There has been much talk about the proposed amendments to the Competition Act 2010 (the “Act”) to incorporate merger controls in Malaysia. However, what exactly are merger controls and is Malaysia likely to enact such controls in the near future? Are the current political and economic climate together with the recent challenges amidst the COVID-19 outbreak set to derail merger control timelines?

Competition Laws

Competition laws are enacted to promote economic development by facilitating and protecting the process of competition thereby protecting the interests of consumers. The process of competition encourages efficiency, innovation and entrepreneurship, enabling an environment of competitive prices and improved quality of products and services for consumers.

The competition law in Malaysia achieves this by prohibiting two categories of activities: (i) anti-competitive practices and (ii) abuse of dominant positions. These two areas have been deliberated upon extensively by the legal community. Enforcement actions by the Malaysia Competition Commission (“MyCC”) have included fines of RM10 million each on Malaysia Airlines and AirAsia for their 2011 collaboration agreement to share markets in the local air transport services sector.¹ Last year, MyCC proposed a fine of RM86.8 million against GrabCar for abuse of dominant position.²

Competition law is premised on the basis that companies conventionally aim to gain dominant position in order to have better bargaining power. Being in a dominant position is not in itself prohibited but if a company should abuse that position, such abuse then becomes illegal under the Act. Even if a company is not in a dominant position, it may still act in a concerted manner or collude with its competitors to amongst others, fix prices, fix contractual terms or form illegal cartels, all of which are deemed anti-competitive practices. Current competition law seeks to prevent such behaviour through provisions under Chapter 1 - Anti-Competitive Agreements and under Chapter 2 - Abuse of Dominant Position.

However, to avoid breaching prevailing competition law or being deemed cartels, companies sometimes merge, resulting in the merged entity achieving dominant position after the merger. MyCC presently does not have the power to regulate mergers as the third limb of competition law, merger controls, is noticeably absent from the Act. Without merger controls, potential anti-competition practices may fall through the cracks.

The Absence of Merger Controls

Presently, except for certain sector-specific merger laws and guidelines³, Malaysia is the only country in Southeast Asia whose competition commission, MyCC is without the power to regulate mergers and acquisitions. According to a recent news report⁴, MyCC has yet to indicate the exact date for the introduction of merger laws nor the mechanism for the workings of the merger controls. However, it has been reported that once MyCC has merger control powers, companies wishing to merge would need to obtain clearance from MyCC. Upon notification of the intended mergers, MyCC can 1) approve the merger, 2) grant an approval with conditions imposed, or 3) issue a rejection. The experiences in other jurisdictions have demonstrated that most mergers do in fact get approved.⁴

Pre-Merger Notification Regime

Based on news reports, it is likely that companies intending to merge would be required to give MyCC a pre-merger notification. In many Asian jurisdictions, pre-merger notification is mandatory subject to the companies meeting the notification threshold set by the relevant authorities. MyCC has yet to give any indication on the notification criteria or applicable threshold to ascertain whether such companies will be required to give pre-merger notifications.

However, it is unlikely that all mergers will need to obtain clearance from MyCC given that the number of mergers may well exceed the processing capacity of MyCC. It is possible that MyCC would set a meaningful threshold, which would require a reasonable number of mergers to file for clearance. In many other jurisdictions, we have observed that the threshold for pre-merger notification are based on the transaction value of the merger or the revenue/asset value of the company, the group of companies or the merged entity.

For example, in the UK, the Competition and Markets Authority (“CMA”) has adopted a voluntary notification regime and may review a proposed merger if the jurisdictional threshold is met. The threshold is met if the target company’s turnover exceeds £70 million or the transaction results in the creation of, or increase in, a 25% or more combined share of sales or purchases in the UK, of goods or services of a particular description.⁵

Closer in South East Asia, Singapore’s pre-merger notifications are voluntary. The Competition and Consumer Commission of Singapore (“CCCS”) is generally of the view that competition concerns are unlikely to arise in a merger situation unless the merged entity will have a market share of 40% or more; or if the merged entity will have a market share of between 20% and 40% and the post-merger of the largest firm is 70% or more or if the turnover in Singapore of at least one of the parties exceeded S$5 million (US$3.7 million) or the combined worldwide turnover of all the parties exceeded S$50 million (US$37 million).⁶

On the other hand, the Philippines Competition Commission (“PCC”) has implemented a mandatory notification regime. The current threshold is based on revenue of the entity and size of the transaction. Notification is mandatory if the size of the entity is PHP 5.6 billion (US$110,000) or the size of the transaction exceeds PHP 2.2 billion (US$44,000).⁷

Be Prepared for Merger Controls

Companies intending to merge ought to take note and be prepared for imminent amendments to the Act. If the merger has already taken place prior to the amendments, it is unlikely that the new law would take retrospective effect. That said, whilst MyCC cannot undo mergers, it can still investigate the companies post-merger for anti-competitive behaviour or an abuse of market dominance.

MyCC has repeatedly mentioned that merger control legislation is expected to be put in place by the end of 2020. However, given the recent political transition in Malaysia as well as the COVID-19 issues faced by the country, there may be some delay in the process. Regardless, we expect that the proposed amendments would be put forth for approval as soon as the current situation stabilises in Malaysia. It is not likely that Malaysia would want to continue being the only South East Asian jurisdiction with competition law that is without merger controls.

Key Global Competition Update from Dentons Offices

Most global regulatory authorities have maintained the need for strict compliance, exceptionally some jurisdictions including the UK, New Zealand and Indonesia have announced measures to accommodate COVID-19 related industries.

• In the USA, all business entities are reminded that there are no COVID-19 or exigent circumstances exception to the antitrust laws.
• In the UK, as part of a wider package of measures designed to help supermarkets address the challenges raised by COVID-19, the UK government announced on 19 March 2020 that it will legislate to relax aspects of UK competition law temporarily.
• In Turkey, the Turkish Competition Authority has recently re-emphasised the importance of competition rules in times of crisis by pointing out that “artificial” price hikes in goods and services (i.e. as observed in the fresh vegetable and fruits market) shall constitute an infringement and noting that they would not refrain from taking necessary measures.
• In Indonesia, the competition authority had announced a series of measures in response to the COVID-19 outbreak. Businesses appointed by the government to assist in disaster management work would be exempted from competition law while action will be taken against those found to hamper the disaster management process. The authorities have reiterated against practice of cartels or excessive pricing and/or hoarding protective equipment, other health products and food-crop commodities needed by the public.
• In New Zealand, the Commerce Commission has issued a relaxation of competition rules for businesses selling essential goods and services.

Zain & Co. acknowledges Associates Toh Gim Phaik and Aishah Sakinah Mazlan for their contributions to this article. For further information or any related inquiries, please contact our Partner, Salwah Abdul Shukor.

1. https://www.thestar.com.my/news/nation/2018/12/20/high-court-reinstates-rm10mil-fine-imposed-on-mas-and-airasia↩
2. https://www.mycc.gov.my/announcement/mycc-proposes-to-fine-grab-rm86-million-for-abusive-practices↩
3. The sector-specific laws and guidelines that regulate the antitrust aspects of mergers for the communication and multimedia sector and the aviation sector are found under Section 140 of the Communications and Multimedia Act 1998 and Section 54 of the Malaysian Aviation Commission Act 2015. These merger control laws are enforced by the Malaysian Communications and Multimedia Commission (MCMC) and Malaysian Aviation Commission (MAVCOM) respectively.↩
4. https://www.theedgemarkets.com/article/fine-balancing-act-mycc↩
5. Guidance on changes to the jurisdictional thresholds for UK merger control published by Competition and Markets Authority on 11 June 2018↩
6. CCCS Guidelines on the Substantive Assessment of Mergers 2016↩
7. https://www.competitionpolicyinternational.com/philippines-pcc-raises-threshold-for-mergers↩