Merger Control Regime & M&A in India

Merger Control Regime
Key Considerations
Avimukt Dar | 4 April 2018

COMBINATIONS
| Regulatory Authority – the Competition Commission of India (the "CCI")
| Rationale for regulating combinations
- Deemed that both entities will cease to compete post combination
- Price competitiveness
- Market concentration
- Impact on consumers
| What qualifies as a ‘combination’?
- Any acquisition of control, shares, voting rights or assets of one or more enterprises by one or
more enterprises or any merger or amalgamation of enterprises, where the parties to the
transaction jointly cross either of the prescribed assets or turnover threshold limits (whether on
an individual or a group level) set out under Section 5 of the Act.

In India
Assets (INR) Turnover (INR)
Individual 2,000 crores (approx. USD 307.6 million) 6,000 crores (approx. USD 922.8 million)
Group 8,000 crores (approx. USD 1.23 billion) 24,000 crores (approx. USD 3.58 billion)
In India and Outside India
Assets Turnover
Total (USD) Min. aggregate in
India (INR)
Total (USD) Min. aggregate in
India (INR)
Individual 1 billion 1,000 crores
(approx. USD
153.8 million)
3 billion 3,000 crores
(approx. USD 461.4
million)
Group 4 billion 1,000 crores
(approx. USD
153.8 million)
12 billion 3,000 crores
(approx. USD 461.4
million)
STATUTORY THRESHOLDS

CALCULATION OF THRESHOLDS
KEY CONSIDERATIONS
| Manner of Calculation
- Value of assets - book value of assets as shown in the audited books of accounts of the
enterprise or as per statutory auditor’s report (where the financial statement have not yet become
due to be filed) for the financial year immediately preceding the financial year in which the date of
proposed transaction falls, as reduced by any depreciation
- Value of turnover - value of sale of goods or services less indirect taxes, to be calculated in a
similar way
| ‘group’ - two or more enterprises which directly or indirectly are in a position to
- appoint more than 50% of the board of directors in the other enterprise
- control the management or affairs of the other enterprise
- exercise 50% or more of the voting rights in the other enterprise
| ‘control’ - includes controlling the affairs or management by
- one or more enterprises, or
- one or more groups, either jointly or singly, over another enterprise or group

| Target-level exemption
- Any transaction where the value of assets being acquired or taken control of is less than INR 3.5
billion (approximately USD 53.9 million) or the value of the turnover is less than INR 10 billion
(approximately USD 154 million).
- Mergers and amalgamations – what would be the target?
- Transfer of a business undertaking/ division
• Background - Eli Lilly and Company and Novartis AG – Combination Registration No. C-
2015/07/289 dated July 14, 2016
| Exemption to certain combinations involving:
- regional rural banks,
- central public sector enterprises or their wholly or partly owned subsidiaries, operating in the oil
and gas sectors, and
- all cases of reconstitution, full or partial transfer or amalgamation of nationalized banks.
EXEMPTIONS FROM NOTIFICATION
BLANKET EXEMPTIONS

| Exercise of discretion for availing exemption – notice need not normally be filed
- Whether AAEC exists
- Decisional practice
| Combinations which are ordinarily not likely to cause an AAEC – Combination Regulations
- Acquisition of shares or voting rights of any target enterprise, solely as an investment or in the
ordinary course of business such that the resultant direct or indirect holding is less than 25% and
does not lead to acquisition of control
• Solely as an investment
• Any acquisition of less than 10% is treated solely as an investment provided
• Same rights to acquirer as available with sellers
• Not a member of the board, no intention to participate in affairs or management
- Acquisition of shares or voting rights pursuant to bonus issue, stock splits, consolidation of face
value of shares, buy back of shares or subscription to rights issue of shares, not leading to
acquisition of control
DISCRETIONARY EXEMPTIONS

| Acquisition of additional shares or voting rights of an enterprise (where the acquirer or its group
already holds 25% or more of the shares or voting rights) such that the resultant holding is less than
50%, provided that there is no resultant acquisition of sole or joint control by the acquirer or its group
| Acquisition of shares or voting rights (where the acquirer already holds 50% or more of the shares or
voting rights) – not extended where transfer from joint to sole control
| Merger or amalgamation where one enterprise already has more than 50% or if more than 50% held
within same group – not extended where transfer from joint to sole control.
| Acquisition of assets, not directly related to the business activity of the acquirer or made solely as an
investment or in the ordinary course of business, not leading to control of the target enterprise – not
extended to deals where assets being acquired represent substantial business operations in a
particular location or for a particular product or service of the target, irrespective of whether
such assets are organized as a separate legal entity or not
| Intra-group acquisitions – not extended where target is jointly controlled by enterprises not part
of the same group
| Acquisition of shares, control, voting rights or assets approved by the CCI pursuant to and in
accordance with its order under Section 31 of the Act
DISCRETIONARY EXEMPTIONS

| Section 6(2) of the Act – Notification to the CCI
| Level of detail – determining which form to be filed
- Form I to be filed ordinarily for any ‘combination’ which is necessitated solely on account of
triggering the threshold
• Situations where AAEC would normally not come into play as market consolidation would be
minimal
• Fee - INR 15,00,000
- Form II to be filed if the ‘combination’ is likely to lead to a 15% (horizontal) or 25% (vertical)
concentration or market share in the ‘relevant market ‘or if the CCI requires it, pursuant to a
specific request
• Fee - INR 50,00,000
- Form III to be filed post facto within 7 days from any acquisition by a public financial institution,
bank, venture capital fund or foreign institutional investor pursuant to a covenant in an investment
or loan agreement – no payment of fee required
FILING NOTICE

| Key Differences between Form I and Form II
| When to file – after the occurrence of a notification event but prior to consummation
- Acquisitions - execution of any agreement or other binding document conveying an intent to
acquire
- Mergers or Amalgamation - approval of the proposal for merger or amalgamation by the boards
of directors of the merging/ amalgamating companies
FILING NOTICE
Parameter Form I Form II
Financial Data Broad and consolidated Detailed and specific, group data
Competitors 5 nearest competitors HHI required to be calculated,
rationale for identified competitors
Documentation Understanding the structural
overview, non – compete
Detailed understanding including
impact assessment reports
Relevant Market Checking for overlapping business
interest and the extent –
horizontal and vertical
Overlapping interest is assumed,
detailed information on products
and services, data of market
consolidation, entry barriers

| Determining the Relevant Market - keep it broad
- Relevant Geographic Market
- Relevant Product Market
- Defining different geographic markets may become necessary depending on distinguished market
conditions in neighbouring areas
| Market share and concentration based on the relevant market
- Determination of dominance
- HHI (Herfindahl Hirschman Index)
• Formula - squaring the market share of each entity competing in a market, and then summing
the resulting numbers. Range - close to 0 to 10,000
• competitive market (1500 or less), moderately concentrated market (1500-2500), highly
concentrated market (2500 or more)
- Incremental market share/ change in the level of concentration – a difference in the HHI (pre and
post combination) of 200 or more raises antitrust concerns
STRUCTURING THE CONTENT
FACTORS CONSIDERED BY CCI

| Demonstration of low regulatory trade barriers, low transportation costs, product and demand
substitutability, adequate distribution facilities, multiple competitors and comparable prices are good to
have and useful in delineating the relevant market
| Local specification requirements, national procurement policies, specific consumer preferences,
industrial product classification and inelastic demand are generally seen to be problematic
| Highlighting the actual and potential level of competition or constraints exerted by competitors is
important. It is also important to establish that the combination will not result in the removal of a
vigorous and effective competitor or competitors
| Price Regulation – helpful to determine whether the combination would result in the parties to the
combination being able to significantly and sustainably increase prices or profit margins
| A high number of combinations in a particular sector would indicate market consolidation
| Extent of vertical integration in the market – ideally this shouldn’t be a concern if the market share of
the resultant combination is likely to be negligent
| Stakeholder comments – preemptively anticipate concerns which may arise
STRUCTURING THE CONTENT
KEY CONSIDERATIONS – FACTORS CONSIDERED BY CCI

| Factors to consider – duration, subject matter, geography, scope of applicability, nature of the business
| Direct relation – economically related, ancillary to main object, intended to allow smooth transition post
combination
| Necessary – absence would imply no implementation of the combination, uncertain conditions,
substantially higher cost, appreciably longer period or considerably higher difficulty
| Reasonable
- Restriction to only apply to parties related to the combination – sellers, subsidiaries, agents,
controlling shareholders, parties to a joint venture
- Restricted to products and services comprising main activity and the area where they are offered
or proposed to be offered (substantiated by investment) combination
- Duration
• transfer of goodwill and know-how (upto 3 years), transfer of only goodwill (upto 2 years)
• JV – standing period
NON-COMPETE RESTRICTIONS

| Request for confidentiality over the competitively sensitive information
| A summary in 2000 words or less without confidential information is required to be submitted to the CCI
along with the notice in the relevant form
- Products, services and businesses
- Values of assets and turnover
- Relevant markets of operation
- Details of agreements and other documents and board resolutions relating to the combination
- Nature and purpose
- Likely impact on state of competition in the defined relevant markets
| An additional summary of the combination in 500 words or less describing the names of parties, type of
combination, area of activity and the relevant market, is required to be given to the CCI which shall
then be published on the website of the CCI
OTHER CONSIDERATIONS

| The ‘combination’ is not to take effect until the expiry of a period of 210 (two hundred and ten) days
from the date of application, or until the date on which the CCI has passed orders under section 31 of
the Act, whichever is earlier
| CCI may invalidate an application or ask for removal of defects – time taken is excluded from the 210
days’ timeline
| The CCI may request for additional information - time period for such requests and receipt of additional
information is excluded from the 210 days time limit
| The CCI may ask a party who has filed information in Form I to refile the information in Form II – the
clock on the timeline resets and kicks in when Form II is filed
| If the CCI in its prima facie opinion feels that a combination is likely to cause and AAEC, it may direct
the parties to provide and publish detailed information in Form IV
- to be published within 10 working days of CCI’s direction
- CCI may seek stakeholder comments thereon within 15 working days from publication, additional
information may be called for within 15 working days thereafter – to be furnished within 15 working
days
- Resume dealing with combination within 45 working days therefrom
TIMELINES

SCOPE OF CCI’S POWERS
TYPES OF DIRECTIONS
| The CCI has the power to initiate an inquiry into a combination, upon its own knowledge or
information. This power can be utilised by the CCI until the expiry of a period of one year from the date
on which the combination took effect
| The CCI, upon an application for a proposed combination, may
- requisition additional information,
- approve the combination as is
- propose modifications to the combination, or
- direct that the Combination shall not take place (in which case the acquisition or merger
contemplated shall be deemed to be void)
| Modifications may be accepted by the parties or amendments to the modification may be submitted
by the parties. The Commission may approve the amendments or allow a further period for the parties
to accept the modification initially suggested by the Commission

| Types of modifications
- Divestment
- Behavioural change
- Terms of contract(s)
- Future business plans
| Decisional Practice
- Sun Pharmaceutical Industries Limited and Ranbaxy Laboratories Limited – Combination
Registration No. C-2014/05/170 dated December 5, 2014
- PVR Limited and DLF Utilities Limited – Combination Registration No. C-2015/07/288 dated May
4, 2016
| Harmonizing of outcomes under section 31 with section 4 (abuse of dominance)
SCOPE OF CCI’S POWERS
TYPES OF DIRECTIONS

| Case I – Application not filed and transaction consummated in whole or in part
- Eli Lilly and Company and Novartis AG – Combination Registration No. C-2015/07/289 dated July
14, 2016
- Zuari Fertilisers and Chemicals Limited and Zuari Agro Chemicals Limited – Combination
Registration No. C-2014/06/181 dated February 10, 2015
| Case II – Application filed and transaction consummated in whole or in part prior to obtaining approval
- Etihad Airways PJSC and Jet Airways (India) Limited – Combination Registration No. C-
2013/05/122 dated November 19, 2013
| Section 43A of the Act - Penalty for may extend to 1% of the total assets or turnover of the
‘combination’, whichever is higher.
GUN JUMPING

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DISCLAIMER
This presentation is for information purposes only. Nothing contained herein is, purports to be, or is intended as legal advice and you
should seek legal advice before you act on any information or view expressed herein.
Although we have endeavored to accurately reflect the subject matter of this presentation, we make no representation or warranty,
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