The additional criterion of deal value threshold (DVT) for mergers and acquisitions (M&As) to be vetted by the Competition Commission of India (CCI) is expected to increase the relevant filings with the regulator by 30%, and raise the compliance burden on companies, experts said.
On Monday, the ministry of corporate affairs (MCA) has notified the DVT norms as per which transactions above Rs 2,000 crore will have to be intimated to the CCI for approval. This is in addition to the conventional criteria based on turnover and asset size of the merging entities. The DVT rules apply to target companies having ‘substantial business operations’ in the country.
“This new threshold is likely to increase the number of transactions requiring CCI approval,” said Anshuman Sakle, partner at Khaitan & Co.
Naval Chopra, partner at Shardul Amarchand Mangaldas believes that the biggest concern is the increase in merger filings thanks to the revisions in a lot of exemptions, as notified by the MCA. “For instance, in the case where new DVT is applicable, the target exemptions will not apply,” Chopra noted.
Target exemptions are applicable to deals where the target assets are below Rs 450 crore or with a turnover of less than Rs 1,250 crore. Until the new norms came into force on September 10, the companies were exempt from notifying their deals to CCI. But if the deal has crossed Rs 2,000 crore now in value, the target exemptions would not apply.
Experts also noted that the other big issue is that the new rules come into effect immediately. “There’s no grandfathering allowed which means that any transaction signed or heading towards closure needs to be re-evaluated since the current standstill obligations prohibit companies to carry out any integration or pay the transaction value until the CCI’s approval,” Chopra said.
Meanwhile, the revised exemption list includes ordinary course of business (OCB) and acquisitions solely for investment purposes. In the case of OCB, the CCI had previously held that OCB meant “revenue transactions, done solely with the intent to get benefited from short term price movement of securities”. The explanation now limits the application of OCB to the acquisition of shares or voting rights only by underwriters, stockbrokers, and mutual funds. “This should have been kept more liberal,” said another lawyer.
Experts said there’s already ambiguity in the way CCI defines substantial business operations in India (SBOI) for digital services entities. “For instance, under the regulations, the definition of digital service include anything that a company provides over the internet. This definition classifies most businesses, including a large number of SMEs, as digital services. The scope of digital services causes a great concern,” said a corporate law expert.
From: financialexpress
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