In a major reform, the Centre proposes to do away with an existing requirement of prior approval of competition watchdog CCI for transactions involving open offers or acquisition of shares through regulated stock exchanges.
This proposal — seen as a significant measure in ease of doing business—forms part of the recently introduced Competition (Amendment) Bill 2022, which has now been referred to the Standing Committee on Finance headed by Jayant Sinha.
Currently, the Competition Act 2002 does not permit parties to acquire any shares (or pay any consideration) in a proposed combination pending approval from CCI. This includes combinations involving open market acquisition of shares listed on the stock exchange, including potential hostile acquisitions (takeovers).
“In line with the international best practices, the proposed amendments seek to establish a special framework for market purchases. Under this framework, parties can conduct market purchases without prior notification and approval of CCI. However, they subsequently shall give notice to CCI within the specified time and shall not exercise any ownership or beneficial rights or interest in such shares till the approval of CCI”, Ashok Kumar Gupta, Chairperson, Competition Commission of India(CCI) told BusinessLine.
Transactional efficiency
Gupta said that the proposed framework is expected to improve transactional efficiencies in Indian ecosystem and benefit stakeholders in a considerable way as it is a significant measure in ease of doing business.
The execution and completion of share acquisition in public bids is usually instantaneous. Thus, mandating a standstill on acquisition of shares-pending the approval of the combination was perceived by the industry as hampering the viability of acquisitions via public bids.
Impacted by various factors
Purchase of securities in stock exchanges (Market Purchases) requires special notification process in several international jurisdictions. Unlike negotiated transactions, market purchases are trading on anonymous basis. The request/ orders for buying or selling securities are matched electronically through the platform operated by stock exchanges where the price is volatile and is impacted by various factors including the performance of the target enterprise. Time is the essence of market purchases and cost of acquisition of publicly listed companies may go higher several times in a matter of few minutes.
As per the Competition Act 2002, parties proposing combination have to notify the same to the CCI for approval. Further, they cannot implement their combination till approval of the CCI. If any party fail to comply with these requirements, penalties could be imposed on them. These provisions equally apply for purchase of shares through stock exchanges i.e. purchase of share of a listed company through market purchases or open offer.
Cost of transaction
Therefore, in case of market purchases, where prices are volatile, if a person is required to wait for approval of the Commission, it may lose opportunity to buy the shares at best prices. Further, if any information relating to an acquisition of shares of a listed company is made public, it may result into speculation in prices and such a proposed acquisition may become unprofitable/unviable and thus, may fail. Thus, time taken for their competition assessment and approval may increase the cost of transaction(s), it was felt.
The proposed change in competition law seeks to address such eventualities.