By Ashok K GuptaWith every industry undergoing ‘new age’ transformations, mergers and acquisitions (M&As) have become a significant tool for establishing systemic efficiencies in many markets. However, large-scale consolidations often present unique market structures that may pose challenges to competition.In these scenarios, competition regulation assumes greater significance to preserve competition and protect consumer welfare. The
By Ashok K GuptaWith every industry undergoing ‘new age’ transformations, mergers and acquisitions (M&As) have become a significant tool for establishing systemic efficiencies in many markets. However, large-scale consolidations often present unique market structures that may pose challenges to competition.In these scenarios, competition regulation assumes greater significance 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. CCI needs to look into the future structure of the market, and this cannot be based on crystal-gazing.The key to success of any merger review regime is to conduct a quick assessment so that firms can consummate their transactions and save time and costs on account for the necessary approvals. CCI considers the market dynamics that includes the level of concentration, degree of countervailing buyer power, the possibility of failing business, and contribution to the economic development. It also examines whether the merger is likely to result in any harm to competition.Global consolidations have resulted in the entry of several foreign firms into Indian markets. CCI has successfully handled global mergers including Dow Chemical-DuPont and Bayer-Monsanto. These cases required interaction with its well-established counterparts and multi-jurisdictional authorities. Continual engagement with other authorities on the International Competition Network (ICN), OECD and Brics has helped CCI to keep abreast with the latest developments and best practices.Over a decade, CCI has developed a robust framework for merger review. But there are 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. Tracing what the trends are of such acquisitions — be it ecommerce or other digital companies — is being sought, as there can be cases when the acquisition of a nascent firm may trigger the loss of a competitive constraint.Several measures have been put in place to make compliance requirement certain and simpler. One, the threshold for notification in India is relatively high. So, the notification requirement is imposed only on larger transactions that have the potential to affect competition. Two, mergers in certain sectors — such as public sector banking, and oil and natural gas — have been exempted by GoI in the public interest. Further, the acquisition of smaller enterprises below a monetary threshold is also exempted.Three, CCI regulations dispense notification for certain categories of combinations unlikely to raise competition concern. These are largely transactions in the ordinary course of business, or investments not resulting in control.With effect from August 15, 2019, a ‘green channel’ was introduced for the automatic approval of combinations. 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. This should sustain speedy, transparent and accountable merger review, strike a balance between facilitation and enforcement, and create a culture of voluntary compliance that supports economic growth. This has caught the imagination of industry, and one out of every five cases is being filed under the green channel. CCI has revised its pre-filing consultation guidelines, and stakeholders are encouraged to proactively participate in the review process.As 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. It has focused on quick approval of M&As that don’t cause appreciable adverse effect on competition.Several new reforms in the corporate and insolvency landscape are driving up domestic consolidations, attracting entry and expansion of foreign entities in India through M&As, strategic investment by MNCs and investments by foreign funds that include sovereign, pension and private equity funds. CCI assesses these deals by taking cognisance of the relative advantage by the way of contribution to the economic development of the country.The ongoing reforms have made India a preferred destination for strategic investments and M&As even during a Covid-hampered economy. CCI has given timely approval to all notifications filed even in the lockdown period. 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.The writer is chairman, Competition Commission of India.
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