CCI to vet brownfield pharma M&A deals

Nov 16 2012, 01:18 IST
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SummaryThe Competition Commission of India will finally be at the helm of the special dispensation for regulating brownfield M&A deals in the pharma sector.

The Competition Commission of India (CCI) will finally be at the helm of the special dispensation for regulating brownfield M&A deals in the pharma sector. This means that even for the deals that don’t meet the thresholds prescribed in the Competition Act, prior approval of the CCI would be required for investments by foreign firms in Indian pharma companies. The approval would be subject to compliance with a series of public health riders.

So, a multinational company with an intent to acquire a domestic drug firm would take a commitment at the outset that it would not cut production of essential drugs and R&D spend in the target company in years following the acquisition. The Competition Act will be amended for this purpose.

This follows a legal opinion obtained by the Prime Minister’s Office (PMO) to validate the point that CCI’s mandate can be extended to deal with ‘public interest issues’.

Currently, the CCI mandate on M&A deals is in recognition of the appreciable adverse impact they can have on the relevant market. Asset/turnover thresholds are prescribed in the Act for this purpose.

At present, the foreign investment promotion board (FIPB) is vetting brownfield pharma deals. An inter-ministerial group had earlier defined the regulatory regime for pharma FDI.

Accordingly, officials in the ministry of corporate affairs are in the final stages of drafting changes in the Competition Act Amendment Bill to enable CCI to take charge of pharma M&A deals in the country. This amendment to the Competition Act is likely to be introduced in the winter session of Parliament.

Infact, CCI’s expansion of mandate may include power to vet deals in sectors other than pharma as well. “The amendment to the competition Act will now be introduced in the Winter session of Parliament. The move will give powers to the CCI to vet all M&A deals including those in the pharma sector,” said a senior government official.

This intervention of the PMO ends the suspense over the decision regarding which agency — FIPB or CCI — would get the final mandate to vet deals in the pharma sector.

Earlier this year, after much heated disagreements, a finance ministry headed interministerial group zeroed down on conditions that a pharma MNC must adhere to if it has to acquire an Indian drug firm. However, it couldn’t agree on whether all brownfield pharma deals should have to be vetted by FIPB or should MNCs acquiring upto 49% stake

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