In what would lessen the regulatory compliance burden for corporates looking at mergers and acquisitions (M&As), the Competition Commission of India (CCI) has relaxed the notification requirements for creeping acquisitions with remote potential to change the nature of control. The regulator also eased the compliance needs for intra-corporate mergers and amalgamations.
Thanks to amendments notified by the CCI on Friday, in any deal above the thresholds specified in the Competition Act, if a company which already owns a 25% stake in another enterprise/company can additionally acquire up to 5% shares/voting rights every financial year without filing the same with the CCI subject to one rider: Post-acquisition, the acquirer will not hold 50% or more shares/voting rights in the target firm. Earlier, companies acquiring even 1% above and beyond holdings of 25% in the target entity were required to inform the CCI.
Also, in the case of intra-corporate deals, the exemption from notification would now be extended to deals that are not between wholly owned subsidiaries.
Another change made by the regulator is the current assets of business purport would now need to be notified even if they are sold within a financial year. Previously, current assets were not required to be notified at all.
The CCI regulates M&As with the objective of avoiding concentration of market power due to these transactions. Under the Competition Act, the CCI’s prior approval is mandatory for combinations above specified thresholds in terms of assets or turnover in India and outside India. For instance, for individual firms, the CCI’s nod is required if the combined assets of the entities are worth Rs 1,500 crore and combined turnover is above Rs 4,500 crore in India. Since it was given the authority to vet combinations in June 2011, as many as 120 M&A deals were vetted by the regulator including the UB Group?s stake sale to UK-based Diageo and the merger of UTV Software Communications with Walt Disney, but did not block any deal.
“While the norms are relaxed, the CCI will always hold the right to call upon any information in cases of M&A or amalgamation,” said Gautam Shahi of J Sagar Associates.
The CCI has moved amendments to the combination regulations called the ‘CCI Transaction of Business Relating to Combinations Regulations, 2011’. It will come into affect as soon as they appear in the official gazette, the CCI said on Friday.
Explaining the reasons for the amendments, competition law expert Manas Kumar Chaudhuri, partner, Khaitan & Co, said the move will help companies reduce filings before the CCI. According to Chaudhuri, the assessment of mergers from the point of competition law is primarily aimed at assessing market concentration post consummation of the transaction. “In case the acquirer already exercises control over the target before the combination, such transactions may not cause competition concerns, especially when there is no change in control. The move is aimed towards cutting down the CCI filings for companies,” he said.
Less paperwork
* Move to impact instances of mergers, acquisitions and amalgamation
* Companies holding 25% in another entity can acquire up to 5% per financial year
* But in any event, the acquirer cannot hold 50% or more or impact ownership status
* Intra-group amalgamation norms relaxed if ownership status remains unchanged