There are new uncertainties in the marriage between Didi and Uber. Will the Ministry of Commerce break up the couple?

On August 1, 2016, Didi Chuxing announced that it had reached a strategic agreement with Uber Global to acquire all of Uber China's assets. On August 2, both parties completed the equity change registration procedures and completed the transaction. At the time, some people said that this move was suspected of monopoly, but the official did not respond. A month later, the matter that had been quiet fermented again.

According to China News Service, the Ministry of Commerce held a regular press conference today. Spokesperson Shen Danyang said that the Didi-Uber merger was not reported to the Ministry of Commerce. At present, the Ministry of Commerce has launched an antitrust investigation into the Didi-Uber merger, and has interviewed Didi Chuxing twice, requiring it to explain the transaction and the reasons for not reporting, and to submit relevant documents and materials according to the list of questions raised by the Ministry of Commerce ; it has also held discussions with relevant departments and enterprises to understand the online car-hailing operation model and related market competition conditions.

Next, the Ministry of Commerce will continue to advance the investigation of this case in accordance with the law, protect fair competition in relevant markets, and safeguard the interests of consumers and social public interests.

| Why did the Ministry of Commerce summon Didi Chuxing for talks?

Before the merger of Didi Chuxing and Uber China, the former was valued at US$28 billion and the latter was valued at nearly US$7 billion. After the merger, the total valuation reached US$35 billion. With this scale, Didi Chuxing is undoubtedly the absolute leader in China's shared travel market, far surpassing E-Car, Shenzhou Special Car and other platforms.

Relevant people believe that the merger of Didi and Uber is likely to restrict market competition. As the largest and second largest online car-hailing companies, their combined market share is as high as 90%, and the merger of the two will constitute a monopoly. However, Didi said that "currently neither Didi nor Uber China has achieved profitability, and Uber China's turnover in the previous fiscal year did not meet the reporting standards."

So, does this acquisition need to be reported? Why was Didi Chuxing summoned for a talk?

First, according to the "Regulations of the State Council on the Reporting Standards for Concentration of Operators", mergers that meet the following standards should be reported:

• (1) The total global turnover of all the operators involved in the concentration in the previous fiscal year exceeds RMB 10 billion, and the turnover of at least two of the operators in the previous fiscal year in China exceeds RMB 400 million;

• (2) The total turnover in China of all the operators involved in the concentration in the previous fiscal year exceeded RMB 2 billion, and the turnover in China of at least two of the operators in the previous fiscal year exceeded RMB 400 million each.

Secondly, how is Didi’s turnover calculated?

The reason why Didi did not declare is that its turnover did not meet the declaration standard, and one of the reasons is Are all the fees charged by the platform to passengers counted as revenue, or is only the platform service fee collected by Didi listed as revenue?

"Didi's drivers have no pricing power, nor do they have the right to decide the final remuneration. The operating model of the Didi platform is fundamentally different from Taobao's guaranteed transaction model (that is, the seller has the right to decide the selling price). In practice, if passengers need an invoice, they will ask Didi for an invoice for the full amount they paid," Liu Huabin, a lawyer at Beijing Jingdu (Shenzhen) Law Firm who is following the merger case, told Leifeng.com.

Lawyer Liu believes that if all the fees charged by the platform to passengers are counted as revenue, then Didi constitutes a monopoly.

• In addition, Uber China’s revenue situation is unclear.

Uber China has not yet gone public, and the turnover announced by Didi and Uber China is only unilateral, which the Ministry of Commerce does not recognize. It still needs to combine various evidences to make a comprehensive determination. The foreign capital of Uber itself also makes the interview quite meaningful.

In addition to the above reasons, a lawyer told Leifeng.com that even if the reporting standards are not met, the Ministry of Commerce still has the power to investigate the acquisition as long as there is evidence that the acquisition "has or may have the effect of excluding or restricting competition."

| What actions will the Ministry of Commerce take after the meeting?

At present, the investigation of the Ministry of Commerce is still in progress and no definite results have been reached. According to Liu Huabin's analysis, based on relevant laws and regulations, we briefly interpret several possible development directions of this incident:

1. According to the Interim Measures for Investigation and Handling of Concentration of Operators that Has Not Been Notified in Accordance with the Law of the Ministry of Commerce, if it is considered that a concentration should be reported but has not been reported, the Ministry of Commerce may impose a fine of no more than RMB 500,000 on the investigated operator if it is found through investigation that the investigated operator has not reported in accordance with the law and has implemented the concentration, and may order the investigated operator to take the following measures to restore to the status before the concentration: 1) Stop implementing the concentration; 2) Dispose of shares or assets within a time limit; 3) Transfer the business within a time limit; 4) Other necessary measures.

2. If the final investigation conclusion of the Ministry of Commerce is that it constitutes a monopoly, it will be considered that it constitutes a monopoly behavior, and a handling decision shall be made in accordance with the law and may be announced to the public.

3. If Didi eliminates the consequences of its monopolistic behavior within the period approved by the Ministry of Commerce, the anti-monopoly law enforcement agency may decide to suspend the investigation and decide whether to continue or terminate the investigation based on Didi’s fulfillment of its promised behaviors.

4. Penalty on Didi : Article 46: If an operator violates the provisions of this Law and reaches and implements a monopoly agreement, the anti-monopoly law enforcement agency shall order it to stop the illegal behavior, confiscate the illegal gains, and impose a fine of not less than 1% and not more than 10% of the sales revenue of the previous year; if the monopoly agreement has not yet been implemented, a fine of not more than RMB 500,000 may be imposed.

To briefly summarize the above points:

If it constitutes a monopoly, the Ministry of Commerce will make a decision on Didi, and the results may be as follows: declaring the merger of Didi and Uber invalid and imposing a monopoly penalty; if it does not constitute a monopoly, the Ministry of Commerce will stop the investigation depending on the circumstances.

However, my country's three major anti-monopoly swords exist in three major ministries and commissions. So, even if we pass the anti-monopoly test of the Ministry of Commerce, will the anti-monopoly of the Industry and Commerce Commission and the National Development and Reform Commission also wield the sword?

"The State Council has established an Anti-Monopoly Committee in accordance with the Anti-Monopoly Law, and the Ministry of Commerce has set up an Anti-Monopoly Bureau, which is responsible for the routine and specific work of the Committee. Therefore, anti-monopoly investigations are specifically led by the Ministry of Commerce , and other departments coordinate their work within the working mechanism of the Anti-Monopoly Committee." Liu Huabin told Leifeng.com.

In recent years, there have been many cases of mergers between industry giants in the Chinese market, such as Youku and Tudou, Meituan and Dianping, Ctrip and Qunar, 58.com and Ganji.com... The Ministry of Commerce has given the green light to all these companies. But this time, it was not so gentle to Didi and Uber China.

Where will the final incident go? We can only wait for the results of the investigation.

For more relevant developments, please pay attention to Leifeng.com’s follow-up reports.

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