New Delhi: Bringing more acquisitions in the pharmaceuticals industry under the scrutiny of the antitrust regulator by tightening rules, as suggested by a panel headed by Arun Maira, will create confusion, according to officials at the regulator and competition law experts.
Instead of having separate sets of rules for different industries, the government should have uniform but tighter regulations governing acquisitions, they say.
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Planning Commission member Maira, in a report on foreign direct investment in the phama sector, had recommended that the government strengthen the powers of the Competition Commission of India, or CCI, to review acquisitions in the sector and proposed changes in competition rules to bring more acquisitions by drug makers under the ambit of the regulator. The panel’s recommendations were accepted by the government on Monday.
Currently, any acquisition that results in sales of more than Rs 4,500 crore for the combined entity by two Indian companies and above $2.25 billion (around Rs 11,025 crore) by two overseas companies need prior approval of the Indian competition regulator.
Similarly, for two conglomerates these thresholds are Rs 18,000 crore for groups in India and $9 billion for global groups.
An acquisition will be exempt from scrutiny by the local antitrust regulator if the smaller company has sales of less than Rs 750 crore. Besides, merging global firms or groups need to notify the Indian regulator only if their combined Indian operations are at least Rs 2,250 crore.
These exemptions will leave many acquisitions outside the purview of the regulator, according to the Maira panel report. A statement by the government on Monday said necessary enabling regulations will be put in place by the antitrust regulator for effective threshold limits on mergers and acquisitions to ensure that there is a balance between public health concerns and attracting overseas investment in the pharma sector in the next six months.
“If threshold limits are revised for the pharma sector this will create confusion and also lead to ambiguity in CCI’s interpretation on whether a particular M&A will result in cartelization or abuse of dominance as the benchmarks will be different,” said a senior official at the antitrust regulator, who declined to be identified given the sensitivity of the matter.
Later, more sectors may seek lowering of thresholds leading to different set of thresholds for different industries which may disrupt a level-playing field, the official said.
The health ministry, department of industrial pricing and policy and local drug makers have asked that acquisitions by overseas companies be routed through the Foreign Investment Promotion Board, which can selectively allow investment in the sector as against the current automatic approval route. While the government has allowed routing through FIPB for six months it wants to strengthen the competition regulator for clearing such projects.
Most acquisitions will escape CCI’s net because of the high thresholds notified by the government in March, according to Amitabh Kumar, senior adviser (regulatory, competition and tax) at J. Sagar Associates.
“It’s not a desirable thing,” said Kumar. “At the same time, having different thresholds just for the pharma sector, and later for other sectors, will create confusion for both industry as well as CCI. What the government can do is to introduce deal size besides uniform asset and turnover criteria.”
The transaction value, or the deal size, is a good indicator of the direction towards which an M&A is headed, he said.
Vinod Dhall, promoter of Dhall Law Chambers and former acting chairman of the Indian antitrust regulator feels there is a case for general reduction in threshold limits, which are the highest in the world.
“For the CCI it will be cumbersome not only to handle pharma with different thresholds but also other sectors which ask for lowering thresholds, which is quite likely,” said Dhall.
He added that the government should tighten the norms relating to target companies.
A former chief executive of a pharma company said if the government is really worried about drug prices going up due to foreign takeovers, it should frame more direct regulations for foreign investment.
“It could, for example, say that 5% of their drugs should be bulk produced, and sold to the government for distribution at cheaper rates to the underprivileged,” added this executive.