To reduce procedural delays in mergers and acquisitions, the Competition Commission of India, or CCI, is considering several changes to draft regulations.
These include the introduction of a fast-track option, based on voluntary disclosure, and prescribing a minimum threshold limit for individual companies involved in mergers and acquisitions (M&As), in terms of revenues or assets, that would merit seeking the commission’s prior approval.
CCI, which is a newly-created regulator of competition, is also considering a provision under which only those acquisitions will need its approval where the acquiring company comes to own 15% and more of shares, voting power or assets in the other firm.
Vinod Dhall, acting chairman of CCI, says this is intended to restrict the regulator’s ambit to only those acquisitions that could potentially violate competition norms.
According to the amended Competition Act, 2002, all M&As of foreign firms with India operations with a combined revenue of Rs1,500 crore (about $380 million) and between two Indian companies with combined revenues of Rs3,000 crore, will have to seek CCI’s approval. The revenue of an individual company involved in a deal is currently not specified in the Act.
The new steps are being taken to ensure that the process does not cause any undue delay in M&A activity, a growing concern. “CCI is developing two kinds of forms to fast-track merger procedure. While the long form will seek lots of information on the merger, in the short form, companies need to fill only the basic details of the merging partners. In case the companies are very confident that their merger will not add to market power in India, they can take the short-form route and the commission will, if it finds it so, approve the merger with immediate effect,” said Dhall.
The short-form route works like the green channel for customs at an international airport where the onus is on passengers voluntarily declaring items that could exceed or violate customs regulations.
The international experience is that 85% of the mergers are cleared without detailed enquiry and another 10% after inquiry. “Only 5% of the mergers are blocked or given conditional clearance,” Dhall said.
CCI assumed statutory powers to enforce anti-competitive practices in September, when the amended Competition Act, 2002, got legislative approval from Parliament. It is not yet operational, since it is settling the logistics, including recruitment of personnel.
According to Dhall, CCI has talked to several industry bodies as well as the Investment Commission, which facilitates investment into India and is headed by Tata group chairman Ratan Tata, to clarify issues ahead of putting out the draft regulations.
“In its draft regulations (on M&As), CCI is introducing limitations on the commission itself to maintain the highest level of transparency and deliver quick decisions,” maintained Dhall.
However, companies need to be selective in opting for the short form, Dhall said. If CCI ascertains that issues of competition is being affected, it would warrant a more detailed examination and hence the process may take longer than 60 days.
According to Dhall, in such a situation, opting for the long form may prove to be more beneficial. For, if CCI is satisfied with all the information furnished, it can take a prima facie view and clear the merger in 30 days.
“By introducing small and long forms, the CCI is trying to address the grey areas in the Competition Act. However, the commission has to be cautious that in the process of facilitating M&As, it does not go overboard. The Act has to be adhered to in letter and spirit,” said Lalit Bhasin, managing partner of Bhasin and Co., a law firm.
According to officials at the ministry of corporate affairs, to which CCI is attached, the commission is expected to be fully functional by October and start dealing with anti-competitive practices which include those relating to M&As.
Fast-track recruitment of 125 professionals, from legal, economics and financial backgrounds, is under way, up from 60 that were sought. “A cabinet note has already been moved to clear these posts, which will be a combination of those appointed on regular, deputation and contractual basis,” said a ministry official.