ROLE OF COMPETITION LAW IN MERGERS & ACQUISITIONS DEAL
Author: Tushar Jain, III year of B.B.A.,LL.B.(Hons.) from Jagran Lakecity University
Co-author: Jashn Sethi, III year of B.A.,LL.B.(Hons.) from Jagran Lakecity University
Given the recent M&A activity Deals are a common occurrence in business nowadays and are important to daily operations. M&A is typically a superior strategy for a corporation to enhance revenues when compared to organic expansion. By purchasing or merging with a company that possesses the most sophisticated talents, a corporation can grow without having to take on the risk of developing similar capabilities internally. A merger is defined as the joining of two or more companies into one, with the new company continuing while the former companies are dissolved as distinct legal organisations. The assets and liabilities of the amalgamated company are all acquired by the survivor. The buyer, which retains its identity, is normally the surviving company, whereas the seller is typically the extinct firm.When one business purchases the majority of the target business—which keeps its name and organizational structure—it is said to have acquired the business.[i]
KINDS OF MERGER[ii]
Horizontal merger - This kind of merger happens when businesses unite that are involved in the mercantilism of similar goods and services. It primarily occurs to increase market share and maintain business operations on an excessive scale. Because it fosters cooperation between the businesses, affecting the valuation of the good and limiting the output, this form of merger has a negative impact on competition.
Vertical Merger -Vertical merger could be a quite merger within which enterprises area unit engaged in numerous stages or levels of production chain in numerous markets, in respect of production, supply, distribution, storage, sale or value of, or exchange product or provision of services.
Conglomerate Merger – Conglomerate merger could be a quite merger wherever 2 enterprises that merge along area unit concerned in numerous quite business.
KINDS OF ACQUISITIONS
Horizontal acquisition -A business strategy known as a horizontal acquisition is when one company buys out another that competes on an equal footing in a given industry. For instance, the dope potable division and Coca-Cola combination would be horizontal in structure. Making a new, larger company with a sizable market share is the aim of a horizontal merger.
Vertical acquisitions –The acquisition of business operations within related production verticals is referred to as vertical integration. One common example of a vertical acquisition occurs when a vesture company buys a textile production facility. The former is a component of the tertiary sector because it offers goods and services to consumers and businesses, whereas the latter is a component of the secondary sector since it transforms raw materials into finished goods.
Conglomerate acquisition- A merging of businesses engaged in economically unrelated business activity could be a conglomerate purchase. Long-term mergers and brief joint ventures are both examples of conglomerate acquisitions. The corporations will come from entirely distinct sectors of the economy or geographical regions.
Congenerical acquisition- A congenerical acquisition is once the effort company and therefore the no inheritable company have completely different merchandise or services however sell to identical customers.
The Competition Act, 2002 regulates commercial competition in India. It replaced the erstwhile Monopolies and Restrictive Trade Practices Act; 1969 The Competition Act seeks to limit actions that will harm competition in India. It serves as a tool for carrying out and enforcing competition policy, as well as for preventing and punishing enterprises that engage in anti-competitive business activities and needless market intervention by the government.Both verbal and written agreements, contracts, and transactions between businesses or individuals are subject to the rules governing competition.
COMPETITION COMMISSION OF INDIA
An independent organization, the Competition Commission of India, has the power to enter into agreements and, should any of them be broken, to take legal action against the parties. In order to create the ideal conditions for competitive growth, the Commission, which can have a maximum of six members, is charged with defending and advancing consumer interests. The Commission's other duty is to advise the Indian government on matters pertaining to economic competitiveness and to bring these issues to the attention of the general public.
MERGERS UNDER COMPETITION ACT
Regulatory framework- The primary law governing combinations (mergers and acquisitions) in India is the Competition Act of 2002. (Competition Act). Since June 1, 2011, the Competition Act's Sections 5 and 6, which govern mergers and acquisitions, have been in effect. The Competition Commission of India (Procedure with reference to the transaction of business relevant to combinations) Regulations, 2011 (as revised most recently on October 9, 2018), as well as other additional notifications, govern India's merger control system (Combination Regulations).[iii]
Regulatory Authority- The Indian Competition Commission (CCI) is the regulatory body in charge of examining and judging mergers and acquisitions in India. The body considers many f- actors such as innovation, efficiency related factors while understanding & considering a transaction such as[iv] -
The type and volume of innovation brought about by the transaction.
Relative advantages depending on economic growth contribution& factors.
Benefits for customers, including increased effectiveness & low entrance barriers.
The impossibility about or absence of desire to increase prices & Counter power of buyers
RELATIONSHIP BETWEEN MERGERS & ACQUISITION LAW & COMPETITION LAW
Every merger and acquisition that takes place in India, including pre-merger permissions, must be notified to the Competition Commission of India. Since June 1, 2011, if a merger or acquisition creates a "combination" as defined by Sections 5(a), (b), and (c) of the Competition Act and the Combination exceeds any of the thresholds of Section 5, prior approval from the CCI authorities is mandatory. (Threshold Test) The acquisition of shares or voting rights of a business falls under the type of transactions described in the Combinations Regulations as not expected to have a materially unfavorable impact on competition in India: -
Unless the transaction resulted in a transition from joint to ultimate control, when the acquiring firm held the majority of the shares or voting rights in the target prior to the acquisition.
Made in full compliance with a dividend distribution, stock split, share consolidation, or rights issue, without resulting in the acquisition of control.
A registered stock broker or securities underwriter with a stock exchange acting on behalf of a customer.
The acquisition of enterprises by any person, a merger, or an amalgamation of enterprises constitutes a combination of such enterprises, according to Section 5 of the Act. If in an acquisition, if one party gains significant influence over voting rights, takes control of an enterprise's assets, and those assets are valued at more than INR 1,000 crores or the enterprise's overall turnover exceeds INR 3,001 crores, or even if the assets' combined value exceeds 500 million USD.When a group purchases a business or seizes control of its shares or voting rights, the idea of combinations enters the picture. The idea also applies when the enterprise's net asset value surpasses Rs. 4,000 crores and it generates at least Rs. 20,000 crores in annual revenue. And even if the asset's total value is two billion USD, whether it is located in or outside of India.
When a person achieves direct or indirect control over a business and then exercises that influence over all other businesses that are engaged in the production, distribution, or trade of the same service, that situation is considered to be a combination.If a company acquires control of a group following a merger and its valuation results in a sum larger than INR 4,000 CR or the overall worth of the assets surpasses US $2 billion.
COMPETITION COMMISSION'SAUTHORITY WITH RESPECT TO A COMBINATION UNDER THE ACT
The laws governing the regulation of combinations and the competence of the Competition Commission with regard to combinations are covered in Section 6 of the Act. Combinations might be any two enterprises or firms coming together. No one is permitted to participate into a combination that hurts other people or has a detrimental effect on competition in the relevant Indian market, according to the law. Such a combination will be viewed as invalid if it is used.
A merger is an arrangement that unites two existing businesses into one. It must be disclosed to the Competition Committee if the merger will result in a combination. The Commission must be informed regarding this within 30 days.
210 DAYS WAITING PERIOD
A combination cannot become effective until 210 days have gone since the day the notification to combine was received or the date the combination passed, whichever comes first, in accordance with the Competition Act.
PARTICULARLY PERTINENT MARKET
The relevant market is the one that the Commission chooses based on the relevant market product and the relevant market geography. This suggests that the products can take the place of the goods. A relevant product market is a market that contains all products that customers can exchange.
MERGERS UNDER THE COMPETITION ACT
The merger has frequently been used, in accordance with the Competition Act, to include the purchase of shares, the control of voting rights, and the control of the company's assets. The managerial areas of activity for each company are altered by the merger. The relevant share of the assets and the power to make decisions are said to be under the control of one business. Combining assets is a common strategy used by businesses to expand their individual operations. However, some mergers could also hinder the rivalry. Due to the negative effects of mergers, less market participants are able to attain less competition in the market. Mergers have the power to prevent new competitors from joining the market since it lowers overall output. Additionally, mergers raise the cost of goods and services, which is counterproductive to customers' interests. One could claim that market mergers effectively have total control.[v]
GREEN CHANNEL ROUTE
Green Channel was created to enhance merger laws and regulations. It boosted the nation's economy and achieved a balance between operations and enforcement. The CCI established the "green channel route" to expedite merger and acquisition clearance approval. The transaction is quickly accepted if the CCI is mentioned in the filing notification. With this process, the waiting time is reduced.
A refusal or failure to notify the CCI would be a violation of Section 43A of the Act. The CCI is permitted to buy combinations at its discretion or in the event that there is proof that the combination rule is negatively affecting the market.
M &A DEAL BETWEEN SONY AND ZEE
The Competition Law 2002 is essential in M&A transactions, for instance To address anti-competitive concerns raised by their proposed mega-merger, Sony and Zee have agreed to part ways with Big Magic, Zee Action, and Zee Classic. With various modifications, and with CCI's approval, Zee Entertainment Enterprises Limited (ZEEL) and Bangla Entertainment Private Limited (BEPL) would merge with Culver Max Entertainment Private Limited (CME)..Given that it is a horizontal merger between two rival broadcasting organizations that are present throughout the value chain of TV and digital platforms, the CCI noted that the Proposed Combination is likely to result in AAEC in India. With 92 TV stations total, the combined company would dominate the Hindi GEC, Hindi Films, Marathi GEC, and Bengali GEC markets. It will turn out to be a dominant influence and a crucial ally for DPOs. As a result, it will have the power to raise fees for viewers, DPOs, and advertising alike. As a result, on August 10, 2022, a show-cause notice (SCN) was sent to the parties in accordance with Section 29(1) of the Competition Act, 2002. (Act). No matter how big the merging parties are, the CCI keeps proving that it is capable of handling combination approvals in record time. CCI has always had a significant impact on managing, monitoring, and regulating the market.[vi]
Mergers and acquisitions are regularly done to enhance business operations and promote economic growth. The Competition Act, which had a significant influence on society and led to numerous reforms, altered the MRTP Act. The Competition Act established the Mergers and Acquisitions Commission about 2007. This act gives the Competition Commission a lot of authority. Its primary goal is to lessen adverse impacts that harm customers. CCI has repeatedly shown that it is capable of handling combination approvals. CCI has always had a big impact on how market activities are managed, supervised, and controlled.CCI has traditionally supervised M&A transactions. Because the Competition Act of 2002 requires that each combination or merger follow specific regulatory procedures, the laws governing mergers and acquisitions and competition law are essentially consistent with one another.
[i] http://web.archive.org/web/20210515010156/https://www.yglworld.com/horizontal-and-vertical-integration-with-ygl-erp4-0 [ii] http://web.archive.org/web/20210515010156/https://www.yglworld.com/horizontal-and-vertical-integration-with-ygl-erp4-0 [iii] https://blog.ipleaders.in/the-competition-act-2002/#Regulatory_framework_under_The_Competition_Act_2002 [iv]https://www.azbpartners.com/bank/merger-control-in... [v] https://www.mca.gov.in/MinistryV2/mergers+and+acquisitions.html [vi] https://www.livemint.com/companies/news/zeesony-merger-groups-to-sell-hindi-channels-for-anti-competition-concerns-11666789548945.html