We assess plans to introduce a cross sector merger control regime to one of Asia's key economies
Like most competition law regimes around the world, Malaysia’s Competition Act 2010 contains provisions prohibiting anti-competitive practices and abuses of dominance. However, it does not currently include the third “pillar” of competition law that is common to many other regimes, namely, cross sector merger control rules. Such rules enable competition authorities to review transactions and to “step in” if an authority has concerns that a particular transaction could be harmful to competition.
Although the introduction of a merger control regime in Malaysia has been discussed for many years, it was not until 2018 that plans began to gain traction. At this time, numerous authorities in South East Asia were monitoring the high profile Uber/Grab transaction, which resulted in Uber exiting the market. Although concerns were raised in several jurisdictions (including Malaysia), the Malaysian Competition Commission’s (MyCC) powers were restricted to ex post conduct of Grab; it did not have the power to review the transaction itself. The MyCC began to make public statements that it was actively working towards the introduction of a cross-sector merger control regime. Recently, in March 2021, the MyCC chief, Iskandar Ismail, announced that the MyCC was aiming to have the proposed amendments tabled in Parliament by the end of 2021.
What can we expect in Malaysia’s merger control regime?
At present, only certain sectors are subject to merger control, including the aviation sector and the communications sector. Malaysia is not unique in this respect, with Hong Kong similarly regulating only certain mergers and acquisitions in the telecommunications sector at this stage (although many consider it to be a question of when, not if, Hong Kong will have a cross sector regime). Singapore, too, has different merger control rules for certain sectors (such as telecommunications, gas, and electricity), but unlike Malaysia, it has a merger regime for all other sectors under its Competition Act. In Malaysia, notifications under these sector specific regimes are voluntary in nature, although the Malaysian Aviation Commission has previously indicated that it is likely to initiate investigations into transactions exceeding the thresholds but which have not been formally notified to them.
In contrast to these existing, voluntary, regimes, the MyCC may seek to introduce a mandatory or a hybrid model. Mandatory regimes are relatively common with the key ones generally considered to be the US, EU, and China. In each of these regimes, if certain thresholds are met, filings must be made (and indeed, transactions cannot close until clearance has been granted by the relevant authority). In a 2019 paper submitted by the MyCC to the OECD Global Forum on Competition, the MyCC stated that it was leaning towards making the upcoming merger control regime mandatory in nature. This is in line with most of the regimes implemented by Malaysia’s South East Asian neighbours, with the notable exception of Singapore.
In terms of the applicable jurisdictional thresholds, the MyCC has indicated that it is keen to learn from the experiences in other jurisdictions, in particular that of the Philippines. Notably, the Philippines has increased its thresholds on several occasions since the regime first came into force in 2016, reducing the scope of transactions that need to be filed (and reviewed by the Philippines Competition Commission). Another important factor in the Philippines regime is that the thresholds incorporate what can be described as a “local effects” requirement, through incorporating a “value of the transaction” threshold that is typically assessed based on the value of assets located in the Philippines or the turnover generated in the Philippines by the target acquired (in an acquisition) or held by/contributed into a joint venture. This contrasts with regimes such as China, where the jurisdictional thresholds can be triggered by “any two relevant parties”, and so captures transactions involving joint ventures with no turnover or assets within China (so-called “offshore joint venture” transactions).
It remains unclear whether the filing requirement will be suspensory in nature, which means that filings will have to be made prior to closing of the transaction and parties may not proceed to closing until clearance is received. This is the most common form of merger control requirement, but there remains a degree of variance amongst the Asian regimes: in Indonesia, filings are currently required to be made post-closing (although there is a legislative proposal to amend this to make it a suspensory requirement), whereas the regime in Thailand uses a combination of both pre-closing and post-closing filings.
If the regime will be mandatory and suspensory in nature, another crucial question that remains uncertain is the applicable penalties for failure to file. Across Asia, there is significant variance in the way that penalties and fines are structured: for example, in the Philippines, fines for failure to file are calculated vis-à-vis the value of the transaction, whereas in Indonesia, fines for failure to file are calculated based on the length of the delay from the statutory deadline. In China and South Korea, fines for failure to file are viewed as administrative in nature, and are capped at relatively small amounts (although the cap was recently increased in South Korea, and the same is currently under review in China).
Getting ready for the changes
From a broader perspective, the introduction of merger control will enhance the effectiveness of competition enforcement in Malaysia, and give the MyCC the tools it needs to help ensure a fair and thriving competitive market across all sectors.
However, for Malaysian and overseas companies alike, the new regime may add a further regulatory hurdle to deal making. One important uncertainty is the degree of impact that a Malaysian filing may have on deal timelines, and this will depend on a number of factors, including the length of the review timeline that is ultimately included in the legislation, the complexity of the filing and review process, and the efficiency and approach of the MyCC in reviewing and clearing transactions (particularly those that do not give rise to any substantive competition concerns).
In its 2019 submission to the OECD Global Forum on Competition, the MyCC flagged that it may introduce a grace period before the merger control regime takes effect, allowing both the MyCC itself and market participants to prepare for implementation. However, at least from the MyCC’s perspective, given there is pre-existing expertise with regard to merger control in Malaysia in other sectors, and in light of the increasingly close cooperation amongst ASEAN and international competition authorities (some of which have extensive merger control experience), that period may not need to be particularly long. Indeed, in the 2019 paper, the MyCC stated in the paper that it was already in the midst of preparing its officers for the upcoming merger control regime.
Companies active in Malaysia should therefore prepare for the seemingly inevitable changes on the horizon.