietnam, and did not manage or control Uber Vietnam’s operations. The VCC determined that Uber Vietnam neither provided the ride-hailing services nor did it own or control the Uber application. The Uber application was under the management of Uber B.V in the Netherlands and Uber B.V continued to operate the Uber app after the deal, not Grab Vietnam. As a result, there were not enough elements to meet the condition of an “acquisition”, as defined by law, and to constitute an economic concentration. The VCC’s assessment seemed to have been based on Article 17.3 of LOC 2004 and Article 34 of Decree No. 116/2005/ND-CP which provide one single criterion for determination of market concentration – whether the acquiring enterprise holds sufficient voting rights for controlling financial policies and operations of the acquired enterprise.
Likely Ruling on Grab-GoJek Merger
Since details of the deal have not been disclosed, if Grab and GoJek decide to enter into an acquisition transaction which is analogous to Grab and Uber, under the LOC 2018, the Grab-GoJek merger may be considered an “economic concentration”. The recent competition acquiror laws seem to have adversely changed for Grab. Specifically, under the LOC 2004 and its guidance legislation that determine one criterion for the acquisition, and what constitutes an economic concentration, are the voting rights of the acquiring enterprise in the acquired enterprise’s charter capital. However, under the LOC 2018 and Decree 35, an acquisition shall be considered an economic concentration if it meets one of the following criteria:
(i) the acquiring enterprise receives more than 50% of the acquired enterprise’s charter capital or more than 50% of the acquired enterprise’s total voting shares;
(ii) the acquiring enterprise owns or uses more than 50% of the acquired enterprise’s total assets;
(iii) the acquiring enterprise has the right to appoint, dismiss or discharge members of Board of Directors and directors;
(iv) the acquiring enterprise is able to decide on the revision or modification of the acquired enterprise’s charter, and;
(v) the acquiring enterprise is able to decide on the acquired enterprise’s important business matters.
If Grab decides to acquire more than 50% of GoJek’s assets, similar to the Uber transaction, Grab meets the second criterion as mentioned above. As a result, under the LOC 2018, the Grab-GoJek merger would constitute an economic concentration.
The Grab-GoJek concentration might be prohibited if it causes (or potentially causes) substantial anti-competitive effects on the Vietnamese market. In order to assess such effects, the LOC 2018 stipulates the process by the National Competition Commission (“NCC”) of assessing the operations of an economic concentration through two stages, including (a) preliminary assessment, and (b) official assessment.
Since Grab captures approximately 73% of the market share in the Vietnamese ride-hailing market, and GoJek holds 10%, Grab and GoJek would have to notify the NCC about their merger. Within 30 days from receipt of a complete and valid notification dossier, the NCC shall notify the preliminary assessment result to enterprises involved in an economic concentration that such transaction is approved or subject to further official assessment. It is noteworthy that, if the NCC is silent after the 30-day preliminary assessment, the participants would be entitled to proceed with their proposed transaction. During the official assessment of economic concentration, the NCC will carry out the evaluation of all factors defined by law in relation to remedies for anti-competitive effects. This process can take up to 90-150 days. Upon completion, the NCC will issue a decision. The decision will approve the merger, prohibit it, or rule that it can be carried out but is subject to certain conditions.