India’s competition watchdog has tightened the screws on mergers and acquisitions (M&As) that earlier escaped regulatory scrutiny by setting a new threshold for mandatory disclosure.
The Competition Commission of India (CCI) has also revised timelines for approvals and amended norms for control, in an overhaul of existing norms related to M&As.
The regulator has notified the Competition Commission of India (Combinations) Regulations, 2024, as well as rules related to criteria for M&A transactions, exemptions and minimum value of assets or turnover of the target companies. The new rules took effect on Tuesday.
Here are the major changes and their possible impact on M&As:
Deal value threshold
The major change comes in the form of the deal value threshold (DVT), now set at Rs 2,000 crore (about $240 million at current forex rates) for targets with substantial business operations in India. This change was largely triggered by M&A deals in the digital domain, say legal experts. With a focus on expansion rather than profitability, large deals were not being reported to the CCI as the size of the target was small, they say.
“If we take Microsoft’s acquisition of LinkedIn or Facebook’s acquisition of WhatsApp, these were reported to competition regulators abroad but were exempt in India thanks to the target-based exemption,” said Akshayy S. Nanda, Partner at Saraf & Partners.
Based on the latest amendment, companies recording a turnover of Rs 500 crore or 10% of their global turnover in India in the preceding financial year will be deemed to have substantial business operations in India.
“The idea of having a merger regime based on the deal value alone, irrespective of the size of the parties, is highly contested. However, some countries have, of late, adopted a deal value-based merger notification regime aimed at capturing the so-called 'killer acquisitions’ that otherwise escaped scrutiny,” said Parthsarathi Jha, Partner, Economic Laws Practice. “Introduction of the DVT regime will arguably allow the CCI to ensure effective oversight and protect market competition.”
However, based on the new regulations, there is scope for contesting in borderline cases. In cases where the value of a transaction cannot be established with reasonable certainty, the deal value threshold will be deemed as Rs 2,000 crore.
Shorter review timeline
The CCI will now have 30 calendar days to form a prima facie view on a notified transaction, against 30 working days earlier. No prima facie opinion within 30 calendar days from the CCI deems the transaction as approved.
Further, the total merger review period has been shortened to 150 calendar days from 210 days. However, several time exclusions may effectively make the timeframe longer.
“The transitional provisions are draconian, in that the new thresholds and exemptions apply immediately, thus requiring an urgent re-assessment of transactions signed/approved prior to 10 September but not yet fully consummated,” said Shweta Shroff Chopra, Partner, Shardul Amarchand Mangaldas & Co.
This would effectively mean parties to an M&A would have to observe the ‘standstill obligations’. This means they can’t give effect to any part of the transaction from Tuesday, thanks to the mandatory nature of the merger control regime. This brings considerable uncertainty to deal timelinesand requires urgent attention by all deal-making parties to ensure they do not attract penalties for gun jumping, legal expert say.
Definition of ‘control’
The CCI has broadened the definition of ‘control’ to include the ability to exercise “material influence” over management affairs or day-to-day business operations.
This would impact minority shareholders, too. In the event of a minority shareholder having a board seat, it would be deemed that the party has “material influence” of the management and business decisions.
Open offer
Parties to a transaction can seek exemption from the “standstill obligation”, pursuant to certain conditions being met. As a result, pending the CCI’s approval, such parties may acquire shares from sellers via a regulated stock exchange or make an ‘open offer’—if the CCI has been notified of the acquisition within the prescribed timeline, and the buyer does not exercise ownership or beneficial rights till the CCI has approved of the said transaction.
