Since last December, the four-year-old Indian merger control regime has imposed more restrictions on the consummation of global mergers and imposed higher penalties on parties for 'gun-jumping' India's merger filing process, than at any other time in its brief history. Dealmakers earmarking the Indian agency as a pro forma regulator - given that the Competition Commission of India (CCI) had unconditionally cleared nearly every transaction submitted to it for a merger review - need to re-think their strategy and plan carefully.
Although the remedies imposed for conditionally approving the $50-billion Holcim-Lafarge merger or the $4-billion Sun-Ranbaxy merger are not particularly harsh and will have a negligible effect on valuation of such deals, it is the CCI's progressive posturing as an aggressive antitrust enforcer - over the Indian M&A market worth $28.6 billion (as per a 2015 Assocham-E&Y joint study) - that is newsworthy.
Antitrust enforcement in India, unlike that of China, does not yet have a political agenda. Both the Sun-Ranbaxy and the Holcim-Lafarge mergers deal with Indian industries (of generic drugs and homebuilding materials) ripe for public policy politics and yet the CCI ensured that the antitrust scrutiny of the mergers did not get influenced by factors irrelevant to competition law.
What should inspire greater confidence among domestic and foreign industry observers is that the CCI in its technical assessment of such mergers substantially deferred to the merger-control principles regularly used by agencies of mature antitrust jurisdictions. Be it the determination of the relevant merger market, the substantial competitive assessment of the mergers or in its choice of remedies, the CCI has been less experimental than its Chinese counterpart.
However, certain idiosyncrasies of the Indian law need mentioning. For example, the CCI continues to overtly rely on a 'market share'-based antitrust assessment, besides adopting an inconsistent stance on factors such as 'entry barriers' and 'merger efficiencies'.
While the CCI considers setting up of mere cement plants as a significant entry barrier, thereby justifying its conditional approval of the Holcim-Lafarge merger, it does not factor in the absence of any intellectual property roadblocks and the ease of entry into Indian generic markets while imposing divestiture conditions on the consummation of the Sun-Ranbaxy deal.
Further, while the CCI's prior merger assessments, especially the approval of the $339-million Jet-Etihad deal, favourably factored in potential unverified efficiencies of a merger, for the Holcim-Lafarge merger, the CCI suggested that merger specific efficiencies need to be quantified, verified and submitted with evidence of such efficiencies translating into lower consumer prices.
Procedurally, India's antitrust analysis can be a nightmare. The CCI subjected both the Sun-Ranbaxy and the Holcim-Lafarge mergers to months of gruelling bureaucratic enquiry, 'stopping-the-clock' on several occasions, seeking extensive additional information from the parties. Indian antitrust lawyers have often complained that the CCI - which already has an onerously detailed merger filing requirement - resorts to seek extraneous information as a mechanism to afford itself additional time to review, which otherwise needs to be statutorily completed within 210 calendar days.
The Sun-Ranbaxy merger took almost a year since its announcement to be consummated in India, with one-third of such period spent in being complaint with the CCI's divestiture directions. For the Holcim-Lafarge merger, after an eight-month-long inquiry, the parties have been afforded six months to divest two Lafarge-owned units, accounting for an annual capacity of 5.15 million tonnes. The inability to find a CCI-approved buyer could further delay the consummation of the merger in India.
Dealmakers should take a rough estimate for the CCI's review timetable and accordingly schedule their transactional milestones. Further, the CCI (especially for complex deals) consults widely with industry peers, customers and other stakeholders - further lengthening the review period. To minimise the likelihood and impact of any delays, applications for clearance to the CCI should be commenced as early as it is commercially practicable.
Although the CCI does not vet transactions from a 'public interest' perspective, yet its public consultations (results of which remain unpublished) could covertly influence its assessments. For big-ticket deals, it may be prudent for the parties to manage the public perception of their transactions by conducting advance discussions with relevant Indian stakeholder groups, briefing them on the efficiencies of the deal and factoring their reservations/comments into the deal structure.
As the Indian merger regime enters its mature phase, transactional parties must plan carefully if their transactions would require the CCI's pre-consummation approval and be prepared for the review process to require significant time and effort. On its part, the CCI should be mindful of its responsibility of balancing India's hunger for growth and sound antitrust policies. As has been said - with great power comes great responsibility.
The author is an honourary visiting faculty of competition law to the Jindal Global University and a former expert consultant to the Competition Commission of India
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