(First appeared in Vietnamese in The Saigon Times on 20 November 2022.)

(SE) – Editorial Note: Recently, the Vietnam Business Lawyers Club (VBLC) held a specialized workshop on the key aspects of evaluating an M&A transaction for “Substantially Lessening Competition: Theory and Practice,” with the main presentation by Lawyer Truong Huu Ngu. The Saigon Times discussed the issues raised at the workshop with lawyer Ngu.

The workshop focused on evaluating whether an economic concentration transaction (M&A) significantly lessens competition. This criterion is set by the revised Vietnamese Competition Law, effective from 2019, to determine whether such M&A transactions should be prohibited. Recently, it seems we have mainly discussed regulations related to the notification procedure for economic concentration.

SE: Briefly, what is the criterion of “substantial lessening of competition”?

– Lawyer Truong Huu Ngu: This criterion is used in many countries’ competition laws to control M&A transactions. Generally, competition authorities compare the level of competition in the market in two scenarios: if the M&A transaction is executed and if it is not. If the level of competition in the first scenario is significantly lower than in the second, the M&A transaction may be prohibited.

SE: How can we “measure” the level of competition in the market to make this comparison?

– There are certain principles to do that. In many countries, the written law only acknowledges the criterion of “substantial lessening of competition,” while how to apply it, what factors to evaluate, and how to assess them are developed from the practical application of this criterion by competition authorities for specific cases and court decisions.

Over time, these principles are documented in merger guidelines issued by competition authorities.

SE: Does Vietnam have such principles?

– Until now, we have only recognized very general principles in the Competition Law (Article 31) and Decree 35/2020 (Article 15). As I understand, the Vietnam Competition and Consumer Protection Authority (VCCA) is working on detailed guidelines.

SE: Can you briefly and clearly describe how an M&A transaction might be analyzed to assess its impact on market competition?

– To keep it simple, let’s imagine an M&A transaction between two companies that are currently competitors.

The concern of competition authorities is that after the transaction, these two companies, now as one (in terms of capital ownership and management, even if they still have independent legal statuses), will no longer compete with each other. Additionally, the combined company (referred to in law as the “post-concentration enterprise”) will have the capacity and motivation to increase prices, reduce output, or stifle product innovation while still being profitable. Among these, price increases are the most typical and ongoing concern. They can only do this if they have market power and do not fear losing sales when raising prices.

With this concern, the framework for analyzing the competitive impact of a transaction usually has three main parts.

First, competition authorities will define the relevant market, answering the question of what product or service the buyer and seller compete with each other and in which geographical area.

Second, competition authorities, based on various factors, will determine whether, after the transaction, the post-M&A company has the capacity and motivation to raise prices. If the company can increase prices on its own, the transaction has a unilateral (non-coordinated) competitive restriction effect.

The post-M&A company can do this because, before the M&A, they feared losing customers to the other company, which was fiercely competing with them. Now that the two competitors have “joined forces,” customers switching to the other company still results in shared profits.

If the transaction changes the market structure, creating conditions for competitors to coordinate, tacitly colluding to raise prices, the M&A transaction has a coordinated competitive restriction effect.

An example given by a U.S. judge to illustrate this is two gas stations facing each other in a remote area. They have many reasons to raise prices together rather than competing vigorously with each other.

Third, there are factors that may prevent the post-M&A company from having the capacity and motivation to raise prices. For instance, if they raise prices, current competitors may expand their market, or new competitors may enter the market, taking their customers. This only happens if entry or expansion barriers are low. Sublicenses, product standards, and large capital requirements are typical barriers.

SE: Can you use the Grab-Uber acquisition as an example?

– This case is truly interesting. Grab acquired Uber’s ride-hailing service in Southeast Asia, including Singapore and Vietnam. At that time, we still used the old Competition Law, so VCCA only needed to determine market share (though this alone was not easy), without the complex analysis mentioned earlier. The Singapore Competition Commission (CCCS) conducted the three-part analysis professionally and convincingly.

First, they defined the relevant market as ride-hailing services for specific routes based on digital platforms (two-sided platforms). In the second part, assessing the competitive impact, they concluded that Grab’s acquisition of Uber would remove its strongest and most direct competitor, enabling Grab to unilaterally raise service prices. This is a unilateral competitive restriction effect. In the third part, they found no factors that would prevent Grab, post-acquisition, from having the capacity and motivation to raise prices. For example, the indirect network effects of multi-sided platforms like Grab and Uber would create significant barriers for new competitors to enter the market when Grab raises prices. Indirect network effects occur when the platform connects two user groups, in this case, drivers and riders, where more drivers attract more riders and vice versa. Therefore, any new similar platform entering the market would struggle to create pressure for Grab to lower prices.

SE: As you mentioned earlier, in recent times, experts have mostly discussed regulations related to the notification procedure for economic concentration. But even with this procedural issue, have experts thoroughly understood the regulations and implementation process?

– This is an issue of interest to many, though it was not the main focus of the workshop. There was a quick discussion on whether the current economic concentration notification regulations are reasonable, whether they unnecessarily increase transaction costs for investors, and whether they benefit Vietnam. Vietnam’s current economic concentration notification model is mandatory. If an economic concentration transaction reaches thresholds related to revenue, assets, market share, or transaction value, the parties must notify the economic concentration to the authority before completing the transaction.

SE: What is your perspective on this issue?

– I think the voluntary economic concentration notification model of Singapore is worth considering for Vietnam. Generally, they allow the parties to determine whether the transaction is likely to significantly lessen competition and whether notification is necessary. There is also a mechanism for parties to consult with competition authorities in advance. This model is one Singapore learned from the UK.

However, this model also poses certain challenges for the buyer in M&A transactions. Therefore, given Vietnam’s situation, as many have suggested, it might be advisable to adjust the economic concentration notification regulations to be more reasonable, such as raising thresholds, increasing exemptions, and adding a fast-track procedure.

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