The Ministry of Corporate Affairs of India recently notified amendments to the Competition Act, 2002, including the introduction of the Distributed Transaction Value Threshold (DVT). Going forward, M&A transactions exceeding Rs 2,000 crore will need to receive prior approval from the Competition Commission of India (CCI), irrespective of the size of the company being acquired. The provision, which is already in force, marks a strategic shift to address M&As that have the potential to change the competitive dynamics, especially in the digital market.
For companies, this means a reassessment of acquisition strategies. Particularly in industries such as technology and pharmaceuticals, companies boast enormous market value despite minimal physical assets. The requirement for high-value deals to get CCI approval adds an extra layer of regulatory compliance. However, the amendments also significantly reduce the review period for mergers from 210 days to 150 days. The changes are aimed at making India more attractive as a business destination. For companies, the shortened period means deals can be concluded faster and with less uncertainty. However, this also places emphasis on companies to be better prepared to engage with the CCI. This means that initial applications will need to be more cautious to avoid delays within the stricter review framework. For the CCI, given the expected increase in the volume of deals reviewed under the new norms, its ability to make thorough and timely decisions will be critical to prevent bottlenecks. The exemption list of the new merger control regime will need to be scrutinized accordingly to filter out harmless transactions. This review of exemptions will allow the CCI to focus on significant deals.
The move by the Ministry of Corporate Affairs to exempt acquisitions via stock exchanges from the ‘stay obligation’ is a welcome one. In simple terms, the stay obligation means that no part of the transaction can be carried out without prior approval of the CCI. The rules are restrictive enough to jeopardise the viability of acquisitions. Now, acquirers have to apply for CCI approval within 30 days of the acquisition. Under the previous regime, merger transactions that ignored the ‘stay entity’ were termed as ‘gun jumping’ and were required to pay a penalty. However, the post-merger approval process should not be turned into a mere formality. Fait accompliGreater clarity is needed regarding post-merger regulation.
With the introduction of new norms, the CCI needs to ramp up its capacity. This includes not only increasing the number of staff but also upskilling them in complex economic and legal analysis. The overhaul of India’s merger control is a timely measure. But the CCI, which is not known for its agile response, needs to up its performance to meet the demands of a constantly evolving environment, digital or otherwise.
