Monopoly risks likely in Grab-Gojek merger

Grab is looking to solidify its dominance with the Gojek merger, photo: Le Toan

The regional tech circle has been in a stir over news of a coming tie-up between ride-hailing platform Grab and its Indonesian competitor Gojek.

As expected, the two sides have declined to offer comments prior to the conclusion of the deal. Gojek even denied the talks and asserted the news were only rumours. However, according to DealStreetAsia, the two are approaching a workable agreement.

A deal would significantly strengthen Grab in Vietnam – but it also raises questions about violating market concentration rules.

According to Article 30 of the Law on Competition 2018, “Economic concentration shall be prohibited if it causes or probably cause substantial anti-competitive effects on the Vietnamese market.”

In a response to VIR, Kieu Anh Vu, managing director at KAV Lawyers, said that in case Grab and Gojek carry out the economic concentration, it will be necessary to “review the magnitude of the resulting anti-competitive effect to determine whether the deal should be allowed.”

According to Article 13 of Decree No.35/2020/ND-CP dated March 24, elaborating on several articles of the Law on Competition 2018, enterprises party to an economic concentration deal are obligated to notify the National Competition Commission if the deal fulfils one of four terms:

- The total assets available in Vietnam of either party are worth VND3 trillion ($130.43 million) or more in the fiscal year before the planned year of economic concentration;

- The total sales or purchase volume of either party in Vietnam is worth VND3 trillion;

- The value of the economic concentration deal is at least VND1 trillion ($43.47 million); and

- The joint market share of the parties is at least 20 per cent of the total market in the fiscal year before the planned economic concentration.

Currently, the market share of Grab in Vietnam is about 70 per cent, according to New York-based research market firm ABI Research. Thus, in case it performs a merger with Gojek, their combined market share will definitely trigger the decree. As a result, Grab will have to notify the National Competition Commission if they go ahead with the alliance.

Referring back to the similar deal between Grab and Uber in 2018, Dinh Thi Hoang Nhung, managing director at HNLaw & Partners, told VIR that the deal was determined as “purchase and sale, transfer, and obligation acceptance” that was insufficient to constitute a violation of the economic concentration rules of the Law on Competition 2018. She was of the opinion the same transaction method could be employed this time as well.

“Uber withdrawing from Southeast Asia in exchange for 26 per cent of Grab’s shares in 2018 was a stock trading deal, under the Law on Competition 2004,” said Nhung.

Under Article 16 of the Law on Competition 2004 and Article 34 of Decree No.116/2005/ND-CP released in 2005 on detailing a number of articles of the Law on Competition 2004, the arrangement did not give Uber control over Grab as its shareholding was far below the requisite 50 per cent of voting right.

“Meanwhile, Grab did not own Uber stocks, so it had no voting rights on Uber’s management board,” said Nhung.

Despite passing the checks in Vietnam, the Grab-Uber deal was in 2018 assessed as anti-competitive by the Competition and Consumer Commission of Singapore, which fined them to a combined SGD13 million ($9.5 million).

The Philippine Competition Commission approved the merger in August 2018, with conditions related to pricing and service quality. However, two months later, the watchdog imposed a penalty of nearly $300,000 on Grab and Uber for failing to reach the terms.

In February 2019, the Malaysia Competition Commission (MyCC) proposed a fine of $20.5 million against Grab for allegedly abusing its dominant position by imposing restrictive terms on its drivers, preventing them from promoting and providing advertising services for Grab’s competitors in the e-hailing and transit media advertising market. Subsequently, Grab has filed for a judicial review of the fine, claiming it did not violate Malaysia’s Competition Act 2010.

Grab started operations in Vietnam in 2014. Initially a ride-hailing service provider, since then the company has expanded geographical coverage and established an ecosystem of services including transportation (Grab, GrabBike), credit and payment (GrabPay by Moca, Grab Rewards), food delivery (GrabFood), hospitality (co-operation with Agoda and Booking.com), as well as amusement (minigames). In April 2019, it applied to change its business registration to add real estate activities.

The expansion started with the co-operation deal with e-wallet Moca to debut GrabPay by Moca. According to the information released by the two parties, Grab owned only 3 per cent stake in Moca, yet two of its representatives were on the Moca Board of Directors. Also, after the deal, Moca has become an exclusive partner to the Grab ecosystem, without signing with any other partners.

An unofficial source stated that Grab has taken over Moca. If the information is true, the Singaporean company has become a major contender on the local e-payment scene, next to MoMo and ZaloPay.

Meanwhile, Gojek is valued at $12.5 billion and is focusing on food and payments, in addition to core transportation. In 2018, as Uber sold its Southeast Asian operations to Grab, Gojek decided to expand into Vietnam, Thailand, Singapore, and the Philippines – starting with ride-hailing but aiming to replicate the multi-service offering which had worked so well for them in their home country. In Southeast Asia, Gojek is known as a multifunctional app with 20 services.

With these profiles, the two have so far been rivals, but if the two merge, they could combine their strengths, removing a major element of competition from the market and bringing them closer to total domination.

Most recently, Alibaba was reported to invest $3 billion in Grab, giving rise to speculation that the sum could be used for the merger with Gojek.