Next move? CCI nod mandatory for big mergers

NEW DELHI: Will all entities wanting to merge or combine compulsorily require prior approval of the Competition Commission if merger or combination is above a threshold limit? Well, they won’t, as per the Competition (Amendment) Bill introduced in Parliament in last budget session but the matter is now being examined afresh at the highest level after the parliamentary standing committee, which scanned the bill, recommended a revision of the bill to make CCI’s prior approval mandatory for large mergers and amalgamations.

“This is the most sensitive issue that remains to be resolved before the revised amendment bill is introduced in Parliament. A final view is yet to be taken,” said an official from the company affairs ministry. The ministry is targeting budget session to introduce the revised bill after listening to the panel’s views.

As per Section 6(2) of the Competition Act, entities could voluntarily inform CCI of mergers/combinations above a threshold within seven days of boards’ approval.

On why prior approval was not made mandatory, the ministry had told the parliamentary committee that it could lead to “delays and unjustified interventions”. The panel, however, said it was surprised to note the ministry’s contention. “

Can’t the CCI, being an expert body, address such problems?,” the panel asked. Moreover, the committee felt that combinations are likely to cause appreciable adverse effect on competition within relevant market. If prior intimation of the commission is optional for the merging entities, the commission may miss out on important developments that could eventually hamper its functioning as a regulatory body, said the panel.

Merger regulation is included in almost all competition laws across the world to regulate mergers which could lead to anti-competitive situations. India’s Competition Act prescribes a liberal regime of merger regulation.

Mergers below the threshold are outside CCI regulation. The threshold is about double the level in the UK. “Most mergers do not give rise to concerns in competition authorities. Mainly horizontal mergers — between competing enterprises making the same product — can give rise to competition worries,” said CCI member Vinod Dhall. The potential of a merger to mar competition is decided by geographical and other areas of market presence of merging entities.

Currently, merging entities are given the option to inform CCI before going ahead with the merger to help them avoid high cost of a regulator-initiated post-merger unscrambling. Since CCI is required to conclude an inquiry into a merged entity within a year of the merger, there is no possibility of a resultant unscrambling after a year, the ministry had argued. If prior notification is given, CCI must dispose that within 90 working days, or else the merger is deemed approved.

Experts say that prior notification of the competition regulator is mandatory in most countries. Some recent global merger attempts not approved by the relevant competition regulator are Staples and Office Depot in the US and Boeing and McDonnell Douglas by the European Commission (EC). There is a serious question mark on the fate of the General Electric-Honeywell merger proposal also, with the EC raising objections. Acquisition by Procter & Gamble of Gillette was approved on condition that certain parts of the business must be divested.

In the US, courts pass orders in merger cases after the Federal Trade Commission examines the matter. In Europe, the party concerned can appeal against the competition regulator’s order in the court of first instance and subsequently in the European court of justice. India’s commission, which is yet to assume enforcement powers, is designed to be an expert regulatory body, above which there will be an adjudicator.