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Competition panel to address M&A fears

January 15, 2008 09:10 IST

Vinod K Dhall, the acting chairman of the Competition Commission of India, is putting several provisions in its draft regulations to address industry's fears that the commission will stall mergers and acquisitions.

The fears have mounted since Parliament cleared the Competition Act, 2002, under which the government set up the commission five years ago.

The Act provides that companies with assets of over Rs 1,000 crore (Rs 10 billion) and a turnover exceeding Rs 3,000 crore (Rs 30 billion) will have to obtain approval from the CCI for a merger, acquisition or amalgamation within 30 days of the deal.

Smaller companies will have to seek permission if their parent company's assets exceed Rs 4,000 crore (Rs 40 billion) and the turnover Rs 12,000 crore (Rs 120 billion). The commission will have an upper limit of 210 days to clear the deal.

Acutely aware of the concerns, Dhall is putting in de minimis (of minimum importance) provisions in the commission's draft regulations so that not all M&As have to come to the commission.

Already, in the case of cross-border mergers, there is no need to notify the commission unless the merged entity has Rs 500 crore (Rs 5 billion) in assets or Rs 1,500 crore (Rs 15 billion) in turnover in India.

The commission is likely to incorporate a de minimis provision that both the merging entities should have a threshold of assets or turnover in India for the CCI to come into the picture. So if an Indian company overtakes a foreign company, which is very big but has no turnover in India, there will be no need to notify the commission.

Dhall plans to put in another de minimis provision pertaining to the size of the transaction. The thinking in the commission is that a deal should come to it only if at least 15 per cent equity changes hands, which is also the kick-off point for the Securities & Exchange Board of India's takeover regulations.

Besides, Dhall has put together some "guiding principles" for the commission. One is to stay in sync with the markets. "Our role is that of a referee and we need to step in only if a foul is committed." Another principle seeks to minimise compliance cost and the paperwork required.

The time cap of 210 days is similar to that practised in the European Union, Japan, Singapore, China and South Africa and that recommended by the International Competition Network. The Act provides for three stages in merger review.

The CCI's draft regulations is likely to have short time caps for each stage. It may be expected that 85-90 per cent of the cases will be decided in two stages that will take between 30 and 60 days. Only complex cases will go to the third stage.

The intention is to pack the commission with experts, including economists, lawyers and financial analysts. It had sought sanction for a team of 240 experts, going up to 480. The government has agreed to a team of 125 experts, to begin with, backed by support staff.

Industry bodies like the Federation of Indian Chambers of Commerce and Industry maintain that the assets and turnover thresholds are too low. "What is Rs 1,000 crore (Rs 10 billion) in today's world?" Ficci president Habil Khorakiwala said some time ago in Mumbai.

Dhall points out that the Competition Act provides for a revision of the thresholds every two years. Two reviews are already due as the commission has already been in existence for five years.

In recent weeks, Dhall has been having hectic interactions with industry chambers and sector associations. Nearly everyone seems to agree that the commission is indeed needed. The Monopolies & Restrictive Trade Practices Commission belongs to an older era.

The CCI is better equipped to ensure fair competition and avoid monopolies and cartels in the rapidly growing Indian industry. The Act blocks anti-competitive consolidations and tie-ins between companies and also checks the practice of price discrimination.

China recently became the 106th country to set up something similar to the CCI.

The point at which the interactions tend to stumble is the need to regulate M&A.

However, according to Dhall, the CCI will be "incomplete" unless M&A is brought under its purview. For instance, if it objects to collusion between two companies, they can easily say that they are merging. Some equity will change hands and the CCI will be kept out of the picture.

In any case, monopolies are always bad. He recalls that recently even the Corus Group, taken over by Tata Steel early last year, expressed concern at a possible coming-together of BHP Billiton and Rio Tinto, two mining giants that together control the majority of global iron ore.

Suveen K Sinha in New Delhi