Proposed Acquisition by DKSH Holding (S) of Auric Pacific Marketing and Centurion Marketing

Notifying Party:

DKSH Holding (S) Pte. Ltd.

Notifying Date:

10 January 2019

Summary of transaction:

(i) the names of the merger parties;

DKSH Holding (S) Pte. Ltd. (“DKSH Holding (S)”), Auric Pacific Marketing Pte Ltd (“APM”) and Centurion Marketing Pte Ltd (“CM”) (“collectively, the“Targets”).

(ii)a description of the transaction;

The transaction involves the acquisition of 100% of the issued share capital of APM and CM, by DKSH Holding (S) (“Transaction”).

(iii)a description of the business activities of the merger parties worldwide and in Singapore;

DKSH Holding (S)

DKSH Holding (S) provides Market Expansion Services (“MES”) to companies seeking to distribute their products in Singapore. DKSH Singapore and DKSH SEA offer their business partners tailor-made solutions along the entire value chain to support them in successfully achieving their objectives.

The Targets

The Targets provide MES to various international consumer food brands in Singapore in the retail and foodservice channels.

(iv) a description of the overlapping goods or services, including brand names;

DKSH Holding (S), APM and CM overlap in the provision of distribution services for packaged food and beverage products in Singapore. Such distribution services entail an array of services provided to manufacturers and/or suppliers of packaged food and beverage products (“Brand Principals”) but also involve the sale and delivery of the Brand Principals’ products to various channels including brick and mortar retailers, wholesalers, foodservice businesses and e-commerce retailers (collectively, the “Purchasers”).

(v) the applicant’s views on:

a. definition of the relevant market(s);

The Applicant considers the relevant product market to be the distribution of packaged food and beverage products in Singapore.

b. the way in which competition functions in this market;

This is a very competitive market. The Applicant considers its competitors in the relevant market to include other Distributors including 3PL services providers, 4PL services providers and full-service providers. The competitors in this market also include Brand Principals who may also distribute their own products as well as products manufactured and/or supplied by other Brand Principals.

Purchasers who purchase packaged food and beverage products from the Parties are, for the vast majority, sophisticated retailers with centralized procurement and who have the ability and scale to procure packaged food and beverage products directly from the Brand Principals or parallel import. Smaller retailers are also able to buy packaged food and beverage products directly from wholesalers or through parallel imports.

c. barriers to entry and countervailing buyer power; and

There are no barriers to expansion for existing players. Some smaller players may not have the extensive logistics network of the larger ones, but this could be easily rectified by expanding their logistics network (which can be achieved quickly and at relatively low costs by renting a warehouse and sub-contracting transport to one of the many providers of logistical resources in Singapore).

Further, at any point in time Brand Principals have the ability to either market and distribute their products themselves entirely (i.e. full in-house) or to market the products themselves and outsource the distribution to 3PL or 4PL service providers. This is especially true of Brand Principals who supply large volumes of products.

Separately, as noted in the preceding section (v)(b), the purchasers are generally very sophisticated retailers with centralized procurement and who have the ability and scale to procure packaged food and beverage products directly from the Brand Principals or parallel import. Essentially, the purchasers dictate how, when and who they purchase the packaged food and beverage products from.

d. The competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant);

Non-coordinated effects

The Applicant submits that non-coordinated effects will not result from the Proposed Transaction as:

1. the market will remain highly competitive with a number of competitors being able to supply similar services as those offered by the Parties;

2. Brand Principals have the ability to easily switch to alternative suppliers or to self-supply by bringing the distribution of their products in-house and/or to even sponsor new entry;

3. the Purchasers have strong countervailing buyer power being, for the vast majority, sophisticated retailers with centralized procurement and who have the ability and scale to procure packaged food and beverage products directly from the Brand Principals; and

4. barriers to entry and expansion are low.

Coordinated Effects

A horizontal merger may lessen competition substantially by increasing the possibility that, post-merger, some or all firms in the same market may find it profitable to coordinate their behaviour by raising prices or reducing quality or output.

In this regard, the Parties note that the characteristics of the market for the provision of distribution services for packaged food and beverage products, i.e. highly fragmented with many different players, coupled with the difficulty to monitor prices as the prices to Purchasers are not published or otherwise available, are such that it would be very hard for the Parties to coordinate their behaviour with competitors after the Transaction. Additionally, Brand Principals enjoy very low, if any, switching costs and have, therefore, the freedom to move relatively easily from a distribution service provider to another if they are dissatisfied with the performance or commitment to their products, i.e. if they take the view that their distributor does not meet the Brand Principals’requirements in terms of quality, or sales.

Decision:

The Proposed Transaction, if carried into effect, will not infringe the section 54 prohibition of the Competition Act (Cap. 50B).

Decision date:

22 February 2019

Read the media release.

Read the Grounds of Decision.