CCI may relax intra-group M&A rules once again

NEW DELHI: The country’s competition regulator may relax its merger rules further to keep only a casual watch over intragroup merger and acquisition (M&A) activities, leaving it with more time and resources to address the more important competition issues.

Last week, the Competition Commission of India (CCI) had relaxed many of the M&A regulations, dropping the pre-merger notifications in matters relating to intragroup amalgamations where the companies being merged are wholly-owned. The commission has decided to further relax the rules after experts urged the CCI to seriously consider some additional tweaking.

Many lawyers argued that though in the right spirit, the rules fell short of achieving effective combination rules as most M&A activities occur between intra-group companies, which are majority-owned and not wholly-owned. The compliance burden remains the same for such entities under the present rules.

“The stipulation in the new Regulations that the group enterprise being merged should be wholly-owned is not clear, since control can be exercised even with mere majority shareholding, and not necessarily 100% shareholding.

As long as control doesn't change, the intragroup merger has no competition effect,” said Vinod Dhall, former CCI chairman. “Perhaps the CCI would consider this further,” he added.

According to another expert who didn’t want to be identified, ‘control’ should be the defining factor. For example, even if a firm has more than 51% stake in another, it owns the other in majority and ‘controls’ it.

As far as the effect on competition in the market is concerned there is no distinction between control gained through a merger or amalgamation or through an acquisition.

Even in such cases, there should be no notifications required as intra group companies do not really pose any competitive threat,” a ministry of corporate affairs official added. Under the new rules only deals where 25% equity/voting rights are acquired, will need to notify the commission.