Govt may check with industry on norms for M&As

Govt may check with industry on norms for M&As
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First Published: Fri, Sep 11 2009. 12 15 AM IST
Updated: Fri, Sep 11 2009. 12 15 AM IST
New Delhi: Facing corporate pressure, the government may blink yet again on the contentious issue of threshold limits on mergers and acquisitions (M&As) that would require prior approval from the Competition Commission of India (CCI), the antitrust body.
The government is considering holding more talks with industry representatives before notifying the limits, which were revised in the draft legislation last year after extensive corporate lobbying for a more liberal M&A environment that would limit the number of cases requiring CCI approval.
“A fresh round of consultation with the industry is expected to take place before the ministry notifies the regulations relating to mergers and acquisitions,” said a senior official in the ministry of corporate affairs, who didn’t want to be identified.
“This may result in revising the threshold limits as suggested in the draft regulation and the whole process may take five-six months,” the official added.
CCI was set up through an Act of Parliament in 2007 and started functioning in March 2008. Norms relating to the abuse of market dominance and the formation of cartels have been notified and the commission has started handling those cases.
Norms relating to M&As haven’t yet been notified by the ministry of corporate affairs.
Under last year’s revised norms, a large firm would be able to acquire a smaller company with a turnover of up to Rs600 crore (or assets of up to Rs200 crore) without needing CCI’s prior approval even if the combined turnover of the two companies exceeds Rs3,000 crore—the previously defined limit for securing approval from the antitrust body.
According to the norms, in the case of Indian companies with an overseas presence, only those with revenues of at least Rs6,000 crore (Rs3,000 crore in the earlier rules) need to inform CCI before making an acquisition in India or elsewhere.
For conglomerates with a global presence, this limit becomes Rs24,000 crore, doubled from Rs12,000 crore earlier.
However, in both these cases, the entities will have to approach the commission for approval if the combined revenue of the Indian operations of the acquirer and the acquired are at least Rs1,500 crore, with the smaller operation having at least Rs600 crore in revenues.
If the combined revenue exceeds Rs1,500 crore, but the smaller company has revenue of only Rs400 crore, CCI’s approval won’t be needed.
“The threshold limits have not only been liberalized, but also (a clause on) the minimum presence of the company getting acquired (Rs600 crore) has been introduced under the new norms,” noted a former CCI official, who didn’t want to be identified.
“According to these norms, the Bharti-MTN M&A will not need the prior approval of the CCI because MTN has no presence in India, but then everything depends on what the new notification will say,” the former official added.
Bharti Airtel Ltd and MTN Group Ltd reached a preliminary agreement to buy each other’s shares before merging in a complex $24 billion (Rs1.16 trillion) deal, Bloomberg reported on Wednesday.
CCI chairman Dhanendra Kumar could not be reached for comment.
At a recent meeting with industry at the PHD Chamber of Commerce and Industry, minister for corporate affairs Salman Khursheed said the ministry was open to suggestions made by various stakeholders before notifying section 5 and 6 of the Competition Act that deals with M&As.
In March, the ministry of corporate affairs had notified norms relating to the abuse of dominant position and cartelization.
According to G.R. Bhatia, partner at Luthra and Luthra Law Offices, industry need not fret because the global trend is that nearly 90% of mergers arouse no anti-competition concerns and, therefore, do not need prior approval by an antitrust body.
“Since all dimensions of the Competition Act, namely, abuse of dominance, anticompetitive agreements and M&As are intertwined, merger regulations should be notified soon,” he said. “Or else, with cartelization norms already in place, colluding partners may find an escape route through mergers.”
Shauvik Ghosh contributed to this story.
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First Published: Fri, Sep 11 2009. 12 15 AM IST