CCI set to get more teeth to regulate tech giants’ M&As

The government is likely to insert an enabling provision in the Competition Act to provide for this, based on the advice of an expert panel that reviewed the law last year, CCI chairman Ashok Kumar Gupta said in an interview. The change will incorporate deal size, which is currently not among the criteria for vetting global M&A deals with relevance to the Indian market, in CCI’s merger regulations.

Currently, asset size and revenue in an M&A are the only criteria for competition scrutiny. This has proved to be inadequate as new-age technology companies have huge valuations, but their assets and turnover in India keep them out of the purview of local competition law. Their valuations come in part from their access to customer base and data, and India is a huge market for them. Also, policymakers believe that digital economy firms’ focus in the initial years to grow customer size may mean their sales may not meet the criteria for seeking CCI clearance. Facebook’s $19 billion acquisition of WhatsApp escaped CCI assessment. A deal’s impact on competition is assessed on several factors including a reduction in the number of players in the market and the entry barriers created for new players.

Gupta said that in the case of global transactions among digital economy firms, their nexus with the Indian market has to be established in order to assess whether their M&As impact competition in the local market. Even if the asset or turnover of the combined entity is below the threshold specified in the law, if their deal size is above a certain threshold, which is to be decided after deliberations, they may have to refer the case to CCI, explained Gupta. “We want an enabling provision in the law so that we can deal with M&As better," said Gupta.

Whenever global transactions are referred to national competition authorities, they suggest modifications to certain parts of the transaction if competition in the local market is adversely affected.

A government official said on condition of anonymity that the ministry of corporate affairs is working on a bill to amend the nearly two decade-old Competition Act of 2002, which is likely to be introduced in the budget session of Parliament.

“This move (of adding deal size as a criterion) will be very useful for regulating M&As involving digital economy giants as the present threshold for regulation based on assets and turnover may not apply to them," said M.M. Sharma, head of competition law practice at Vaish Associates, a law firm.

The proposed change will impact transactions involving domestic digital e-commerce firms, including taxi aggregators and e-commerce companies, which may command huge valuation because of their unique business models or access to user base.

India has seen several acquisitions in the digital economy space in recent years, including of Myntra by Flipkart and TaxiForSure by Ola.

Individual firms involved in M&As have to seek CCI clearance now if their combined assets in India are worth over ₹1,000 crore or their revenue is over ₹3,000 crore. Deals involving firms having combined global assets of $500 million or sales of $1500 million need CCI’s approval if they have assets worth at least ₹500 crore or sales worth ₹1,500 crore in India.