Explainer: What Grab’s failed takeover of Singapore taxi operator Trans-cab means for consumers and the industry

SINGAPORE — Industry experts have been weighing up the implications of an announcement by Singapore’s consumer watchdog last Thursday (July 25) that ride-hailing platform Grab’s proposed acquisition of taxi operator Trans-cab will not go ahead.

The two companies had notified the Competition and Consumer Commission of Singapore (CCCS) that they would not be proceeding with the plans.

The companies’ withdrawal comes after CCCS gave a provisional decision earlier this month stating that the proposed acquisition had been “likely to result in a substantial lessening of competition in the market for the supply of ride-hail platform services to drivers and passengers in Singapore”.

Proposed deals of this nature have to go to the CCCS which is tasked with ensuring they do not hurt competition.

The latest proposed deal follows several similar plans by point-to-point (P2P) operators in recent years with some proving successful and others failing.

So why was this latest proposed acquisition effectively halted, it appears, by the CCCS? How will it impact smaller industry players like Trans-cab?

And what does it all mean for consumers?

TODAY speaks to transport and business experts to break down these questions.

Why this particular deal was called off

In deciding whether a merger or acquisition is detrimental to competition or otherwise, the size of the parties’ market share matters, said experts.

Generally, mergers and acquisitions between smaller players are regarded as positive as they allow them to capitalise on economies of scale, said the experts.

The term “economies of scale” refers to the ability of firms to operate more efficiently if they are larger. For example, two smaller firms merging could combine their back-end operations.

Transport and business expert Terence Fan said this was the case for taxi operators Premier and Strides which merged in May last year.

“Even within the (relatively small) taxi industry, they were not the biggest players,” said the assistant professor from Singapore Management University (SMU).

While the merger allowed the new entity, Strides Premier, to become the second biggest taxi operator, it was still less than half the size of market leader ComfortDelGro in terms of fleet size, he noted.

But under the proposed Trans-cab Grab deal, Professor Sumit Agarwal from National University of Singapore (NUS) Business School said that this was to have been “more like an empire building exercise for Grab”.

This is because Grab is already a dominant player in the industry looking to acquire a taxi company whose fleet is only slightly smaller than Stride Premier.

Presidential fellow at NUS Business School Lee Kwok Hao noted that as of July 2023, Grab provided about half of the 613,000 daily trips made by P2P transport operators.

CCCS in its provisional decision on the Grab-Trans-cab deal said that the proposed acquisition would have allowed Grab to “significantly save on the incentives that it would have to pay to drivers”, as opposed to attracting the drivers via alternative means.

A check on their websites shows that Grab offers S$3,000 (RM10,355) in cash and fuel vouchers for new private-hire drivers, and S$2,200 for taxi drivers. Competitor Gojek offers S$1,400 for new joiners.

Trans-cab has 2,067 taxis in its fleet as of May 2024, according to latest figures by the Land Transport Authority. Each taxi car can have more than one hirer.

“It is possible that Grab assessed it cheaper to acquire Trans-cab and their drivers upfront and then implement ‘vertical restraints’, rather than raising their incentives across the board,” said Dr Lee.

Vertical restraints refer to various methods to keep drivers within the Grab platform.

What would happen to Trans-cab now?

Prof Agarwal said that he does not foresee a “big impact” on Trans-cab following the deal’s failure.

“We know from past failed mergers that the (potentially) acquired company did not suffer because the merger failed,” he added, referring to merger and acquisition cases in general.

Trans-cab could continue operating on its own, though the “stagnating or declining” taxi segment might cast doubts on its long-term prospects, said Associate Professor Nitin Pangarkar from NUS.

The number of private-hire cars has ballooned from 72,632 at the end of 2022 to 85,097 as of June this year. In contrast, the number of taxis fell slightly from 14,084 to 13,436 over the same period.

The experts said that Trans-cab could tie up with non-dominant players in the P2P industry, either through an acquisition or merger, or some form of partnership.

“If consolidation results in cost efficiencies, allowing these firms to stay viable and compete more effectively against larger players, I do not think that CCCS would see this as a bad thing,” said Dr Lee.

How does this impact consumers, drivers and fares?

Experts generally agreed that had the deal gone through, it would have allowed Grab to achieve greater dominance over the P2P market.

This would have reduced bargaining powers of drivers, and Grab could have potentially raised prices for consumers more easily, said Prof Agarwal.

Now that the deal has fallen through, in the short term, Trans-cab drivers “may be better off,” said Assoc Prof Pangarkar.

“Especially if they have a preference for the traditional model, namely renting taxis daily and then keeping most of the receipts,” he said.

But again, he said that the long-term prospects of the taxi company operating on its own remains to be seen, mainly because the industry is seen as a sunset one.

As for consumers, the failure of the proposed acquisition means one more P2P transport player remains in the market.

But would it go so far as to impact Grab’s ability to set or at least influence market prices?

“I think Grab is a price setter anyway,” said Asst Prof Fan, noting the large market share that the tech company has.

Taking a more ambivalent approach, Assoc Prof Pangarkar said fare price adjustments “depend on a lot of factors” beyond just mergers and acquisitions.

TODAY has asked both Grab and Trans-cab about their reasons for withdrawing the proposed deal. — TODAY