COMPETITION POLICY IN INDIA WITH RESPECT TO MERGERS &AQUISITIONS

Objectives

Why Competition Law?

Shift towards Liberalization, Privatisation and Globalisation (LPG): Creation of a consumer friendly market Promotion of Competition: Interest of consumers Mandate on the part of the Government: Formulation and enforcement of competition law and policies Competition Law: To promote economic efficiency using

competition as one of the means of assisting the creation of market

responsive to consumer preferences

Competition Act, 2002

MERGERS AND ACQUISITIONS: A PERSPECTIVE FROM COMPETITION LAW Mergers:

-Horizontal - Vertical - Co-generic - Conglomerate Mostly, Horizontal mergers come under the purview of Competition Act Unilateral Effect Coordinated Effect

COMPETITION POLICY IN INDIA WITH RESPECT TO MERGERS AND ACQUISITIONS

Section 5 of the Act describes combination to mean such: 1. acquisition of: a) shares; b) assets; c) voting rights; or d) control by the acquiring enterprise or person in the acquired enterprise; or 2. acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provisions of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service; or 3. merger/amalgamation; which fulfill the respective requisites under the given section.

The threshold is dealt in two levels: Group level and Enterprise/Individual level:
ASSETS In India Individual Group In India or outside Total INR 1,500 Crores (approximately USD 330 million) INR 6,000 Crores (approximately USD 1,320 million) ASSETS Minimum Indian Component Total TURNOVER INR 4,500 Crores (approximately USD 1 billion) INR 18,000 Crores(approximately USD 4 billion) TURNOVER Minimum Indian Component out of total

Individual Parties USD 750 million

INR 750 Crores (approximately USD 165 million)

USD 2.25 billion INR 2,250 Crores (approximately USD 500 million)

Group

USD 3 billion

INR 750 Crores (approximately USD 165 million)

USD 9 billion

INR 2,250 Crores (approximately USD 500 million)

ASSETS

TURNOVER

In India

Individual Group

INR 1,500 Crores (approximately USD 330 million) INR 6,000 Crores (approximately USD 1,320 million)

INR 4,500 Crores (approximately USD 1 billion) INR 18,000 Crores(approximately USD 4 billion)

In India or outside Total

ASSETS Minimum Indian Component Total

TURNOVER Minimum Indian Component out of total

Individual Parties USD 750 million

INR 750 Crores (approximately USD 165 million)

USD 2.25 billion INR 2,250 Crores (approximately USD 500 million)

Group

USD 3 billion

INR 750 Crores (approximately USD 165 million)

USD 9 billion

INR 2,250 Crores (approximately USD 500 million)

Procedure after a Transaction is Hit by the Provisions of Section 5

CCI investigates whether the transaction causes, or is likely to cause an appreciable adverse effect on competition (AAEC), by considering the following: 1. actual and potential level of competition through imports in the market; 2. extent of barriers to entry into the market; 3. level of combination in the market; 4. degree of countervailing power in the market; 5. likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins; 6. extent of effective competition likely to sustain in a market; 7. extent to which substitutes are available or arc likely to be available in the market; 8. market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination; 9. likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market; 10. nature and extent of vertical integration in the market; 11. possibility of a failing business; 12. nature and extent of innovation; 13. relative advantage, by way of the contribution to the economic development, by any combination having or likely to have appreciable adverse effect on competition; 14. whether the benefits of the combination outweigh the adverse impact of the combination, if any.

 Combination causing or likely to cause an AAEC is void.

Mandates any person or enterprise intending to enter into a combination is required to give a notice to the Commission, disclosing the details of the proposed combination, within thirty days of: - approval of the proposal by the board of directors of the enterprises concerned, in case of relating to merger or amalgamation, or -execution of any agreement or other document for acquisition, in the case of

acquiring of control

Combination to come into effect only after the expiry of 210 days from the date of

notice

Deemed Approval

A COMPARATIVE ANALYSIS: The European Union (EU) & USA

The European Union (EU) M & As regulated by the Council regulation (EC) 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation)

applies to all the concentrations having a community dimension

A concentration has a Community dimension where: (a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million;

and
(b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide

turnover within one and the same Member State.

M & As having significant cross-border effect in at least three EU states are also covered India: Threshold limit one of the highest in the world; not all sectors might involve such a great figure in terms of their assets/turnovers, yet cause an appreciable adverse impact on the competition in India

Competition (Amendment) Bill 2012 allows the government to prescribe differentiated thresholds for particular sectors, enabling the CCI to review sector-specific combinations. Control EU Merger Regulation defines it to mean a possibility of exercising decisive influence on an

undertaking constituted by rights, contracts or any other means which, either separately or in
combination and having regard to the considerations of fact or law involved. India- control under explanation (a) to Section 6 of the Indian Act includes controlling the affairs or management by (i) one or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, either jointly or singly, over another group or enterprise Under the Indian Act, combination results not only from the change of control, but also a

transaction under which shares, voting rights or assets have been acquired. This is explicit from
the wordings of Section 5 of the Indian Act. Hence, change in control is independent from other acquisitions. The provision is wider than the EU Merger Regulation.

 Recent decisional Practice by CCI- Ability to exercise decisive influence over the management or affairs of another enterprise (including its division(s)), tantamounts to control over such enterprise, whether such influence is being exercised by way of majority shareholding, veto rights (attached to minority shareholding) or contractual covenants. Hence, the decision of the CCI resembles with the law of EU.

Exempted Transactions

In India, Target Exemption is available only in relation to transactions effected by way of an acquisition and not through mergers or amalgamations

Schedule is now sought to be amended by the CCI vide notification dated April 4th, 2013
Enterprises holding more than 50% of shares/voting rights of another enterprise exempt

USA The Sherman Act, 1890- Clayton Act, 1914- Federal Trade Commission Act, 1914- HartScott-Rodino Antitrust Improvements Act of 1976 (the HSR Act) Agencies: FTC & DoJ

size of transaction test; size of person test; Transactions greater than $283.6 million

Control ultimate control or influence

Exempted Transactions FTC/Doj are empowered to notify the same

India- Power to Central Government

CCI be given powers

CONCLUSIONS
The Act creates a balance between all sizes of industries; Set of very progressive and liberal laws, keeping in mind the development of domestic players as well; Consonance with international practices; Loopholes are less, keeping in mind the nascent stage of the law; Competition law must go through some amendments and changes for practical adaptability

before the merger control law in India is firmly established.

Thank You