Global M&As in India may soon come under CCI ambit

Global mergers and acquisitions (M&As) among technology giants that could concern the competition landscape in India may soon require clearance from the Competition Commission of India (CCI).

According to CCI Chairman Ashok Kumar Gupta, the Government is expected to insert an enabling provision in the Competition Act to provide for such mega mergers based on the advice of an expert panel that reviewed the law last year. The change will incorporate deal size, which is currently not among the criteria for vetting global M&A deals with relevance to the Indian market, in CCI’s merger regulations.

The change will bring mega deals such as the 2014 acquisition of WhatsApp by Facebook within the ambit of CCI.

At present, the asset size and revenue in an M&A are the only criteria for competition scrutiny. This has proved to be inadequate as new-age technology companies have huge valuations, but their assets and turnover in India keep them out of the purview of local competition law. Their valuations partly hinder their access to customer base and data, India being a huge market for them.

Also, policymakers believe that digital economy firms’ focus in the initial years to grow customer size may mean their sales may not meet the criteria for seeking CCI clearance. Facebook’s $19 billion acquisition of WhatsApp escaped CCI assessment. A deal’s impact on competition is assessed on several factors including a reduction in the number of players in the market and the entry barriers created for new players.

The CCI Chairman explained that in the case of global transactions among digital economy firms, their nexus with the Indian market has to be established in order to assess whether their M&As might impact competition in the Indian market.

Whenever global transactions are referred to national competition authorities, the CCI might suggest certain parts of the transactions to be modified if competition in the local market is adversely affected.

The proposed change will impact transactions involving domestic digital e-commerce firms, including taxi aggregators and e-commerce companies, which may command huge valuation because of their unique business models or access to user base. For instance acquisition of Myntra by Flipkart and TaxiForSure by Ola come under the digital economy space. Such acquisitions might require CCI clearance in the future.

Even if the asset or turnover of the combined entity is below the threshold specified in the law, if their deal size is above a certain threshold, which is to be decided after deliberations, they may have to refer the case to CCI. Individual firms involved in M&As have to seek CCI clearance now if their combined assets in India are worth over Rs. 1,000 crore or their revenue is over Rs. 3,000 crore. Deals involving firms having combined global assets of $500 million or sales of $1500 million require CCI’s approval if they have assets worth at least Rs. 500 crore or sales worth Rs. 1,500 crore in India.