CCI Amends Regulations To Speed Up M&A Approval
Timelines for approval of business combinations by the Competition Commission of India may get shorter. This is because, the competition regulator has amended its regulations which govern combinations between companies.
The amendments also provide for “green channel” or automatic clearance for deals below a certain size, and simplified summary forms.
Here are the two key changes:
1. Green Channel Route For Expedited Combinations
Timelines are a crucial factor in the success or failure of mergers and acquisitions. Presently, the law requires transacting entities to obtain a prior approval from the competition regulator for deals involving assets or turnover beyond a specified threshold. This approval is obtained by notifying the commission in a prescribed format.
The amendment seeks to provide such entities a concessional regime through a “green channel route” for combinations which have a likely lesser impact on competition. Accordingly, the green channel route would be available if entities in a combination along with their respective group entities or any entity in which they have a direct or indirect shareholding or control fulfill the following criteria:
- They do not produce or provide similar, identical or substitutable products or services.
- They aren’t engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in products or provision of services which are at different stage or level of production chain.
- They are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in products or provision of services which are complementary to each other.
A notifying party must make a declaration to the competition regulator that it fulfills the above criteria and the proposed combination to which it is a party will not have an adverse impact on competition in India.
The amended regulations say that a combination utilising the green channel route shall be deemed to have been approved by the Commission as soon as the notifying parties file a notice and it is acknowledged by the competition regulator.
This effectively creates three approval routes for deals - the green channel route, Form 1 filings for transactions above the notification size threshold and not meeting the green channel criteria and Form 2 filings for more complex transactions, for instance when parties are engaged in the production of similar or identical goods.
“All deals where there are no horizontal or vertical overlaps will benefit from the green channel,” explained Nisha Kaur Uberoi, partner and national head of competition practice at law firm Trilegal. “Any private equity transaction or a foreigner or Indian company investing in a new sector can now avail of this expedited clearance route,” she told BloombergQuint.
For instance, if a private equity firm has no investments in the chemical sector in India and is acquiring a stake in a chemical company, it can avail of green channel, she added as an illustration.
There will be a sizeable number of transactions which could benefit from the introduction of the green channel route, explained Vaibhav Choukse, competition law partner at law firm J. Sagar Associates.
Based on the CCI’s published orders, the transaction of Bradken Operations and L&T, if to be undertaken today, may opt for green channel route.Vaibhav Choukse, Partner - Competition Law, J. Sagar Associates.
2. Simplified Summary Format
Every party to a combination is required to file a summary of the deal with the competition regulator containing prescribed details. The amendments have reduced the information required in such summaries. For instance details of agreements, and board resolutions need not be included in the summary as the documents will be filed separately.
Hence, now a notifying party must include a summary containing details regarding:
- Nature and purpose of the combination
- Name of the parties involved in the combination
- Products, services and businesses of the parties to the combination and
- Respective markets in which the parties operate
“Prior to the amendment, the parties were required to submit two summaries—one in long form and other in short form. Post amendment, only one summary is required to be submitted,” explained Choukse. The burden on parties will be reduced as the duplicity of effort has been done away with, he added.
These changes to the competition regulations are in keeping with the government’s effort to improve ease of doing business. They will also reduce the burden on the regulator.
“The introduction of the Green Channel has made India the only competition jurisdiction in the world to have “near simultaneous” clearance for certain merger control filings”, explained Kaur Uberoi. “It will ensure that CCI’s resources are better utilised in reviewing only those transactions where there actually might be a competition concern,” she said.
“In line with the government’s initiative of ease of doing business in India, introduction of the green channel route for certain categories of M&A transaction will significantly benefit the stakeholders as it will reduce the extent of compliance burden and shorten the timeline for M&A transactions,” Choukse said, adding that “the CCI has made combination regulations more forward-looking”.