Abstract
A new trend referred to as “killer acquisitions” has emerged globally where firms use mergers and acquisitions as a strategy to eliminate competition in the market. These are generally defined as mergers with a strategic intent of not developing the acquired product or their own product (cannibalisation) which competes directly with the acquired product, but rather to bury the rival innovative product and kill competition. The objective is to pre-empt potential future competition and neutralise it. Thus, while traditional mergers are assumed to reduce the number of competitors in the market and increase market concentration, which could then confer market power to the merging entity (Motta, 2004), the objective of killer acquisitions is to eliminate a possible competitor from the market and kill its innovation because that innovation will reduce the profit of the incumbent (Cunningham, C., Ederer, F., and Ma, S., 2019). The central tenet of competition policy and regulation is to protect the competition process (Madl, 2020), and as such, killer acquisitions should be closely scrutinized.
This study undertook an ex-post assessment of the acquisition of Ebank by FNB Namibia in 2017 to determine whether it was a killer acquisition and if it resulted in a loss of consumer welfare. The study critically evaluated the decision of the Namibian Competition Commission on this merger to understand the completeness of the theories of harm analysed by the Commission. The study also undertook an ex-post assessment on market outcomes to evaluate the evolution of the market after the merger was approved. To undertake the ‘before-and-after’ assessment the study evaluated secondary data from annual reports and from public industry sources, as well as undertook primary research through interviews with market players and industry experts.
On the completeness of the theory of harm analysed by the Commission, the study found that the merger strengthened FNB Namibia’s specialised skills in the provision of e-money, thereby strengthening its market position. Furthermore, the study found that the Commission did not explore the impacts of the merger on a possible decline in the range of products offered or technological development of Ebank, possible stalling of access to banking services in rural areas through innovation and technology. The Commission also did not consider coordinated effects. Findings indicated that the development of the Ebank innovation model was halted at the implementation of the merger, thereby stalling the spread
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of technology and disrupting the provision of banking services through e-money with negative effects on consumer welfare for a period of time. This amounted to a killer acquisition as consumers did not have access to the specific services offered by Ebank. However, the same technology was reintroduced by FNB Namibia with a wide geographical coverage and improved functionality. Given the reintroduction of the model after a period of time, indicating that the product and technology remained in the market, the study concluded that the acquisition of Ebank by FNB Namibia amounted to a removal of an effective future competitor from the market which was destined to evolve into a market leader in the provision of e-money.
The market outcome assessment tested the market positions of Ebank and FNB Namibia before and after the merger. Although FNB Namibia lost some market share prior to the merger, it was found to still be the market leader in the general provision of transactional banking services at the time of the acquisition. While FNB Namibia enjoyed first mover advantage being the first to introduce e-money, the findings indicates that Ebank overtook FNB Namibia and was growing strongly in the niche market for the provision of e-money thereby confirming the removal of an effective competitor from the market. The study found that the e-money niche market grew substantially post-merger suggesting that other banks grew into this space.
The study concluded that the competitive harm arising from the merger is that it deprived society, particularly more vulnerable rural customers, the benefits of competition arising from increased service choice and innovation. While Ebank’s innovation was not ‘killed’ under the traditional definitions of killer acquisitions, the study concludes that there was strategic intent to bury Ebank’s offering, absorbing it as FNB Namibia’s own to ensure no future competition from Ebank. Although more along the lines of a removal of an effective future rival, the study argues that the transaction should have still been broadly categorised as a killer acquisition and should have been prohibited or approved with conditions to keep Ebank as a market player, and to allow it to continue to innovate.