This article first appeared in Forum, The Edge Malaysia Weekly on July 4, 2022 - July 10, 2022

For the longest time, Malaysia has remained one of the few countries in the world which do not have a merger control regime (with a few exceptions in specific industries such as telco). In brief, merger control empowers the government to prohibit mergers and acquisitions of businesses which would substantially reduce competition — for example, if it would result in monopolies to the grave disadvantage of consumers.

When the Competition Act was passed in parliament in 2010, merger control was conspicuously left out — some have speculated that it was done to insulate the country’s government-linked companies (GLCs) that play a larger-than-life role in the local economy.

We are now on the cusp of change. The Competition Commission (MyCC) released in May 2022 its proposed amendments to the Competition Act to introduce merger control in Malaysia. MyCC expects the amendments to be tabled in parliament by October 2022, and for the provisions related to merger control to come into effect by October 2023. What can businesses expect if it does come into force?

Any mergers or anticipated mergers resulting in substantial lessening of competition (SLC) within the Malaysian market would be prohibited. A “merger” includes: (a) the combination of two or more previously independent enterprises into one; (b) acquisition of control (whether direct or indirect) of enterprises; (c) acquisition of assets such that the acquiror replaces or substantially replaces the asset vendor in the business; or (d) the creation of a joint venture.

If merger control comes into force, MyCC would undoubtedly publish guidelines to ascertain what SLC entails. However, based on guidelines released by MCMC and Mavcom to regulate mergers within the telco and aviation markets, a few key points can be distilled.

First, the relevant market relating to the merger must be ascertained with certainty. Second, a theory of harm on the competition within that market if the merger proceeds must be developed, as well as counterfactual scenarios on what would happen if there was no merger. Third, an assessment is done on whether there is lessening of competition and, if so, whether the lessening of competition is indeed substantial. The meaning of substantial depends on the context and is relative to the market concerned. Often, these assessments require analysis from economic experts.

Under MyCC’s proposals, there are mandatory and voluntary notification scenarios.

If the anticipated merger exceeds a certain threshold prescribed by MyCC, notification to MYCC is mandatory. No sum for the prescribed threshold has been suggested by MyCC at the moment. For context, in the European Union, one of the thresholds prescribed is a combined worldwide turnover greater than €5 billion in respect of all the merging enterprises.

Separately, enterprises can also voluntarily notify MyCC when the prescribed threshold has not been exceeded. This is important for enterprises that seek to obtain guidance from MyCC on whether their mergers would result in a SLC.

The enterprises would have committed a merger violation. The MyCC may impose a financial penalty of up to 10% of the value of the merger transaction or anticipated merger transaction on the enterprises concerned.

For mandatory notifications, if MyCC does not find any SLC, it can give the green light on the anticipated merger within 40 working days.

However, if MyCC needs more time to investigate, it can extend its review up to 80 working days. MyCC may then issue a decision to (i) block the anticipated merger; (ii) clear the anticipated merger unconditionally; or (iii) clear the anticipated merger with the condition that the enterprises comply with commitments they have offered. Option (iii) is similar to MCMC’s recent clearance of the anticipated merger between Celcom and Digi on the condition that certain commitments offered by the two telco giants are complied with.

If MyCC has not arrived at any decision on the anticipated merger after 120 working days, the anticipated merger shall be deemed to be approved. The 120 working days assessment can be stopped or suspended in certain circumstances, such as when MyCC requests further information or if the enterprise concerned seeks to give an oral representation.

As for voluntary notifications, there is no specific timeline for review provided.

If there is a mandatory notification scenario and the parties have notified MyCC, the anticipated merger must be delayed pending MyCC’s decision. If the parties fail to do so, this is another form of merger violation, which may result in a financial penalty of up to 10% of the value of the merger transaction or anticipated merger transaction.

Yes, the parties can appeal MyCC's decision to the Competition Appeal Tribunal (CAT). CAT is comprised of a sitting judge as well as experts from the industry, commerce, economics, law, accountancy or consumer affairs. Parties can further appeal CAT’s decision to the High Court, but such an appeal would be limited to points of law or the quantum of financial penalty imposed.

Merger control can be a delicate balancing exercise for small market economies like Malaysia. On one hand, the authorities should encourage Malaysian enterprises to be large enough to achieve economies of scale to compete against giant foreign players locally and internationally. On the other hand, the authorities must also ensure healthy rivalry within the market, failing which consumers will suffer even more amid the ever-rising cost of living. MyCC’s regulation of merger control will be closely watched by foreign investors, and will be determinative on how Malaysia’s economy will perform in the coming years.

Lim Wei Jiet is a dispute resolution lawyer with core practice areas in commercial, employment, intellectual property and public law

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