As part of the Phase 2 merger review process which began on 10 December 2014, the Competition Commission of Singapore (“CCS”) on 16 March 2015 has announced a provisional decision to prohibit the proposed acquisition of Radlink-Asia Pte Ltd (“Radlink”) by Parkway Holdings Ltd (“Parkway”). This is a first by the CCS. This comes after the CCS was unable to conclude during a Phase 1 review that the proposed transaction would not result in a Substantial Lessening of Competition (“SLC”) and decided to move the merger into a Phase 2 review in November last year. Section 54 of the Singapore Competition Act prohibits mergers that are expected to result in a SLC.
The public announcement of this provisional decision comes not too long after the CCS, in a previous first, approved a merger subject to behavioural and structural commitments on 8 October 2014. This update provides a quick overview of the provisional decision as well as highlights quickly points businesses need to be alert to.
The Provisional Decision
Product And Service Markets Affected By The Merger
The CCS has identified two markets within Singapore which would likely face a SLC if the merger was allowed to proceed. They are (i) the market for the supply of radiopharmaceuticals and (ii) the market for the provision of radiology and imaging services.
In the market for the supply of radiopharmaceuticals, the CCS gave consideration to the following facts before arriving at the conclusion that the merger would result in a SLC for this product market.
1. The merged entity would be the only commercial supplier of radiopharmaceutical products in Singapore.
2. There are no potential radiopharmeaceutical suppliers ready and willing to enter the market in the next two to three years to effectively compete with the merged entity.
In the market for the provision of radiology and imaging services, the CCS gave consideration to the following facts before arriving at the conclusion that the merger would result in a SLC for this service market.
1. Radlink and Parkway are the closest competitors in the current market for the provision of radiology and imaging services for private outpatients in Singapore.
2. The market share of the merged entity after the merger will be very substantial.
3. Customers lack bargaining power in the current market for the provision of radiology and imaging services for private outpatients in Singapore.
4. The entry barriers for new players wanting to enter the market for the provision of radiology and imaging services for private outpatients in Singapore are moderate to high.
5. The merged entity would be able to restrict competition in this downstream market for the provision of radiology and imaging services by leveraging on the enhanced market power that the merged entity would enjoy in the upstream market for the supply of radiopharmaceuticals post-merger.
It is interesting that in this provisional decision the CCS considered both horizontal and vertical issues. While horizontal issues are commonly considered by the CCS when assessing mergers, the consideration of vertical issues is rarer. In this case, the CCS took the preliminary view that the vertical integration of the parties would result in their control of the supply, prices and/or range of radiopharmaceuticals available to the downstream competitors.
What’s Next?
Once the CCS has issued the provisional decision, the merging parties have 14 days to apply to the Minister for Trade and Industry for the merger to be exempted on the ground of any public interest considerations. Should such an application to the Minister be unsuccessful, the CCS would then issue a final decision on the merger after taking into account any further oral and written representations by the merging parties. After the final decision is issued by the CCS, merging parties if unhappy with the outcome can appeal to the Competition Appeal Board within 4 weeks from the date they are notified of the contested decision. Note that based on the CCS Press Release, it seems unlikely that the merging parties will try to have their proposed merger exempted or to appeal the final decision.
It should be noted that the CCS may still accept commitments from the merging parties even after the provisional decision has been issued. This is as the CCS may accept commitments at any time during a Phase 1 review or during a Phase 2 review so long as it is before the final decision is issued.
It should also be noted that it is possible for the CCS to take into account subsequent commercial developments in the relevant markets after the issue of the provisional decision. If such commercial developments indicate that the proposed merger would no longer result in a SLC in the relevant markets, the CCS may then proceed to unconditionally approve the merger despite previously having issued an unfavourable provisional decision to block the merger. This was done in the Grief-GEP JV merger notification made to the CCS in July 2009.
In that case, after the conclusion of the Phase 1 review on 21 August 2009, the CCS proceeded with a Phase 2 review on 6 November 2009. Unable to clear the merger due to the market structure existing at that point in time, the CCS issued a provisional decision to block the merger on 5 April 2010. Unlike the Parkway-Radlink merger, this provisional decision was not announced to the public. The merging parties in response filed an application for exemption to the Minister on 19 April 2010 which was declined on 7 December 2010. The CCS granted the merging parties an extended time until 28 February 2011 to file their written representations in response to the provisional decision, following which the CCS proceeded to continue its Phase 2 review of the merger. The CCS then noted that there had been key developments in the relevant market since the provisional decision was issued that had a material impact on its decision. The CCS took into account those key developments and unconditionally approved the merger in its final decision issued on 14 April 2011. Therefore, merging parties should be alive to commercial developments throughout the merger review process as they might be of great value in convincing the CCS of the absence of a SLC in the relevant markets that would result from the merger.
Practically Speaking
The Radlink-Parkway merger is the first time that the CCS has publicly disclosed its intention to block a proposed merger. The increased transparency of the CCS, seen by its public announcement of the provisional decision, is a much welcome development as it sheds light on the increasingly more nuanced and sophisticated approach taken by the CCS.
In addition, the consideration of vertical issues separately from that of horizontal issues by the CCS in this provisional decision highlights a critical point that the CCS takes a holistic view of mergers and cautions parties against making the incorrect assumption that the presence of only vertical effects in the absence of any horizontal effects is not detrimental to competition.
Provisional decisions prohibiting mergers should be regarded as an exception rather than the norm given that notifying parties would have tried their upmost to address any competition concerns that the CCS might have during the Phase 1 and Phase 2 merger reviews. Yet, this provisional decision should bring the point across to notifying parties that they should no longer assume that the merger notification process is going to be a walk over despite it being a voluntary process in Singapore. In order to avoid a long and protracted merger review that might lead to an undesired decision blocking the merger, merging parties would be wise to contemplate reviewing their proposed transaction in advance and prepare various commitment packages that might be used successfully as a tool to stave off an unwanted prohibition decision.
