This article is written by Advocate Nayantara Chowdhary, pursiong Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho. Thar article discusses Uber’s merger with Grab in Singapore – Regulatory Setbacks Faced.

Uber’s merger with Grab in Singapore

The merger between Uber and Grab is one that has been fraught with regulatory difficulties for since its incipient stages and has been met with much scepticism. However, prior to these regulatory roadblocks the CEO of Uber said of the impending merger – “this transaction now puts us in a position to compete with real focus and weight in the core markets where we operate” whilst also stating that mergers would not be the way forward in other parts of the world where Uber actively operates, or indeed the singular manoeuvre for strengthening the company. This article aims to study why this deal called for a regulatory intervention, and why the proposed transaction was viewed as being problematic by the Competition and Consumer Commission of Singapore.

Why Uber decided to expand its operations to Singapore

Uber first ventured into Singapore in a bid to establish an Asian presence in 2013. Singapore was a most likely choice when it came to strategic expansion- given that it is a stable and dynamic economy, with a very encouraging investment climate. The fact that Singapore has been quite advanced technologically in comparison with other Asian economies has further fortified this decision, seeing as Uber aimed to leverage this market on the strength of its use of technology.

A Smidge About Grab

Grab Taxi Holdings Pvt. Ltd, identified a Grab, is Uber’s main rival in Southeast Asia. It provides ride-hailing services, as well as bike hiring and food delivery.

What does the much talked-about transaction between Uber and Grab look like?

Essentially, Uber’s business in Singapore, would be sold to Grab- in return for which Uber would possess a 27.5% stake in Grab. Additionally, Uber C.E.O. Dara Khosrowshahi would be absorbed into Grab’s Board. Grab would enjoy 80 percent of the market share, after having engulfed Uber’s potentialities.

Why did Uber sell its South Asian operations to Grab?

Uber sold its operations to Grab in order to cut back on and scale down its losses-whilst streamlining its business in core markets. It would be more prudent for Uber to play in markets where it is confident of its success, and work on strengths even if that means pulling out of one or two markets.

As per the Media Publication of 5^th July 2018 on the Competition and Consumer Commission of Singapore, some of the important dates surrounding the transaction are –

26th March 2018 – The transaction was formally announced on this date, and the transfer of assets was set into motion with effect from this date. Grab declared , on its website that it would be “acquiring the South Asian operations” of Uber.

27^th March 2018- A probe was launched swiftly on the heels of the announcement of the said transaction by the Competition and Consumer Commission. This investigation of the transaction would consider the transaction as a merger within the scope of Competition laws of the country.

What the law says

Section 54 of Singapore’s Competition Act proscribes any merger that would result in a substantial lessening of competition in any goods or services market in Singapore.

As per the guidelines issued by the Competition Commission of Singapore, there is a Substantial Lessening Competition (SLC) test which is used to determine whether there has been a considerable lessening of competition. All mergers are not deemed as being harmful to competition. Some mergers may boost competition, some others may be competitively neutral. It is a question of degree that decides extent of harm.

The threshold for determination of such lessening is not one that is qualitatively or quantitatively defined, and is decided on a case-to-case basis. However, the fact that there has been an obvious reduction in competition, to the detriment of the potential customer would be a good indicator.

What did the provisional findings of the CCCS prognosticate?

• The Competition and Consumer Commission opined that were it not for this transaction, Uber would not have made an exit in the near future. The way forward then, might have been for the company to merge with any other company in Southeast Asia, which are not direct competitors of Uber.
  • For instance, there would have been scope to work with ComfortDelGro (the largest taxi operator in Singapore) in order to introduce Uberflash, but this was thwarted by the current transaction.
  • The Uberflash deal was an endeavour to provide quicker service, given that riders would be able to book either an Uber car, or a ComfortDelGro taxi, whichever would be closest to their location.
  • By consolidating with ComfortDelGro, Uber would be able to service clients better and have more cars to access the users of their services.
  • Grab had also fostered a similar relationship with five other taxi operating companies, by introducing JustGrab ten months prior to the birth of Uberflash.
• By fusing Uber and Grab’s operations, there has been a considerable fettering of competition, giving Grab increased market access, unimpeded by potential competitors.
• Grab had already executed exclusivity contracts with rental partners, and some of its drivers – essentially implying that they would not be allowed to be engaged professionally with any of Grab’s competitors. This is a highly restrictive practice, and would obviously have pejorative effects on competition, and be an obvious hindrance to entrants to the market.
• These exclusivity constraints would seem insuperable obstructions, given that any new players in the market would have to incur significant costs, and dish out a huge amount of their startup capital in order to get trained drivers to join them.
• A lack of competition would also mean that Grab could leverage the situation, and increase fares by a substantial amount. The presence of competition in a market ensures that a price-ceiling, without which ride-hailing fares could be raised beyond a reasonable limit. Customers would be forced to pay any amount in order to avail of the service.

The quality of service would also be more easily compromised, given that there would be no chance of the consumer switching over to an alternative service provider.

• As the Competition Commission said, the transaction could not be said to promise any major positive impact, that would outweigh the harm posed to competition.
  • What were the Interim Measures Directions issued by the Competition and Consumer Commission of Singapore?
  • The Interim Measures Directions (IMD) issued to both Uber and Grab, were drawn up in order to keep the market “open and contestable.” These were as follows-
• The Competition Commission ensured that the new drivers engaging with Grab are not restrained by an exclusivity agreement. Drivers would not be held back by lock-in periods, or burdened with termination fees if they chose to terminate their contractual relationship with Grab.
• Grab would be expected to dissolve all of its exclusivity arrangements with taxi fleets given that there are no exclusivity arrangements between taxi fleets and ride- hailing platforms in Singapore.
• Grab would not be allowed to access any of Uber’s operational data- in terms of trip history, to further enhance its position. Access to driver and rider information, however, would not be restricted.
• The fares would have to be pegged at the pre-transactional figures. Driver commission rates would also have to remain intact.
• The Parties to the transaction would be required to clearly express to the drivers, vide email- that migrating to Grab’s services would be discretionary, at the option of the concerned driver.
• An independent trustee would be nominated in order to oversee compliance with the Intermediate. The parties selected Smith and Williamson LLP as trustee, and the Competition Commission subsequently approved of the nomination.
• The Court directed that any driver who was to rent a vehicle from Lion City Rental company, should be free to render their services to any ride-hailing service providers.

What was the quantum of fines imposed by the Competition Commission on the concerned parties to the transaction?

Grab has been fined $6.4 million, whereas a sum of $6.58 million has been imposed on Uber.

Is the penalty as harsh a blow as could possibly have been dealt?

Despite the penalty figures seeming arbitrary, one can assume that the fine will not bring Grab to its knees financially, given that it had already raised a whopping 6 Billion from keen investors , among whom are Uber’s investors – Softbank Group, and Didi Chuxing (Uber’s main competitor in China). The undoing of the transaction itself would have cost either party far more dearly.

How Grab responded to the penalty

Grab reacted by saying that the Competition Commission has defined the idea of competition in a very narrow fashion, and that they are not the sole player in the transport market, and therefore could not been seen as monopolizing the market completely merely because they were one of the more visible contenders in the market.

Grab’s Singapore head Lim Kelly Jay said in a statement that they did not transgress competition laws, knowingly nor negligently. Yet, he said that they would abide by the remedies prescribed by the Competition Commission.