India Inc, which has been pitching for easier merger and acquisition norms in the Competition Act, can breather a little easy with the Competition Commission of India (CCI) ?the regulator to take action against those indulging in anti-competitive practices ? proposing to spare companies from filing their notification before it for enquiry in three instances including intra-group mergers.
Those instances of M&As where companies need not notify the CCI include (i) intra-group control or transfer of shares, (ii) creeping acquisition by a promoter within the equity limits permitted by Securities and Exchange Board of India (SEBI) and (iii) if a person or entity holds less than 15% equity without control of the company.
?The decision to address genuine concerns regarding mergers has been taken after broad consultations with the industry, legal fraternity and other authorities like SEBI. We are incorporating these exemptions in our draft regulations and our advisory committee would consider this. This will be enforced when the CCI comes into operation by this year-end,? CCI acting chairman Vinod Dhall said.
Noting that the control remains within a group in the case of intra-group control or transfer of shares, the CCI has decided to exempt such instances from any enquiry.
Also, cases of creeping acquisition, where promoter buys up to 5% of shares annually to consolidate holding, are also spared from notification as this is in accordance with Securities and Exchange Board of India (SEBI) guidelines. ?This is not of much concern since SEBI regulations allow it. Also since the promoter is already in control in such cases it does not change the nature of the company,? Dhall said.
In the third case, the CCI had earlier said so long as a person or entity is not in control of the company despite the holding going up to 26%, the matter need not be brought to its notice. However, the take over code of Sebi says the moment an outsider acquires up to 15% stake, he must make an open offer to all shareholders for another 20%. This would have resulted in a clash with Sebi code, as the person?s holding could then go up to over 26%. In order to align with the SEBI regulations, the CCI decided to amend its norm on notification from 26% to 15%. ?The moment an entity or person acquires over 15% and manages to get the company?s control, it has to be brought to the notice of CCI,? Dhall said. Subir Gokarn, Asia-Pacific chief economist at Standard & Poor?s and an expert on competition laws, said ?this is a welcome step as it will give some relief to India Inc. It will also help the CCI to better utilise its resources by focusing more on instances where there could be a strong possibility of anti-competitive impact, like horizontal mergers where two major companies in the same industry merge to form a bigger company and get the ability to influence the market.?
He said the industry has to understand that CCI is not concerned about ownership per se and that it is not taking a position that all mergers are anti-competitive. Through its latest move, the watchdog has clearly made a distinction that the chances of anti-competitive implications in these three instances are very remote.
Pradeep S Mehta, director-general, CUTS Institute for Regulation & Competition, said however, that CCI should look into combinations within these three exemptions which has the potential to have an adverse effect on competition and amend the rules if there are instances where these situations turn anti-competitive.
India Inc was peeved that the 210-day merger approval timeline in the CCI draft guidelines on mergers was one that would inordinately delay mergers. CCI later had clarified that a vast majority of the mergers would be cleared in 30 days and the 210-day timeline would apply to only a few of them.