Mergers & Alliances :08/06/09

CCI BLESSING TO BE MUST FOR M&AS, REJIGS
Gireesh Chandra Prasad & Suchetana Ray, New Delhi, June 8, 2009
The Economic Times (Bangalore edition)

All mega mergers and corporate restructuring deals in the country will soon require the competition regulator’s approval as the government has set a three-month deadline for introducing such a regulation.

“Certain areas still need attention, which is why the government hasn’t notified merger regulations so far. In these 100 days, we’ll be able to push them through,” corporate affairs minister Salman Khursheed said. Merger regulations are procedures that the Competition Commission of India (CCI) will have to follow while regulating deals.

Once enforced, competition law provisions on mergers would require all mega deals—domestic, cross-border and totally offshore—to seek the approval of CCI. The regulator can ask the parties involved to modify or keep certain businesses out of the deal to ensure fair competition in the market.

The merger regulation is likely to be implemented prospectively, that is, past deals would not require CCI’s approval. For instance, proposed deals such as the Bharti-MTN merger will not need CCI’s approval if the boards of directors of both the companies approve the merger before these regulations are notified.

The competition regulator will scrutinise big transactions only as per the deal size prescribed in the law. Different threshold levels have been prescribed for individual and group companies depending on their exposure to domestic and overseas markets.

For instance, a domestic transaction in which the combined entity has Rs 1,000 crore in assets or Rs 3,000 crore in turnover will need approval of the CCI. In the case of a group of companies acquiring another one, the threshold increases four times.

CCI will scrutinise offshore deals only if the parties have a minimum market presence in India, called territorial nexus. In such cases, the foreign companies with business presence in India would choose to comply with Indian laws even if the transaction is offshore as they would not take a regulatory risk in an important emerging economy. The new rules for regulating offshore deals prescribe a threshold of Rs 500 crore in assets or Rs 1,500 crore in turnover for the combined entity.

The draft regulations prepared earlier had proposed that CCI approval was needed only if all the parties involved in the deal have an individual presence in India so that only deals that are relevant to competition in the Indian market are regulated. Otherwise, a small acquisition of, say, a coffee shop in a foreign country by a global MNC with an India presence will require CCI’s permission, which doesn’t appear logical.

CCI is now fine-tuning the draft merger regulations and is planning to introduce automatic approval for deals that are in public interest, a CCI official had recently said.