Under recent competition law amendments, combination transactions exceeding INR20 billion (USD237 million) will require prior approval from the Competition Commission of India (CCI). The revision adds an additional level of scrutiny where previously transactions were judged on the size of the company’s assets and turnover. 含羞草社区 spoke with Shweta Chopra, a partner in the competition law practice at Shardul Amarchand Mangaldas & Co, to shed light on the impact this will have on the Indian market, CCI and professionals working in this arena.
Q1. What is a deal value threshold? What is the significance and role of a deal value threshold in law?
Transactions between smaller parties (with lower asset and turnover value) in digital or high innovation markets have the ability to impact competition, but have escaped scrutiny by the CCI due to the de minimis exemption.
To ensure such transactions do not escape the scrutiny of the CCI, deal value thresholds have been introduced.
Where the deal value exceeds INR20 billion and the target enterprise has ‘substantial business operations in India’, the transactions now fall within the scope of the CCI’s scrutiny, even if the asset/turnover thresholds are not met. To determine whether a transaction is caught by the DVT [deal value threshold], the revised regulations specify that all types of valuable consideration (direct/indirect as well as current/future) would be considered towards meeting the INR20 billion deal value.
Further, to determine whether the target has substantial business operations in India, the CCI has specified that 10% of global turnover or GMV [gross merchandise value] should be attributable to India as well as be at least INR5 billion.
The recent amendment, however, introduced the DVT in a manner that is sector-agnostic, making it applicable to transactions in all sectors and not just the digital sector, and therefore can have far-reaching implications, as it casts a very wide net.
Q2. How is the value of a transaction calculated as per the revised deal value threshold and exemption rules?
The value of a transaction must include every valuable consideration, whether direct or indirect or current or future, including but not limited to:
- Any separately agreed consideration on account of any undertaking or restriction imposed on any party (including for example, non-compete fees);
- All incidental arrangements entered into between the parties within two years of the transaction taking effect;
- For call options, assuming full exercise of such call options (without discounting to present value);
- The value attributable to all interconnected steps; and
- Consideration payable (as per best estimates) based on the occurrence of a future event/outcome captured in the transaction documents.
Consideration of all acquisitions between the parties within two years prior to the trigger event shall be included to calculate the value of the transaction. In case of a transaction involving an open offer, full subscription to the offer must be considered for the value of the transaction.
Critically, the revised regulations provide that, if the precise value of a transaction cannot be established with reasonable certainty, the transaction may be considered to exceed the prescribed deal value of INR20 billion.
Q3. What risks are involved with the potential involvement of external agencies ensuring compliance and implementation of CCI orders? How can those risks be best mediated at an institutional level?
The CCI is now empowered to appoint an independent monitoring agency to ensure compliance. While similar to the appointment of trustees in merger transactions assessed by the Competition Markets Authority (UK) and the European Commission, the recent change provides for the appointment of monitoring agencies by the CCI and not by the parties to the transaction. This could further increase the administrative burden on the CCI to identify and appoint such agencies.
Q4. Will the change in regulation and compliance for M&A act as a boon or bane for business in India?
The amendments are undoubtedly a welcome step in improving the ease of doing business in India. However, with the introduction of the deal value threshold and narrowed scope of exemptions, the number/volume of notifiable transactions is expected to rise, which will put a strain on the CCI’s resources. Whether it is ultimately a bane or a boon remains to be seen as the interpretation of various new provisions is still evolving.
