September 2022
Aaron Chen and Sally Yang
For the pre-merger application in which PX Mart Co., Ltd. (“PX Mart”) intended to acquire 95.97% shares of RT-Mart International Limited (“RT-Mart”), the Fair Trade Commission of Taiwan (the “TFTC”) rendered a conditional approval in the Commissioners’ Meeting on July 13, 2022.
Summary of the decision
The product market is defined as “the markets of hypermarket and supermarket” while the geographic market is nationwide. The TFTC assessed that the merging parties’ post-merger combined market share in the relevant market would be 38.77% and thus believed that the reported merger will give rise to anti-competitive concerns (including risks to unilaterally increase product prices or reduce promotional offers after the merger) given the medium to highly concentrated market structure. However, the TFTC also recognized that the synergy of economies of scale, such as increased operation and product allocation efficiency, reduced stock-out rate of stores, and enhanced customer satisfaction, may be improved as a result of the merger when assessing the overall economic benefits.
As such, to ensure that the overall economic advantage of this merger outweighs the anti-competitive disadvantage, the TFTC imposed the following conditions[1] for not prohibiting the merger:
Safeguards of consumer welfare:
1. PX Mart and RT-Mart should thoroughly perform the commitments voluntarily made, including but not limited to not arbitrarily increase prices. However, this restriction does not apply for reasons not attributable to PX Mart and RT-Mart, such as price increases due to the change of the supplier’s cost structure, among others.
2. Within 3 years after the implementation of the merger, PX Mart should maintain the nationwide single pricing policies (i.e. keeping same prices for same products sold in down town or remote areas), except that it may further reduce prices in a specific region if facing more fierce competition in that area.
Measures to protect suppliers:
3. From the day after the implementation of the merger, the surcharges obtained from individual suppliers by the merging companies shall not be increased arbitrarily. However, this restriction does not apply to the surcharges arising from additional services, such as the new promotional or advertisement services provided by merging companies that are used by the suppliers.
4. The most-favored customer clauses enjoyed by PX Mart should be removed from supplying contracts from the day after the implementation of the merger
5. The suppliers of the merging companies will not be charged any slotting fees or new store sponsorship fees for 3 years from the date after the merger is implemented.
6. The revision of the annual supply and sale system and the amendments to the terms of trade should not become less favorable for 3 years from the day after the implementation of the merger. In the event of any surcharge items arising from new services, the suppliers shall be given the freedom to choose and decide if such services are going to be used and their prior consent should be obtained.
Regular reports:
7. A report on the results of the fulfillment of the conditions and the overall economic benefits resulted from the merger should be submitted with the TFTC by December 31 of each year.
Brief analysis
1. The conditions imposed by the TFTC suggest that it has two main competition concerns in the merger in retail sector, namely, the impact on the downstream consumers and on the upstream suppliers. .
2. In recent years, the TFTC is willing and tends to take corrective behavioral measures as the conditions for approving of a merger had it had competition concerns. This can been seen in cases where the post-merger combined market shares are significant. In the subject case as PX Mart’s market shares in the relevant market will be increased substantially and the post-merger combined markets shares will account for over one-third in the relevant market, it is not surprising that the TFTC imposed more behavioral conditions to minimize the potential anti-competitive effects.
3. PX Mart’s past low price strategy and care for the the consumers on outlying islands and farmers are part of the TFTC’s considerations for not prohibiting the merger. This shows that the factors considered by the TFTC in this case extended to corporate social responsibility, and that competitive factors were not the only considerations. Article 13 of the Fair Trade Act provides: “[t]he competent authority may not prohibit reported mergers if the overall economic benefit of the merger outweighs the disadvantages resulted from competition restraint.” In this case, the TFTC seems to include corporate social responsibility as a “noncompetitive factor” that it can consider as part of the overall economic advantage. Although the TFTC also included “non-competitive factors” in its consideration of merger cases in the past, this case seems to further expand the scope of such “non-competitive factors” it may consider, and it is thus worth observing whether this standard will become the trend of pre-merger review in the future.
4. One of the conditions imposed by the TFTC in this case is to require PX Mart to remove the “most favored customer clauses” from supplying contracts, while the other requires PX Mart to maintain its low pricing policy and to refrain from increasing prices arbitrarily. It seems that TFTC wishes to balance the interests of the consumers and those of the suppliers. However, it remains to be seen whether the objective of “maintaining the low price policy” will be offset by the requirement of the removal of the most favored customer clauses.
[1] This is organized by the authors. For the complete conditions, please refer to the TFTC’s Gong-Jie-111001 Decision of July 15, 2022.