Proposed Merger between China CNR Corporation Limited and CSR Corporation Limited

Notifying Parties:

China CNR Corporation Limited and CSR Corporation Limited

Notifying Date:

7 January 2015

Summary of transaction:

INFORMATION FOR THE CCS PUBLIC REGISTER
(COMPLETED BY THE APPLICANT(S))

    (i)        the names of the merger parties;

• China CNR Corporation Limited (“CNR”); and

• CSR Corporation Limited (“CSR”),

(collectively, the “Parties”).

    (ii)        a description of the transaction;

CNR and CSR intend to merge by way of a “merger by absorption” (the “Merger”). The Merger will be implemented by way of a securities exchange where the shares of CNR will be cancelled in exchange for new shares in CSR. The shareholders of CNR would become shareholders of the merged entity.

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

CNR focuses on the manufacture and refurbishment of rolling stock. CNR is also engaged in the manufacture of mechanical and electrical products and clean energy and environmental protection equipment, trading of raw materials, finance leasing of rolling stock and machines and equipment, and project management contracting service for urban rail and other related projects. A significant proportion of CNR’s revenue is derived from within the People’s Republic of China (the “PRC”).

CSR supplies rolling stock with a strong focus on the PRC. CSR has also expanded its business into other industries such as new energy equipment, new materials, AC transmission and industrial automation, and engineering machinery, as well as contracting business, financial leasing, finance business, assets investment and management, capital operation and other businesses.

In Singapore, CNR’s joint venture and CSR (through its subsidiaries) supply metros. CSR (through its subsidiary) also supplies engineering and maintenance vehicles in Singapore.

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

The Parties overlap in the supply of metros in Singapore (the “Overlapping Product”). The Parties also supply maintenance and repair services and components for metros which they supply in Singapore. Such services are supplied as part of the metro procurement contracts and the Parties do not provide such services and products for metros manufactured by other suppliers in Singapore.

   (v)        a description of substitute goods or services;

As metros are highly specialised in terms of specific use, there are unlikely to be any substitutes to metros to achieve the same functions of transporting high-flow of passengers within city centres.

   (vi)       the applicant’s views on:

a.             definition of the relevant market(s);

The relevant product market definition in relation to the Overlapping Product for the purposes of this notification is the market for the supply of metros. The relevant geographic market definition for the supply of metros is global as metros are manufactured globally and supplied into Singapore.

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

Metros in Singapore are generally procured by the Land Transport Authority of Singapore (“LTA”) through open tenders that are open to all bidders that meet the eligibility criteria and requirements under LTA’s terms of tender. Such eligibility criteria could include proven expertise and experience. Suppliers may also be required to meet certain certification criteria under global standards, such as the ISO standard, or the International Railway Industry Standard (IRIS).

In the Parties’ experience, the LTA evaluates tenderers on factors including:

(a)           technical expertise;

(b)           track record;

(c)           product quality/reliability;

(d)           price; and

(e)           service quality.

From the Parties’ perspective, competition among the bidders in tenders for the supply of metros in Singapore has been very intense and dynamic, as bidders who meet the strict requirements on technology and quality of LTA compete against each other.

c.             barriers to entry and countervailing buyer power; and

The Parties submit that there are no insurmountable barriers to entry. The Parties submit that large global players can, and do, qualify and participate frequently in open tenders called by the LTA in Singapore.

In addition to existing competing participants in the LTA tenders for the supply of metros, there are a large number of globally active metro manufacturers that could enter the market for the supply of metros in Singapore, in particular, in view of LTA’s policy to actively encourage new suppliers to enter the Singapore market.

The low barriers to entry are supported by the competitive tendering process of the LTA where tenderers, regardless of whether they are existing suppliers of metros in Singapore, are assessed equally on the basis of the objective criteria which apply whether the tender or procurement is called for new rail lines or extensions of existing rail lines in Singapore.

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

The Parties submit that the Merger will not give rise to non-coordinated effects in the market for the Overlapping Product in Singapore, in view of:

(a)           the structure of the tender market which encourages intense competition;

(b)           the presence of strong countervailing power;

(c)           the presence of alternative suppliers; and

(d)           the absence of insurmountable barriers to entry.

The Parties submit that the Merger will not give rise to coordinated effects in the market for the Overlapping Product in Singapore, in view of:

(a)           the structure of the tender market which encourages intense competition;

(b)           the large number of existing and potential competing global competitors who can, and do, qualify and participate in open tenders called by the LTA in Singapore, and who will thereby be able to disrupt any coordinated behaviour;

(c)           the excess capacity of global competitors facing mature home markets who have the ability and incentive to compete to win tenders for the supply of metros in Singapore; and

(d)           the strong countervailing buyer power of the LTA, who will be able to disrupt any coordinated behaviour.

The Parties submit that the Merger would not strengthen any vertical integration between the Parties as the extent of vertical integration between the Parties is minimal.

Decision:

The proposed merger, if carried into effect, will not infringe the section 54 prohibition.

Decision date:

17 February 2015

Click here for the media release. Click here for the Grounds of Decision.