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Mandatory Merger Notification On The Cards – Corporate and Company Law



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Merger notifications in Malaysia are still nascent and limited
to the aviation services sector regulated by the Malaysian Aviation
Commission (“MAVCOM“) and communications
and multimedia sector regulated by the Malaysian Communications and
Multimedia Commission (“MCMC“).

In fact, the country witnessed the first-ever
competition-related merger decision in September 2021 via
MAVCOM’s approval of Korean Air Lines Co, Ltd. and Asiana
Airlines, Inc.’s merger and the market is now awaiting the
decision of the MCMC on the proposed merger of the telco operation
of Celcom Axiata Berhad and Digi.Com Berhad. Nevertheless, the
incorporation of a merger control regime in the Competition Act
2010 (“CA 2010“) is on the horizon and
expected to be completed by this year.

Merger Control Regime Under CA 2010

Merger control provision was initially mooted during the
formation of the CA 2010. However, it was later removed in the
interest of capital market development in Malaysia and to encourage
mergers and acquisitions (“M&A“) in
order to strengthen the domestic economy and promote corporate
competition globally.

After almost 10 years in force, Malaysia Competition Commission
(“MyCC“) noted the need to directly
regulate M&A in addition to its existing power of monitoring
anti-competitive behaviour and abuse of dominant position
post-M&A. It has initiated the process of amending the CA 2010
in 2019. The merger control regime is reported to be in the form of
a mandatory pre-closing merger notification requiring clearance
from MyCC.

Nonetheless, it remains to be seen what kind of merger
notification and its mechanics that will be finally adopted by
MyCC. Given the cross-sectoral ambit of the CA 2010, MyCC should
carefully determine items such as qualitative and/or quantitative
threshold of the parties or group involved, filings in cases of
multiple transactions, applicable exemptions and sanctions so that
changes in the market structure can be regulated without inhibiting
M&A activities in Malaysia.

Aviation Services and Communications and Multimedia
Sectors

In both sectors, merger notification is a voluntary process.
This means that the M&A parties are required to self-assess
their transaction based on the threshold set and if their
transaction may result in a substantial lessening of competition
within their markets, they should submit a notification of their
transaction to their authority for assessment and decision.

For the aviation services sector, the notification mechanism is
set out in the Malaysian Aviation Commission Act 2015
(“MAVA 2015“) and the Guidelines on
Substantive Assessment of Mergers, Guidelines on Notification and
Application Procedure for an Anticipated Merger or a Merger and
Notification and Application Form for an Anticipated Merger or a
Merger issued by MAVCOM. On the other hand, for the communications
and multimedia sector, the notification mechanism is stipulated in
the Guidelines on Mergers and Acquisitions issued by MCMC in
2019.

One thing to note is that while the M&A parties retain the
option to notify their regulator and may technically proceed with
the deal without the regulator’s decision, they bear the risk
of being investigated post-M&A if the transaction raises any
competition concerns.

M&A are likely to be investigated by MAVCOM if:

  1. the combined turnover of the parties in Malaysia in the
    financial year preceding the transaction is at least RM50 million
    or the combined worldwide turnover of the parties in the financial
    year preceding the transaction is at least RM500 million; or

  2. if the turnover thresholds are not met, the transaction has
    resulted or may be expected to result in substantially lessening of
    competition in any aviation services market.

As for MCMC, M&A are likely to be investigated if:

  1. for proposed M&A, at least one of the parties to the
    M&A is a licensee in a dominant position;

  2. for completed M&A, the merged or acquired entity is a
    licensee in a dominant position;

  3. for horizontal proposed M&A, the M&A would result in
    the merged or acquired entity obtaining a dominant position with a
    market share of 40% or more post-M&A;

  4. at least one of the parties to the M&A is subject to an
    ongoing investigation by the MCMC in respect of any conduct
    prohibited under the Communications and Multimedia Act 1998
    (“CMA 1998“);

  5. there is significant cross shareholding between the parties to
    the M&A of 40% or more; or

  6. the M&A have the purpose of or have or may have the effect
    of substantially lessening competition in the market.

Conclusion

With the upcoming amendments to the CA 2010, merger notification
in Malaysia will no longer be limited to the two sectors. It will
be extended to all M&A in Malaysia apart from those regulated
under the MAVA 2015, CMA 1998, Energy Commission Act 2001 and
Petroleum Development Act 1974 and Petroleum Regulations 1974
(upstream operations). In the aviation services and communications
and multimedia sectors, as a general principle, merger notification
should be made if the M&A may result in substantial lessening
of competition within their markets. Once the new merger control
regime is enforced under the CA 2010, it would not be far-fetched
to say that a similar principle would also be applicable to those
under the CA 2010. Parties to the M&A are advised to seek
professional help to be cognisant of the upcoming changes to the
law and structure their deal and contractual provisions
accordingly.

Originally published February 4, 2022

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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