On June 1, 2011, the long dormant Indian merger control rules in the Indian Competition Act 2002 (the Competition Act) will finally come into effect. Several last-minute changes reflect responses to significant concerns; controversial issues and uncertainties remain, nevertheless, and the regime may be “clarified” further. The new regime will also apply to transactions that have already been signed but will not close before June.
Highlights of the new Indian merger control regime include:
- Mandatory pre-merger regime. India has introduced a mandatory regime, requiring parties to a notifiable transaction to obtain clearance from the Competition Commission of India (CCI) prior to closing.
- Notifiable transactions. The regime covers mergers, share acquisitions, asset acquisitions and (unusually) intra-group transactions. As the legislation and guidance currently stand, it is unclear whether the regime applies to acquisitions of minority interests.
- Waiting period. While the statutory waiting period is 210 days, the CCI has announced that it will clear up to 95% of the cases within 30 days, and endeavors to review cases with serious concerns within 180 days. Certain investments by financial institutions are exempt from the waiting period.
- Filing thresholds. There are multiple alternative filing thresholds (based on the parties’ sales and asset values) which potentially could trigger a filing. In any event, no filing will be required for the next five years if the book value of the target’s assets in India does not exceed $55 million1 or the target’s sales in India do not exceed $164 million.
The merger control rules in India have been dormant since the CCI was established in 2009. One reason for the delay was the considerable industry criticism voiced. Despite (or perhaps due to) some last-minute changes, the relevant merger control rules remain complex and opaque. It will take some time for the regulator to acquire the relevant experience to consolidate and conform rules and guidance currently embodied in the Competition Act, the Merger Regulation (including the filing Forms) and the amending notifications published by the CCI.2
The statutory waiting period for the CCI investigation is set at 210 days – one of the longest standstill obligations worldwide. However, the CCI will “endeavor” to conclude investigations within 180 days. The regulator has also announced that it will aim to clear 95% of investigations within 30 days. Transaction parties and practitioners will hope that this operates like a typical 1-month “phase 1” clearance for unproblematic deals. However, given that the authority is currently staffed with only around 100 employees, it remains to be seen whether the 40 to 50 notified transactions per year predicted by the CCI is realistic and if clearances will be issued within the envisaged time frame.
A filing must be submitted within 30 days after the signing of binding agreements, along with a filing fee of up to around $88,000. Certain investments by financial institutions are exempt from the waiting period.
- Transactions Covered
The regime covers mergers, share acquisitions, asset acquisitions and (unusually) intra-group transactions.
- Share deals. The acquisition and exercise of 50% or more of the voting rights in a target will require a filing if the thresholds in section IV below are met. As the legislation and guidance currently stand, it is unclear whether the regime applies to acquisitions of minority interests. We look forward to clarification of this issue.
- Asset deals. The asset acquisition of an “enterprise” will also require a filing if the thresholds in section IV below are met. A simplified filing applies if the acquired assets do not directly relate to the business activities of the acquirer or are solely acquired for investment or in the ordinary course of business, although this “simplified” filing still requires the parties to furnish a considerable amount of information.
- Intra-group transactions. Intra-group transactions will require a filing if the thresholds in section IV below are met. A simplified filing also applies to these.
- Filing Thresholds
The transactions mentioned above require a filing only if the relevant asset or sales-based filing thresholds below are met. The CCI has published a de minimis exemption, which exempts transactions involving target companies with limited Indian presence from a filing obligation for the next five years:
- De minimis exemption. No filing will be required if the book value of the target’s asset in India does not exceed $55 million or the target’s sales in India do not exceed $164 million.
For practical purposes, this will likely be the most important rule.
If the de minimis exemption does not apply, parties need to assess whether a filing is required on the basis of multiple alternative filing thresholds.
- Any merger or acquisition: acquirer group and target
One set of thresholds is based on the book value of assets or sales generated by the acquirer group and the target combined:
- Indian assets exceed $1.3 billion or Indian sales exceed $3.9 billion; or
- Worldwide assets exceed $3 billion and the Indian assets exceed $164 million; or
- Worldwide sales exceed $9 billion and Indian sales exceed $492 million.
- Any merger or acquisition: acquirer and target
An alternative set of thresholds is based on the book value of assets or sales generated by the acquirer (not the entire acquirer group) and the target combined:
- Indian assets exceed $328 million or Indian sales exceed $985 million; or
- Worldwide assets exceed $750 million and the Indian assets exceed $164 million; or
- Worldwide sales exceed $2.25 billion and Indian sales exceed $492 million.
- Acquisition of control: competing acquirer business and target
A third set of thresholds is based on the book value of assets or sales of the target company and the competing businesses of the acquirer group. This set of thresholds applies only where the acquirer acquires a competitor. It is unclear whether the buyer must have a competing business in India, or whether the existence of any competing business worldwide would trigger this filing obligation. The filing thresholds are the same as under 2 above.
The merger control rules will come into effect on June 1, 2011, in order to give ongoing M&A transactions sufficient time to close. However, the new rules also apply to transactions that have already been signed but not closed prior to June. Since the CCI has stated that it cannot accept merger filings prior to June, there is the risk of a significant delay for transactions initially scheduled to close in June. To the extent possible, parties should therefore consider closing transactions that would meet the new filing thresholds prior to June.