The ramifications for Grab and Uber as regulators investigate merger

ASEAN countries are taking a closer look at the proposed Grab-Uber merger. Both companies now face challenges, but the deal is not dead.

Editorial

Four countries raised concerns over Uber’s deal to sell its Southeast Asia business to Grab. Regulators believe both companies may have breached anti-competition rules. Grab executives say they are confident that is not the case.

The deal follows Uber’s decision to sell its operations in China and Russia. If the regulators approve the agreement, Grab will move forward with investment. In return, Uber will receive a 27.5% stake in Grab. Uber’s CEO Dara Khosrowshahi will take a position on Grab’s board.

Both parties should benefit. Uber wants to leave markets in which it was struggling to compete and make money. It will be able to focus on other areas including India. It can strengthen its position ahead of an anticipated IPO in 2019.

Grab will face less competition. That would leave the company well placed against its chief rival, Go-Jek. Grab is already making gains in Southeast Asia. Uber’s investment should help them continue their progress.

Sources: Recoded, Wall Street Journal, Wired

Singapore was the first country to raise concerns, others soon followed

The Competition Commission of Singapore (CCS) rarely launches anti-competition probes. However, regulators saw the 27.5% stake as a “red flag”. The CCS suspects that the two companies infringed competition. They were quick to act because Grab and Uber did not inform them about the merger. The regulators ordered Grab to delay closing Uber services until May 7.

Malaysia, the Philippines, and Vietnam also launched investigations. Philippine Competition Commission (PCC) regulators believe Grab will have a virtual monopoly. Grab responded by claiming the PCC does not understand. They argued Uber cannot continue to operate as they have pulled out of the country.

In Malaysia, regulators said they would monitor Grab. Their Vietnamese counterparts launched an investigation. There, Grab missed its first deadline to provide documents about the deal.

For now, Indonesian regulators are watching and waiting

In Indonesia, Go-Jek’s home country, regulators have not launched an investigation. That does not mean they believe the deal is acceptable. In Indonesia, regulators have 30 days to assess any merger. Afterwards, the Business Competition Supervisory Commission (KPPU) will decide how to proceed.

As their ASEAN neighbours have started investigations, Indonesia is likely to follow suit. Following the investigations elsewhere, Grab and Uber could revise the deal. In that case, Indonesian regulators may decide not to investigate.

Grab and Uber must plot their next steps with prudence

Grab and Uber must now follow the regulators’ demands. They must provide any documentation requested. Grab CEO Anthony Tan confirmed the company would do everything asked of them. However, the company has already missed one deadline in Vietnam. Grab is also contesting Vietnam’s claim that they are liable for Uber’s US$2.3 million tax bill.

If Singapore’s regulators prove an anti-competition breach, they could block the deal. However, Grab and Uber can propose commitments to remedy to stop that from happening. They suggested a set of alternative interim measures.

For Grab, the anti-competition investigations are unwelcome. Go-Jek plans to launch in Thailand, Singapore, the Philippines, and Vietnam. U-Hop may emerge as a competitor in the Philippines. Grab needs to focus its attention on building its customer base. The company recently started offering financial products. Analysts claim it is overstretching itself.

Finalising the Uber deal will put a strain on its core business. It may struggle to launch and manage other ventures. Furthermore, integrating Uber’s business into their own will take time. Any further delays or legal battles could hand Go-Jek the initiative.

Grab is confident, while Uber is no stranger to anti-competition investigations

Grab officials maintain the agreement is legal. Anti-competition regulations differ from country to country. When Globe Fintech sold a 45.5% stake to Alipay in August 2017, the PCC launched an investigation. It cleared Alipay to proceed.

These are two different sectors, but it would seem odd if regulators claim Uber’s 27.5% is a breach of the same rules. However, Uber’s stake is one element regulators will check. They will need to establish that Grab will not occupy a dominant position in the marketplace.

Uber has faced several anti-competition investigations in the past. They include cases in India, South Africa, and the US. Uber wanted to move out of Southeast Asia. It had every motivation to stick to anti-competition rules.

Grab claims it has done nothing wrong and will not raise its prices

Both parties claimed they followed the regulations. Tan claimed there were “zero issues” with the deal. He also said that Grab would not raise prices or engage in any unfair behaviour.

With a more significant share of the market, Grab could capitalise by raising prices. Raising fares would be an unwise and unlikely move. Tan knows that the regulators are watching with interest. Any hint of predatory pricing could scupper the deal’s approval.

Some economists expect Grab to eventually increase its fares. Others are sceptical, arguing changing its business model would be counter-intuitive. Go-Jek is expanding, and if Grab were to raise prices, it could hand them an advantage.

Uber’s stake and representation in the company could act as a lever against any naïve moves. Nevertheless, the deal could take months to complete. That will cost Grab more money. They may end up with little choice but to raise prices.

Grab and Uber wanted to complete this deal without delays. At best, the anti-competition investigations are enormous distractions. At worst, both companies will need to prepare for time-consuming and expensive negotiations. Grab and Uber can overcome these challenges; they would prefer not to have to.