Competition panel eases M&A norms

Small mergers and acquisitions will no longer need the body’s approval
Mint - New Delhi, India

Sangeeta Singh

India’s competition commission is amending rules it had earlier proposed and will now have to approve only significant mergers and acquisitions, or M&As, in a move that will bring cheer to industry bodies that had been lobbying for this.

Small M&As will no longer need the body’s approval.

The new regulations will ensure the commission doesn’t act as a bottleneck and that the pace of M&A activity here continues. In 2007, Indian firms made 1,070 transactions valued at $72.2 billion, a growth of 156% in value terms over 2006, according to a report by PricewaterhouseCoopers.

More relaxed norms for M&As (Graphic)

The Competition Commission of India, the body that will look at competitive (and anti-competitive) practices, will start work towards the end of 2008. Draft regulations (or rules) governing what the commission would have to monitor were framed last year but the intrusive nature of these—most M&As would have had to be cleared by CCI—didn’t find favour with industry bodies.

Last week, the government decided to change these rules.

“A decision to make changes in the draft regulations...was taken at the CCI advisory committee meeting held on 7 June. The 23-member committee comprises experts in the areas of competition law, M&As as also representatives from trade and industry,” said a senior government official who did not wish to be identified.

Under the new norms, a large firm can acquire a smaller company with a turnover up to Rs600 crore (or assets of up to Rs200 crore) without having to get a clearance from CCI even if the combined turnover of the two companies exceeds Rs3,000 crore—a previously defined limit for notifying and securing approval from CCI.

The new norms also say that in the case of Indian companies with an overseas presence, only those with revenues of at least Rs6,000 crore (Rs3,000 crore in the earlier rules) need to inform CCI before making an acquisition in India or elsewhere. For conglomerates with a global presence, this limit becomes Rs24,000 crore (Rs12,000 crore earlier).

However, in both these cases, the companies and conglomerates will have to approach the commission for approval if the combined revenues of the Indian operations of the acquirer and the acquired are at least Rs1,500 crore with the smaller operation having at least Rs600 crore in revenues (if the combined revenue exceeds Rs1,500 crore but the smaller company has a revenue of only Rs400 crore, there is no need for a CCI approval).

The official said that in an attempt to ensure CCI rules are aligned with those of stock market regulator Sebi, a few more changes have been made. Thus, firms can acquire up to 15% equity in other companies (without a controlling stake), or up to 5% a year without having to inform CCI.

Experts endorse the government’s move to keep small and insignificant M&As off the CCI’s ambit. “Notifying the competition authority about any M&A involves procedural delays. It is good that CCI has followed a consultative approach and has taken care of the concerns raised by the industry. This will make the process less cumbersome,” said G.R. Bhatia, partner at Luthra and Luthra Law Offices.

He, however, added that CCI needs to expand the scope of its review.

“For instance, there are cases where a company picking up just a minority stake in another company would still enjoy a veto. Won’t that be tantamount to having a kind of controlling stake? These are certain things that the CCI needs to check,” said Bhatia.

Bhatia also sought to allay the fears of firms coming under the CCI’s scanner. “Global experience suggests that over 90% of M&As that are notified to competition authorities are cleared at the first instance, and only 5-10% cases are such where competition issues crop up,” he said.

Vinod Dhall, acting chairman, CCI, said: “To speed up clearance of M&As which are unlikely to have adverse effect on competition, the draft regulation provides that all such transactions would be cleared in 30 days after which they are deemed approved unless the CCI takes an exception to the case.”

This, Dhall added, would happen only in rare cases, where there is apparent adverse impact on competition and CCI may take up to 210 days to approve such deals.