After M&As in pharma space brought under CCI purview, industry fears delay in project clearance; regulator unfazed.
The newest division of the Competition Commission of India (CCI), the merger and acquisition (M&A) scrutiny wing that became operational in June, has come under sharper industry focus, after a recent decision by the government to bring all M&As in the pharmaceutical space, irrespective of the size of the deal, under the watchdog’s scrutiny.
The decision, meant to ensure that foreign takeovers of Indian drug manufacturing companies do not prevent availability of cheap medicines, is worrying the entire industry, as it feels an increase in the workload of the M&A wing could mean a delay in project clearances.
The wing, with six deals cleared in the last six months, seems to have followed a strict timeline so far. However, its workload will go up now. According to an official, the CCI expected 30–40 filings a year before the government brought pharmaceutical takeovers under the commission’s purview. “If pharma comes through in six months, then our filings may go up to 100 in a year. We believe our existing team can handle that pressure,” the official said.
| QUICK DECISIONS | |
| Approved M&As | Approval Date |
| NHK Automotive acquires NHK Springs | 4 November |
| Alstom Holdings merges with Alstom Projects | 19 October |
| Aica Laminate acquires sunmica division of Bombay Burmah Co | 30 September |
| Danone Asia acquires Wockhardt’s nutrition business | 15 September |
| Walt Disney acquires UTV Software | 25 August |
| Reliance acquires Bharti stake in | 26 July |
| Bharti-AXA Life insurance | |
All the six M&A cases cleared by the CCI were wrapped up much ahead of their deadlines. The deals can be termed big financially — while Danone Asia’s acquisition of Wockhardt’s nutrition business was a deal worth Rs 1,575 crore, Walt Disney’s acquisition of UTV software was priced at Rs 2,000 crore.
Those involved in phrama deals, which will now come under the M&A wing, said they were willing to go in for scrutiny, provided their deals did not suffer delay. “Regulatory approval for M&A is a global practice and as long as there is no delay, it’s not at all negative,” said Sanjiv Kaul, managing director of ChrysCapital, one of the biggest deal makers in the pharmaceutical sector.
FOOLPROOF SYSTEM?
The commission is trying to allay industry’s worry. It says it has put in place a (so far) foolproof system that sets deadlines for each level of scrutiny and clears the file within a stipulated period. The functioning of the new wing is being looked at as a model for other sections of the CCI, where delays are not uncommon.
Former CCI chairman Dhanendra Kumar, during whose time the M&A regulations got finalised and notified, feels smooth implementation of the regulation became possible due to a “two-year-long extensive and intense stakeholder consultation process” that preceded the notification. “We allayed apprehensions of the industry on possible delays and it realised the interface with CCI is smooth and predictable,” Kumar explained.
CCI’s new chairman, Ashok Chawla, was unavailable for comments.
A former advisor to the CCI and the person who scripted the M&A scrutiny format for the commission, K K Sharma, says there is a one-month deadline for normal clearances and a 180-day deadline for M&A deals requiring intense scrutiny. “As far as the timelines (for M&A scrutiny) are concerned, we are following one of the best international practices,” said Sharma.
Sharma said the M&A wing had three Bibles to follow. “There is a 200 page internal reference manual, an internal procedure document with about 80 pages and a multi-step analytical procedure guidebook. The three put together can guide the team through all steps of scrutiny with internal deadlines set for each step,” says Sharma. “The first case was cleared in 10 working days, the second in 14, and the last one in eight days – all below 30. So, it’s a fantastic system and I hope it will be maintained and further improvised.”
The existing M&A team has 20 professionals functioning as small independent groups to handle specific cases. Since the concept is new to the country, all of them are inexperienced in handling M&A issues, though experts in legal and financial matters. The entire team has been trained by experts from the CCI’s American and European counterparts. Recently, a commission member was tasked with the specific job of looking into M&A cases.
The M&A wing drew praise from legal consultancy firm Economic Laws Practice (ELP) after it completed its first merger review in July. ELP noted the CCI had “clarity” on the trigger event and had addressed the industry’s concern by allowing a number of inter-related transactions through a “single” notification.
The law firm, however, noted the CCI might resort to the “stop the clock” provisions in the Competition Rules, if it required more information on the deal. This, according to ELP, had kept open the possibility of CCI overstepping its statutory scrutiny timelines. “What needs to be seen is whether the secondary level of scrutiny (in case of acquisitions that have possible adverse impact on competition) will be over within the 180-day deadline,” said Samir Gandhi, partner, ELP.
The Confederation of Indian Industry (CII) has called for comprehensive changes in the Competition Law to avoid delays in the completion of M&As. The apex industry chamber is opposed to the current system of grouping assets or turnovers of business conglomerates without considering different product markets being addressed by various entities in the conglomerate. It has also proposed the reduction of the 180-day deadline to 120 days and wanted flexibility to exempt enterprises from time to time to promote sectors of business affected by the international economic climate.
