含羞草社区

With the recently updated merger control regime, the competition regulator will be able to tighten its net and examine significant deals that have previously slipped through. However, its resources may be strained by unforeseen loopholes. Freny Patel reports

The early hours of 10 September 2024 signalled the dawn of a new era in 含羞草社区 regulatory landscape. A revised merger control regime took effect, designed to modernise 含羞草社区 approach to matters of antitrust. It has potential to reshape the conduct of mergers, acquisitions and private equity transactions.

One significant change is the relaxation of rules governing open-market acquisitions. Acquirers can now purchase up to 25% of a target company’s shares without prior approval of the antitrust watchdog. This could facilitate hostile takeovers and increase competition.

While the revised regime offers greater clarity and streamlined processes, it also introduces complexities that businesses need to navigate. The devil, as the saying goes, is in the details.

Curb ‘killer acquisitions’

The merger control amendments are significant, particularly with the introduction of a deal value threshold (DVT). This raises questions about potential implications for mergers, acquisitions and investments, and complicates ongoing M&A deals.

Within the first hours of the new regime, corporations made frantic calls to their lawyers. M&A lawyers and antitrust experts scrambled to assess whether the DVT would impact existing transactions.

The introduction of the DVT was abrupt and the transition was not adequately thought through, according to seasoned competition law expert Avaantika Kakkar, a Mumbai-based partner and competition law head at Cyril Amarchand Mangaldas.

“It would have helped if some more thought had gone into the consequences of the transition provisions, since the DVT was very suddenly enforced,” Kakkar tells India Business Law Journal.

She says it would have been helpful if the regulations had clarified that deals signed before the date of the amendment (10 September) would not be impacted by the sudden enforcement of the new merger control regime.

The revised regime has created uncertainty for many deals, particularly those that were not previously subject to Competition Commission of India (CCI) scrutiny. This retrospective application of the new rules has caught many businesses off guard, potentially disrupting their plans and timelines.

The absence of a grandfathering provision in the revised merger control regime has created uncertainty for ongoing deals. A grandfathering provision would have allowed deals that were underway under the old rules to be completed under the old rules. Several deals on the verge of closing are expected to be notified to the CCI in the coming weeks due to their deal value exceeding the DVT.

Despite this, there is no certainty that the CCI will be especially interested in existing deals, according to a former CCI director general and head of the commission’s merger control and antitrust divisions. Kaushal Kumar (KK) Sharma, also the founder chairman of KK Sharma Law Offices in New Delhi, is of the view that the commission is unlikely to “chase such parties to the combination merely because of the new widening of its mandate”.

The introduction of a DVT to capture “killer acquisitions” or “entrenchment strategies” has become a central point of debate among legal experts.

Man Mohan (MM) Sharma, New Delhi-based partner at Vaish Associates Advocates, says the DVT “will broaden the net by including some strategic big-ticket transactions, particularly, in the infrastructure and big tech sectors, which were escaping scrutiny under the de minimis exemption route due to being asset-light or low turnover, but were apparently anticompetitive”.

An example is the USD19 billion acquisition of WhatsApp by Facebook (now Meta) in 2014, which escaped CCI scrutiny despite having huge implications for the Indian market. If that transaction took place today, it would be notifiable.

“All [those] concerned would be watchful of the interplay between the ‘interest in India’ and the ‘deal value’,” says KK Sharma.

Nisha Kaur Uberoi, partner and chair of the competition law practice at JSA in Mumbai, says the number of transactions requiring notification to the CCI will significantly increase because of the DVT, combined with a new criterion of access to commercially sensitive information.

The previous regime only captured transactions where the target met certain turnover thresholds. The DVT introduces a new focus on the monetary value of deals, enhancing the CCI’s merger jurisdiction, particularly for high-value deals in sectors like digital economy, pharmaceuticals and infrastructure, says Uberoi. “The CCI will need more resources to keep up with its enhanced workload and to maintain its established track record of efficiency, particularly given the amendments bring shortened review timelines.”

Such concerns are shared by Anisha Chand, partner in the competition and antitrust practice at Khaitan & Co’s Mumbai office. She estimates the DVT could increase merger filings by as much as 10-15%.

This increase is partly because the definition of “digital services” and “digital users” is broadly worded, potentially capturing companies that would not have been scrutinised under the previous regime. Chand says many companies are likely to be considered “digital players” due to their online presence or user bases – even those that do not directly sell goods or services online. This could lead to an unintended surge in filings, particularly in the digital sector, as companies seek to comply with the new regulatory framework.

“Normally there are 110 to 115 merger filings a year. Under the DVT framework, which is widely worded, there could be situations where unintended transactions get caught, particularly in the digital context,” says Chand.

She says while the DVT was introduced to capture high-value, potentially anticompetitive deals, it could also lead to many smaller transactions, without significant competitive concerns, being unnecessarily brought under regulatory scrutiny. This could cause delays and add complexity to deal making, particularly in sectors where the competitive dynamics are not as pronounced.

This new provision of DVT expands the scope of scrutiny, focusing on the financial size of deals, regardless of the entities’ market share.

The pharmaceutical sector, for example, could see a surge in scrutiny of mergers where large players acquire potential generic competitors, which may lead to monopolistic practices or reduced consumer choice.

Similarly, the digital space, where large tech companies have amassed enormous financial power, has witnessed a rising number of cross-border deals. The DVT will now ensure that even smaller, high-value deals in this space – including the acquisitions of startups or emerging technologies – are subject to regulatory scrutiny, thereby preventing market distortions.

That said, given 含羞草社区 “very high thresholds”, many global transactions are not notified, Kakkar points out. “I expect the DVT to catch more domestic transactions than necessary, and these will be in sectors that were not the intended focus of this amendment,” she says.

“The revised regime seems to be convoluted, creating unnecessary work for some deals while missing potentially anticompetitive acquisitions.”

MM Sharma says one of the major challenges for the CCI is “the possibility of some crucial issues being left out inadvertently during the expedited scrutiny process”.

Similarly, parties to M&A transactions face the challenge of “how to collate the market-related detailed information, which the CCI is likely to seek in a shorter time period, particularly where no data or authentic market studies exist,” he says.

Unlike the earlier 30 working days timeframe, the CCI will have to form a prima facie view on a notified transaction within 30 calendar days, failing which the transaction is deemed approved. The overall timeline for reviewing combinations has been reduced from 210 days to 150 days.

KK Sharma agrees that the reduced timelines put “a demand of smart and quick scrutiny on the regulator, along with a challenge to deal with unforeseen interruptions because of socio-geopolitical considerations … in view of the deemed approval dangling over its head”. However, it does enhance the ease of doing business for the parties to the combination, he says.