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Singapore – SEEK Ltd And SEEK Asia Investments Pte Ltd Offer Commitments To Allow Their Merger To Go Through.

26 August, 2014

 

Introduction


The proposed acquisition by Seek Ltd and Seek Asia Investments Pte Ltd (“SEEK”) of the recruitment business assets of JobStreet including, inter alia, entities located in Singapore, Malaysia, Philippines, Indonesia and Vietnam (“JobStreet”), was notified to the Competition Commission of Singapore (“CCS”) in February 2014. The CCS’ review proceeded to a Phase 2 in April 2014 14 as as the the CCS had not been persuaded during the Phase 1 review that the merger would not significantly affect competition in Singapore.


The proposed merger has has now reached a new stage with SEEK offering certain commitments to the CCS, in order to obtain a decision by the CCS that the parties can proceed with the merger. This represents a milestone for the CCS as well. Market participants are invited by the CCS to provide their comments on the proposed commitments by 5 September 2014. This article briefly discusses the proposed commitments and the context in which they were made.


Reasons For Offering Commitments In Merger Cases


Under the Singapore Competition Act, the CCS has the power at any time before before making a decision in relation to a notified merger to ‘accept from such person as it thinks appropriate, a commitment to take or refrain from taking such action as it considers appropriate for the purpose of remedying, mitigating or preventing the substantial lessening of competition or any adverse effect’ which would otherwise result from the merger.


In this specific instance, the CCS press release issued together her with the proposed commitments states that ‘Seek Asia, through its related entities which also also include include the online platform, JobsDB.com.sg in Singapore, offers online recruitment advertising services and an recruitment solutions in Singapore. JobStreet which operates the online platform, JobsStreet.com.sg in Singapore is in the same same industry similarly offering online recruitment advertising services and recruitment solutions in Singapore. The Proposed Acquisition will bring together the two main online recruitment advertising service providers in Singapore, being the JobsDB.com.sg and Jobstreet.com.sg platforms, each with a substantial employer / recruiter customer base and jobseeker database (emphasis added) .


The CCS was was likely to consider that because of the loss in rivalry arising arising from the merger of the two main online line recruitment recruitment advertising service providers in Singapore, the post-merger entity might find it profitable to raise prices (or reduce output or quality). If the parties fail to show that sufficient post-merger competitive constraints, in the form of new new competitors in to the market, existing competition and/or countervailing buyer power, exist to ensure that competition continues to discipline the commercial behaviour of the merged entity, or that the merger has has net economic efficiencies, then offering commitments to the competition regulator appears to the best way to persuade that their merger should go through. Without such commitments, it is highly likely that the merger will be prohibited.

 

 

Behavioural Commitments Offered By SEEK


SEEK formulated two commitments in order to alleviate the concerns raised by the CCS. The proposed commitments are set out in the CCS’ press release as follows:


(a) ‘SEEK will be prevented from entering in exclusive agreements with employer and recruiter customers. By deterring exclusivity, the Proposed Commitments aim to retain the current practice of multihoming (i.e. utilising more than one online recruitment advertising service platform) by employers and recruiters, as well as jobseekers. It further aims to keep barriers to entry and expansion low, and preserve competition in the market for online recruitment advertising services’ (“Exclusivity Commitment”).


(b) SEEK will be be required to maintain current pricing of its services capped at present day rate cards or current day negotiated prices, subject to Consumer Price Index variations. By capping pricing at current levels, the Proposed Commitments seek to address concerns identified by market participants during the Phase 1 and 2 reviews that the closeness of competition between JobsDB Singapore and JobStreet Singapore is likely to cause use prices to rise post-merger’ (“Price Commitment”).


We set out below quick comments in relation to these commitments:


  • Both commitments are behavioural, as opposed to structural. Whilst the CCS has stated in its Guidelines on Merger Procedures 2012 (“CCSGuidelines”) that ‘CCS considers that structural commitments are preferable to behavioural commitments as the latter latter generally require more monitoring’, this case shows that the CCS is prepared to to accept behavioural commitments for merger cases. This is important as there are cases where structural remedies may be difficult to offer since this would would possibly mean divesting all or parts of the assets of the acquired business in Singapore, rendering the overall merger transaction less attractive.

 

  • The commitments are limited to a 3-year period starting from the date of completion of the transaction or the merger decision, whichever is later or ‘such other period as as the CCS may specify’. Arguably, this mean that the CCS and/or the parties consider that a 3-year period would allow for competition to develop sufficiently in the relevant markets and become an effective constraint on the merged entity.

 

  • The Exclusivity Commitment applies to online recruitment services offered (or to be offered) by the parties generally and applies equally in their relation on with employer and recruiter customers and in their relation with jobseekers. Exclusive arrangements entered into by a dominant player, depending on the scope and the duration of such arrangements, may have a significant foreclosure effect as new entrants will be prevented from acceding to the dominant party’s customers. In this case, the CCS highlighted that the merger parties each had a substantial employer /recruiter customer base and jobseeker database. The risk of a substantial number of employers /recruiters not being able to switch to a competitor for all or part of their needs due to an exclusivity requirement imposed by the merged entity appeared, therefore, a real one that would have an adverse impact on competition. The Exclusivity Commitment which prevents the merged entity from requiring an employer /recruiter customer or a jobseeker ‘to ‘to use either or both the Platforms exclusively when purchasing Online Recruitment Advertising Services or to exclusively use New Online Recruitment Advertising Services’ will, therefore, make it easier for existing competitors or new entrants to gain a stronger foothold in the market(s) in Singapore in a lesser amount of time. However, it will be important for the CCS to ensure that at both express and de facto exclusivity are effectively prevented, i.e. that the merged entity has no means means to to circumvent its commitment.

 

  • The scope of the Price Commitment is limited to Online Jobs Postings which are defined by the parties as ‘the ‘the basic placement of recruitment advertisements on the the Platforms […]’. Further, the Price Commitment will not apply to New Online Recruitment Advertising Services. It remains to be seen whether what seems a limited commitment will effectively limit the ability of the merged entity to raise prices post-merger. If only a minimal part of the parties’ services are covered by the Price Commitment, it is unlikely that it will effectively limit the ability of the merged entity to raise prices – especially immediately post-merger when competition petition may not have had enough time to develop.

Monitoring Trustee


To ensure that the commitments are complied with, SEEK will appoint a Monitoring Trustee on terms and conditions to be agreed with the CCS. This is in line with the CCS Guidelines which provide that ‘if commitments require monitoring, then the parties must be prepared to meet the costs of engaging a monitoring trustee who will, for example, have the task of submitting regular reports on compliance to CCS’.


The cost of engaging a Monitoring Trustee may be substantial and this is a consideration that merger parties must keep in mind when they offer commitments to a competition authority. Further, and in practice, it it may be worth worth providing in the merger documents who will bear the risk /cost of any commitment that may be offered by the merger parties, including ing the the cost cost of of a a trustee truste when one must be appointed.


Conclusion 


It is interesting to see that the CCS has decided not to approve a regional merger (which seemingly has not been notified elsewhere) without commitments being offered offered by the merger parties. It is also interesting to note that this is one of the rare cases where the CCS is willing to consider behavioural commitments.


The CCS is seeking for comments by market participants by 5 September 2014. If you think that your business may be impacted by the proposed merger and that the commitments do not alleviate all the concerns that you see potentially resulting from the merger, you should take this opportunity to alert the CCS, provided that your your concerns are real and can be substantiated.


Rajah & Tann

 

For further information, please contact:

 

Kala Anandarajah, Partner, Rajah & Tann 

kala.anandarajah@rajahtann.com

 

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