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Competition Commission of India (CCI), the country's competition regulator, has announced new rules for mergers and acquisitions (M&As) easing the regulations for M&A considering that the earlier rules were largely perceived as intrusive and burdensome. The new rules will be effective from June 1, 2011, and will not cover the M&As approved by the boards of companies before this date.
The new rules says that "if an acquirer has 50% stake in a firm, then further acquisition will not trigger the competition law, except where the acquisition leads to transfer from joint control to single control". Earlier, a company was required to notify the CCI for acquiring even one share in a group firm controlled by it if it meets the asset or turnover threshold.
The new rules exempt the corporate houses from seeking permission of the CCI relating to routine M&A deals i.e. the transactions listed in the schedule I of the regulations and lowers the merger notification fee for Form I from Rs 40 lakhs to Rs 50,000 and that from Rs 40 lakhs to Rs 10 lakhs for Form II.
Under the new rules, the following types of acquisitions are exempted from seeking permission by the CCI.
- Acquisitions of less than 15% voting right, if it is in the usual course of business or purely an investment
- Acquisition of shares or voting rights through bonus issues, stock splits, consolidation of face value of shares or rights issues, if it does not lead to acquisition of control.
Apart from these, a stock market intermediary acquiring shares on behalf of clients will also be exempt from reporting requirements.
For interconnected transactions, there will be a requirement of only one filing which will reduce the burden of those companies that are in acquisition mode. Interconnected transactions are a series of smaller individual transactions that are inter-dependent and eventually lead to a merger. The change ensures that once the viability of a transaction is verified, it would not be required to go through the notification process for subsequent transactions.
In the case of mergers between overseas companies that have Indian subsidiaries, only those that have a material impact would attract scrutiny.
The new M&A rule requires the corporate houses to seek the CCI's approval only for those M&As which will create combined assets of Rs 1,500 crore or turnover of Rs 4,500 crore before concluding the deal as well as for those transactions where the assets of a business group cross Rs 6,000 crore, or its turnover exceeds Rs 18,000 crore after the acquisition.
In addition to this, the CCI has specified certain transactions where companies going in for mergers and acquisitions will have to submit details in Form I and if the CCI is not satisfied, the companies will have to fill the Form II.
Only those transactions will be retained for a 2nd round of scrutiny and would be getting clearance between 180 days and 210 days of the filing of notice by the companies which can impact the competition in India.
Also, the CCI will make adequate provisions for the consultation process on their website to guide companies.
According to "Associated Chambers of Commerce and Industry of India (ASSOCHAM)", M&A deals increased by more than 3- fold in value terms from US $ 13.54 billion to US $ 58.73 billion in the FY'11 (April- December). The telecom sector experienced the highest M&A deals, and the other sectors included energy, mining, pharmaceutical and Banking, Financial Service and Insurance (BFSI).
Note: Other sectors include IT/ITES, Auto/Auto components, Hospitality, Steel, Consumer Durables, Real Estate, Media & Entertainment, Logistics, Consumer Non-Durables, and Healthcare.