Making M&A easier

The order is one of those which do not grab the headlines but is eminently useful for an economy when industry is trying to cut costs and regain competitiveness.

Written by Shruti Srivastava | Published:April 6, 2013 2:45 am

To encourage consolidation within industrial groups the Competition Commission of India (CCI) has exempted intra-group acquisitions and transactions of certain categories from its purview. The order is one of those which do not grab the headlines but is eminently useful for an economy when industry is trying to cut costs and regain competitiveness.

The CCI has decided that when a group acquires an additional 5 per cent in an enterprise where it already holds above 25 per cent shares but less than 50 per cent shares it will not peep into those. Similarly where an enterprise acquires shares/voting rights or assets of another enterprise within the same group,those deals too will be out of the ambit of the CCI. So creeping acquisition moves out of CCI ambit.

This is a positive move,just what Indian industry needs to herd disparate holdings into consolidated units. Banks have often complained about the dense network of connections across companies which industrial groups build up by design and sometimes by accident. The CCI order will give them one more reason to clean up the net,saving them the hassle of visiting the competition regulator each time they consolidate. It also reduces filing cost. Each such filing entails fee up to Rs 40 lakh.

The elimination also makes life easier for the CCI. Cases that don’t have any adverse effect on competition will be weeded out. Instead mergers and acquisitions that expand a business will come into focus. The CCI decision is also in line with the Takeover Code of market regulator Sebi. The threshold was a part of the first draft regulation of 2008 but was not included in the final regulation. Those who had railed that CCI will enhance compliance costs will have one less reason to crib,from now.

Shruti is a senior correspondent based in New Delhi.

shruti.srivastava@expressindia.com

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