This article has been written by Paritosh Dhawan, pursuing the Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.

Introduction

Yes, it is true that the two leading global smartphone brands have gone through a merger. OnePlus has recently revealed that it has merged with OPPO, however, both the giants will continue to operate and function as independent entities. 

OnePlus in its initial days started in a very unconventional and unprecedented way that they made it mandatory for its users to have an invite in order to purchase the phone. The said strategy worked extremely well for the brand as it developed an urge in the buyers to read about the brand and eventually arrange for an invite. This exclusive strategy grabbed a lot of eyeballs worldwide and helped the brand in making a name in the market in the very initial days itself. 

OnePlus will now be a sub-brand of OPPO as a result of this transaction which although was not officially communicated. A tipster by the name of Evan Blass leaked a memo on Twitter that appeared to be an internal memo, stating that “with the integration, OnePlus becomes a brand within OPPO, however, will continue to function as an independent entity. The said memo also speaks that OnePlus products and markets will “operate as usual”, and the transaction has “no direct impact” on the OnePlus carrier.

The Chinese smartphone giants, Oppo and OnePlus have always been perceived to have the same genes. Time and again, OnePlus made several efforts to maintain a gap from Oppo but the users have always felt similarity in the two. However, the experts have predicted that OnePlus users should not expect too much change in the products because of the merger. The eyes of the users shall be on the marquee phones which shall come up post the merger and the customers are already suggesting the new features.  

The memo also mentions that there would not be any changes in the segment of Public Relations (PR) and customer contact channels as both the companies shall uphold their brand names. Broadly speaking, the merger of the Chinese smartphone giants is not likely to bring any remarkable changes for its users as they already share their manufacturing & supply chain.

According to the buzz, the merger is going to be advantageous for both the companies as it will give them more resources which shall help them in producing even better products. The Research and Development (R&D) departments of both the companies had already merged around the turn of the year.

CEO Pete Lau has expressed that his brand will “further integrate” with Oppo which will give it “more resources” to evolve and create even better products for its users. Pete Lau shall also be the Chief Product Officer at Oppo and shall also be responsible for product strategies for both smartphone companies.  It has also been stated that after the merger, OnePlus will come under the ambit and control of Oppo which will benefit both the companies. CEO Pete Lau has been an ambitious leader ever since and now with a lot of food on his plate the experts are expecting him to perform even better. CEO Pete Lau, in an official forum entry, said that the merger will allow them to create a more stable software unit, bring faster updates, and be the epitome of efficiency. Lau has further claimed that the prime focus would be on providing the finest possible products and experience as they have always maintained.

The leaked memo directs OnePlus employees to not respond to any questions/queries from journalists and users about the Colour Os and/or OxygenOS or anything vis-à-vis relating to the operating systems.  According to the memo, this is because the brand doesn’t have any updates considering the operating systems. OnePlus’s OxygenOs is considered to be at a higher ranking than Oppo’s Colour Os even though both share many similarities. There has been no official update on the operating system and the users are still awaiting any final confirmation from the brand.

Why this merger? How will it help?

This merger is a prime example of a Horizontal Merger. A Horizontal merger is when there is a consolidation between organizations that function in the same industry. Organizations that function in the same area tend to have a very high level of competition with each other because most likely they will be having the same target audience. 

In the present instance, both Oppo and OnePlus are leading companies in the smartphone industry and also operate around the target audience. The prime reason for this merger is that the large companies always aim at gaining competitive advantages and creating more efficient economies of sale and subsequently reducing the costs. As it has been declared that both the entities shall be having separate identities and most of their functioning shall remain the same, the market share of the organization as a whole will be at least twice its existing share. 

Another bonus of the present merger is that both the companies have always been head to head with each other and they have always been compared by the users in terms of pricing, design, software, interface, etc. It is always beneficial to go for a horizontal merger of companies that are already brilliant and are doing a commendable job in the said business rather than putting a lot of time, research and effort into developing the services/products from scratch. 

Diversification of the business is another aspect that must have been a reason for the said merger. The two leading Chinese smartphone giants are not only targeting to progress in the field of smartphones, they have already entered various other markets and have plans to expand those projects with this merger. 

Why can this merger be a major gaffe? 

Although prima facie, this merger seems to be an outstanding step towards expansion and having a greater market share, yet the chances of its failure cannot be ignored. It has been an applaudable saying for decades that 1 + 1 > 2 if the 2 brands together fail to expand the market share by a margin and not actually create any added value; the transaction is not worth it. The said merger can face disruptions such as: 

• The brands can have a difficulty in the integration of the two organizations as merging of different corporate cultures can be difficult. 
• Issues can come up in building a smooth working relationship between the 2 brands as they are likely to be practicing different management styles and every manager has a particular way of managing his team. 
• The brands will have to make sure that they don’t come under the umbrella of a Monopoly. Such Horizontal mergers are always examined and scrutinized as the said combination can develop a monopoly in the market and influence the market single-handedly. 
• As both the brands have been in the same sector, they might feel competition within themselves as well. As both Oppo and OnePlus will still be continuing operations separately, they might compete with each other internally which might create a negative environment in the office. 
• The synergies which are expected may not be realized and therefore the overall value might decrease. 

Can this merger lead to abuse of dominant position/abuse of collective dominance?

The watchdogs of China’s Anti-Monopoly Law are already eyeing the said merger but they haven’t been able to scrutinize the transaction in detail as still it is in its early days and the consequence of such a merger will take some time to come out. However, the Anti-Monopoly Law, like every dominant position law, prohibits an entity from having a monopoly or a dominant position in the market. It is done to exclude unfair competition in the market and to regulate that no company has a monopoly in the market. The Anti-Monopoly Law also restricts abuse of ‘collective dominance’ in a market in which there is a state of limited competition, it is a setup in which a market is shared by a small number of producers and sellers also called the oligopolistic industry. The Anti-Monopoly Law has a rebuttable presumption that 3 entities with an aggregate market share of 75% are termed to be in a dominant position. 

Conclusion

The news of the merger of the two leading Chinese Titans took the world by storm. Experts around the globe tried to find the reason behind such a transaction and also tried to evaluate its outcomes. The entire merger is still an open-ended debate as the entire set of details has not been out yet. Though, the information that has been leaked online by the tipster read with the tweets can give us a basic outline of the entire merger. And the question of whether it will be a successful transaction or not, cannot be predicted at this stage. 

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