The COMESA Competition Commission (“CCC”) has finally shed some light on the substantive merger analysis it undertook in its first two notified (and now cleared) transactions.
The full text of the reasoning is just below… Any light that COMESA sheds on its merger review process, which has thus far been shrouded in complete obscurity from the moment a deal is notified until the agency’s final decision, is a step in the right direction. The CCC must strive to be transparent in its operations and review process, especially in light of the widespread criticisms of its high filing fees, opaque guidelines, and zero-dollar filing thresholds, which have plagued the CCC since it became operational in January 2013.
It is commendable that the CCC has published its reasoning behind clearing the first two notified mergers, and one should hope that the Commission will do likewise for all future matters. That said, the CCC’s summary is not a detailed reasoned analysis that rises to the level of, for instance, a European DG COMP merger Decision, and it is thus presumably non-precedential. In principle, we think that the CCC hits the right analytical notes in terms of defining markets, evaluating entry barriers, and estimating the competitiveness of each market. However, the substantive market definitions as they are laid out by the Commission, such as “generic pharmaceuticals” or “home communications products,” appear unorthodox and, to say the least, rather broad. That said, we are not privy to details of the transactions or the facts underlying them, so…
In other COMESA merger ews, the CCC published its 4th merger notification, filed by Cooper Tire (U.S.) and Apollo (India).
FULL TEXT OF CCC RELEASE:
COMESA Competition Commission approves Mergers between:
- 1. Koninklijke Philips Electronics N.V. and Funai Electric Company Limited and
- 2. Cipla India and Cipla Medpro South Africa Limited.
The COMESA Competition Commission (‘the Commission’) on 22nd and 23rd July approved under the COMESA Competition Regulations (‘the Regulations’) the proposed merger between Koninklijke Philips Electronics N.V. and Funai Electric Company Limited (Philips/Funai) and the merger between Cipla India and Cipla Medpro South Africa Limited (Cipla India/Cipla Medpro) respectively.
- 1. Merger between Koninklijke Philips Electronics N.V. and Funai Electric Company Limited
Funai, is a limited liability company incorporated in Japan and listed on the Tokyo stock exchange with its corporate seat in Osaka and address at 7-7-1 Nakagaito, Osaka, Japan. Funai is engaged in the development, manufacture, marketing and distribution of information and communication equipment, such as DVD and Blu-ray Disc-related products, LCD-television and receiver related products. Funai furthermore has a global sales system that consists of overseas subsidiaries in the United States, Europe and Asia. Funai and its subsidiaries did not have any business interests or assets of any nature whatever in the COMESA region. They accordingly had no market share or turnover in any market in the COMESA region.
Philips is organized into three main divisions: Philips Lifestyle, Philips Healthcare and Philips Lighting. Philips Consumer Lifestyle carries on a business consisting of designing, manufacturing and selling lifestyle entertainment products in the categories audio, video and multimedia, home communication and accessories. Philips’ Lifestyle Entertainment business group (“the Business”), which was the target for purposes of the merger, is headquartered in Hong Kong and forms part of the Philips Consumer Lifestyle Division. The Business designs, develops, manufactures and sells lifestyle entertainment products including audio video multimedia products (home audio, headphone, speaker and in-car audio), video related products (like portable audio players, portable video players and home media player), home communication products (DECT phone) and accessories (like batteries, cables/connectors, storage products, portable chargers for cell phones and antennae) (“Consumer Electronics”).
The Commission delineated the relevant product market into 3 namely Audio Multi-media Products, Video Multi-media Products and Home Communications Products. The relevant geographical market was determined as the Common Market. The Commission determined that the relevant markets were very fragmented due to a large number of competing brands that were being sold in the Common Market. It was further realized that the relevant market had over the recent years exhibited insignificant entry barriers. The Commission further determined that the merger would not result in the removal of any competitor from the relevant market. This is because Funai and Philips had never competed in the relevant market pre-merger. Further it was observed that the transaction shall enhance the achievement of consumer needs and choice in the Common Market.
Based on the foregoing, the Commission determined that the acquisition of Philips by Funai was not likely to substantially prevent or lessen competition and it would not be contrary to public interest in accordance with Article 26 (1) and 26(3) of the Regulations respectively. Further, the assessment of the merger revealed that it was compatible with Article 55 of the COMESA Treaty in that it did not negate the objectives of free and liberalised trade. The COMESA Treaty is premised on the attainment of full market integration. Market integration means that there should be free movement of goods and services in the Common Market and the assessment of the merger revealed that the merger shall not lead to the frustration of free movement of goods and services. The merger was therefore approved unconditionally.
- 2. Merger between Cipla India and Cipla Medpro South Africa Limited
Cipla India is primarily a generic pharmaceutical manufacturing company. Cipla India’s nature of business is in key therapy areas which include cardiovascular, children’s health, dermatology and cosmetology, diabetes, HIV/AIDS, infectious disease and critical care, malaria, neurosciences, oncology, ophthalmology, osteoporosis, respiratory, urology, and women’s health. Cipla India supplies (primarily through distributors) products to the Common Market. Cipla Medpro manufactures and distributes scheduled and over the counter human pharmaceutical products, various veterinary, agricultural and nutritional products and provides healthcare solutions and support and specialised consulting and actuarial services to both open and restricted medical schemes, medical scheme administrator and managed care organisations
The Commission determined the relevant market to be the supply of generic pharmaceutical products in the Common Market. The Commission determined that the same market concentration would remain post merger as the parties did not compete in the Common Market before the merger. The Commission further observed that import competition was very rife in this market as most of the drugs sold in this market were imported. This would therefore give competitive discipline to the merging parties and restrain them from behaving in an anti-competitive manner.
The Commission observed that the transaction would not result in the removal of any competitor from the relevant market as generally the parties were not competing pre-merger. The Commission however observed that the relevant market had both structural and regulatory barriers to entry. The main structural barriers to entry were the costs of establishing a distribution network and availability of funds for research and development. The regulatory barriers to entry included the various registration processes that a firm needed to undertake before it could supply the products in the Common Market.
The Commission concluded that the acquisition of Cipla Medpro by Cipla India was not likely to substantially prevent or lessen competition and it will not be contrary to public interest in accordance with Article 26 (1) and 26(3) of the Regulations respectively. Further, the assessment of the merger revealed that it was compatible with Article 55 of the COMESA Treaty in that it did not negate the objectives of free and liberalised trade. The COMESA Treaty was premised on the attainment of full market integration. Market integration means that there should be free movement of goods and services in the Common Market and the assessment of the merger revealed that the merger shall neither lead to the frustration of free movement of goods and services nor the foreclosure of the markets in the Common Market. The merger was therefore approved unconditionally.
 Common Market is composed of the 19 Member States of COMESA.