Firms may rush to conclude big ticket M&As by June

Companies that are currently negotiating big ticket mergers and acquisitions (M&As) may rush to conclude the deals by June 1.

This is because a Government notification last week has specified that after June, M&As that meet the stipulated criteria will have to compulsorily obtain the Competition Commission of India's (CCI) nod.

“In those cases where big mergers are already in the pipeline, companies may try to close the transactions by May-end. But the three month timeline (for the provisions to become operational) is positive because it gives a breather or adjustment time to companies. It does not take them surprise,” Mr Vinod Dhall, former acting Chairman of CCI, said.

Mr M.M. Sharma, head of competition law practice at Vaish Associates, is, however, concerned that the three-month window could result in some big M&As escaping the CCI's lens, which, in turn, may affect competition adversely. “It is inevitable that we will see a rise in M&A activities as companies would conclude transactions before hand to avoid giving notice to CCI.”

‘Ambiguities'

Some competition law experts are also flagging “ambiguities” regarding the provisions. Their concerns stem from the recent draft regulation of CCI, which implies that the M&A norms shall not apply to those combinations (M&As) that have ‘taken effect' prior to June 1.

Mr Samir R Gandhi, Partner, Economic Laws Practice, said there is no clarity on whether the term ‘combination taking effect' would mean just signing of an agreement or the actual completion of the entire transaction. “What happens if an agreement is signed in January, but the last tranche of payment is made after June? Will such deals also need CCI clearance?” he asks.

Another grey area, according to Mr Gandhi, pertains to a new provision giving a five-year exemption from CCI clearance to deals involving smaller acquisition targets (where asset value is under Rs 250 crore and turnover under Rs 750 crore).

“However, it is not clear whether this exemption will remain after five years (from June 2011). This seems to be a temporary mechanism and the uncertainty makes planning difficult for companies,” Mr Gandhi said.

Similar concerns have also cropped up with regard to revision of definition of the ‘Group' company in the notification, he added.

Enabling the CCI to regulate M&As, the Government notified the M&A norms last week. With this notification, the Government has also enhanced the assets and turnover thresholds (for mandatory CCI clearance) by 50 per cent.

Competition law veterans such as Mr Dhall say that notification is a step forward as M&A regulations are looked at from the competition angle in all the major economies globally.

“Indian companies acquiring firms abroad need to take permission from the local competition regulator, but the reverse was not happening so far. The new norms provide a level playing field to the domestic firms,” he said.

More clarity needed

However, more clarity is needed on issues such as definition of ‘turnover' for the purpose of threshold calculation, Mr Dhall added.

Mr Sharma points out that while draft regulations had talked of a reduced timeline of 180 days (for a CCI decision on M&A), the notification is silent about it. “So, that remains a major concern as regulation cannot override the Competition Act which still speaks of 210 days,” he says.

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