New Delhi: In a move that will assist corporate houses undertaking group restructuring, the Competition Commission of India (CCI) has notified that the merger of wholly owned subsidiaries with the parent holding company will no longer require the approval of the antitrust body.
Alongside this, CCI has also increased the threshold limit on the acquisition of shares that require prior approval to 25% from 15%, in sync with the takeover code of the Securities and Exchange Board of India.
A file photo of Ashok Chawla, chairperson of CCI.
The main aim behind these changes, according to analysts and CCI officials, is to prioritize the energies of the regulator, especially since the pace of referrals has picked up to about 10 a month—of this nearly 50% were clearances for group restructuring. At the same time, it will also reduce the compliance burden on companies.
“We wanted to focus more on issues that impact competition rather than devote energies to peripheral issues,” said Ashok Chawla, chairperson of CCI.
Analysts agreed and some said it will also assist companies looking to streamline their groups.
“The entire objective behind setting up CCI was to check if mergers and amalgamations between companies do not affect competition,” said Vipul Jhaveri, partner at Deloitte Haskins and Sells. “But if there is a merger between a wholly owned subsidiary and its parent, there is no way it will affect competition.”
Arguing similarly, another expert, who, however, did not want to be identified, said, “The laws will help companies go in for corporate restructuring. Some companies may want to reduce the number of subsidiaries or merge a profit-making and a loss-making subsidiary for getting tax advantages. Also, it could help large corporate groups get better synergies. But these companies have to be 100% subsidiaries.”
The antitrust regulator has also significantly increased the filing fees for companies that are obliged to inform it of mergers and acquisitions (M&A) activity by law. While the filing fee for form I has been increased to Rs10 lakh from Rs50,000, the fee for form II has been increased to Rs40 lakh from Rs10 lakh. While form I is for initial scrutiny, form II requires greater detail in terms of reporting the transaction to CCI and is filed when there’s likely to be a greater anti-competitive effect in the market.
“The initial regulations which had come had some grey areas. One of the things was what happens to intra-group mergers. This was one of the major concerns of corporates—a particular interpretation was adopted by some lawyers and CCI also seemed to have exercised its jurisdiction (on these) in respect of giving approvals,” said Ravi Kulkarni, partner at Khaitan and Co.
The notification also said that in the case of buy-back of shares, where there is no acquisition of control, companies do not need to seek CCI approval. Currently, only bonus, stock split and subscription of rights issues, where there is no acquisition of control, are outside CCI’s purview.
From 1 June 2011, all high-value deals came under the CCI scanner. The new regime came into effect with the notification of sections 5 and 6 of the Competition Commission Act, 2002. According to the provisions of the Act, companies with a turnover of more than Rs1,500 crore will have to approach CCI for approval before merging with another firm. Further, only those proposals would need CCI’s nod where the companies have combined assets of Rs1,000 crore or more, or a combined turnover of Rs3,000 crore or more, as per the Act. CCI has, since June last year, approved 23 merger proposals.
Increasing the threshold limit prescribed earlier for acquisition of shares or voting rights to fall within the exempt category, from 15% to 25% is in line with the minimum threshold specified in the new takeover code, said Narendra Rohira, a partner at audit and consulting firm Ernst and Young. “Mergers among companies wholly owned by the same group would not require intimation to the authority, leading to reduced compliance burden in case of intra-group amalgamations,” he said.
remya.n@livemint.com
PTI contributed to this story.