Helping to Merge and Acquire

CONTEXT: The phenomenon of Mergers and Acquisitions (M&A), although a significant tool for establishing systemic efficiencies in markets, however, poses a challenge to competition in an era of large scale consolidation.

Significance Competition Commission of India (CCI):

• To preserve competition and protect consumer welfare: The Competition Commission of India (CCI) looks into M&As from the competition perspective. 

• All M&As above a certain asset and turnover threshold are to be mandatorily notified to CCI for an ex-ante assessment of an appreciable adverse effect on competition.

• Conduct a quick assessment: CCI considers the market dynamics that include the level of concentration, degree of countervailing buyer power, the possibility of failing business, and contribution to the economic development.

• Examines whether the merger is likely to result in any harm to competition.

• Continual engagement with other authorities on the International Competition Network (ICN), Organisation for Economic Cooperation and Development (OECD) and BRICS has helped CCI to keep abreast with the latest developments and best practices.
• CCI has successfully handled global mergers, including Dow Chemical-DuPont and Bayer-Monsanto, which required interaction with its well-established counterparts and multi-jurisdictional authorities. 
• As the market regulator, CCI is conscious of the larger public policy milieu and significance of inorganic growth required for enterprises to attain size, scale and efficiency and succeed in domestic and global markets.

Special Challenges faced by CCI: 

• There are certain challenges posed by new-age markets, common investments in competing firms and data-driven mergers.

• In digital markets, due to low assets or turnover of target companies, some acquisitions do not trigger the notification thresholds. 

• For, E.g. There can be cases when the acquisition of a nascent firm may trigger the loss of a competitive constraint.

Measures to encourage Ease of Compliance in M&A

• The threshold for notification in India is relatively high: The notification requirement is imposed only on larger transactions that have the potential to affect competition. 
• Exemptions: Mergers in certain sectors such as public sector banking, and oil and natural gas have been exempted by government, in the public interest.

• The acquisition of smaller enterprises below a monetary threshold is also exempted.

• A green channel was introduced for the automatic approval of combinations, with effect from August 15, 2019.

• This is a first-of-its-kind, trust-based system in the world, where a notifiable transaction having no overlaps, be it horizontal, vertical or complementary between parties, is deemed approved upon its filing and can be consummated immediately.
• One out of every five cases is being filed under the green channel.

• CCI has focused on quick approval of M&As that don’t cause an appreciable adverse effect on competition.

• CCI has revised its pre-filing consultation guidelines, and stakeholders are encouraged to proactively participate in the review process.

Conclusion: As India gears up for post-COVID economic recovery, the stage is set for all enterprises to benefit from CCI’s objective, transparent and business-friendly combination review regime.