Local customer base of global digital firms central to CCI’s new merger control norms

New Delhi: The India customer base of global digital economy companies getting acquired will play a key role in whether they need to seek approval from antitrust watchdog Competition Commission of India (CCI) under new merger regulations it issued in a notification late on Monday.

The India share of global sales as well as share of global merchandise value will also be counted as thresholds for CCI nod in case of global digital mergers and acquisitions (M&As).

Targets in global M&As will come under CCI’s review if their customer base in India is more than 10% of their global customer base and the deal’s value meets the required threshold of ₹2,000 crore ($240 million), CCI said, explaining that 10% local customer base will mean the company has substantial Indian operations.

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According to CCI (Combinations) Regulations, 2024, which became effective from Tuesday, 10 September, a digital service provider will be deemed to have substantial business operations in India if its business users or end users in India account for 10% or more of its global business or end users. Business users are persons or legal entities that are suppliers of goods and services using an e-commerce platform.

Substantial Indian operations could also mean having 10% of the company’s global merchandise value in the preceding 12 months coming from the Indian market, but is more than ₹500 crore.

If 10% of the entity’s total global sales comes from India, that business will also be deemed to have substantial Indian operations. For digital service providers, the ₹500-crore exclusion meant for small players is not applicable, CCI said.

With the new norms coming into force, all global transactions where the deal value exceeds ₹2,000 crore and the target company meeting the requirement of local business must now be notified to CCI. This also applies to deals that have been signed but are yet to close or even if they are partially closed.

When will the watchdog inquire about a deal?

If the parties to the transaction meeting these requirements do not notify the deal to CCI, the watchdog on its own will inquire into whether the deal is likely to cause a noticeable adverse effect on competition within India.

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The regulator said the deal value threshold for CCI review will include all payments to be made during two years from the date on which the transaction would come into effect for arrangements that are part of the deal, such as technology assistance, licensing of intellectual property rights, usage rights for products and services, branding and marketing. Call options to buy shares will also be counted. If the deal involves an open offer, full subscription to the offer excluding costs has to be taken into account for notifying the deal to CCI.

Anisha Chand, partner at law firm Khaitan & Co., explained that an existing carve-out for deals involving businesses with low assets and sales will not apply to the new merger regulations based on global deal value.

The existing de minimis (based on asset and turnover) and deal value threshold are mutually exclusive, said Chand.

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“Expect a number of transactions that were benefiting from de minimis exemption to require a prior clearance from the CCI now if they meet the deal value threshold criteria. Deals that are yet to be signed or will be signed on or after 10 September must re-examine their reportability status to the CCI,” said Chand.

The de minimis threshold excluding purchase of target companies with low assets and sales from CCI review was last revised in March this year. As per that change, acquisition of companies valued up to ₹450 crore or ₹1,250 crore annual sales are excluded from CCI’s merger regulations.

This does not apply to digital entities that have now come under the CCI’s ambit for their deal value size and substantial local operations.