Thursday, July 28, 2011

Maiden Order under Merger Control Regulations

Legally India has reported the issuance of the first order by the Competition Commission of India (CCI) under the Combination Regulations that came into force on June 1, 2011.
CCI’s order considers the acquisition by Reliance Industries Limited and Reliance Industrial Infrastructure Limited (the Acquirers) of the 74% stake held by the Bharti Group in each of two joint venture insurance companies, namely Bharti AXA Life Insurance Company Limited and Bharti AXA General Insurance Company Limited. CCI does not seem to have any hesitation in clearing this acquisition proposal. Since the Acquirers do not directly operate in the life insurance or general insurance business and since the target entities do not operate in the Acquirers’ business, there was no question of a horizontal combination. As far as a vertical combination is concerned, a group company of the Acquirers is registered as an insurance broker thereby creating a vertical relationship with the target companies. However, CCI found this to be immaterial given the significant number of other insurance brokers operating in the field. CCI’s views are summarized in its order (which was delivered after surveying the number of players in the industry and the market share):
In light of the above, it is found that the Acquirers and the Acquired Enterprise(s) do not operate in interchangeable or substitutable products. Thus, there is no horizontal overlap in the proposed combination. There is also no significant vertical relationship found in the proposed combination which could pose any competitive constraints in the life and general insurance business. Taking into account the presence of many players in both the life and general insurance sectors and insignificant market share of each of the Acquired Enterprise(s) and having due regard to the factors given in sub-section (4) of Section 20 of the [Competition] Act, the Commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition.
It appears that the only further information the CCI sought for was the binding acquisition agreement. Since that contemplates an option available to AXA to acquire further shares in the future (when sectoral caps are eased for foreign investment in the sector), the CCI has expressly stated that the present determination does not cover such an acquisition by AXA. Although that is fairly clear (since AXA is not directly a party to the current transaction), the CCI appears to insert such a disclaimer for abundant caution.

The importance of this order is not due to the complexity of its subject-matter, but rather because it is the first of its kind since the Combination Regulations were introduced. By issuing the order within days of being notified by the parties, the CCI has set a positive trend by indicating urgency, which is often crucial in M&A transactions. Readers will recall that possible delays with the CCI were the principal reason why the Combination Regulations were held up for over two years since the first draft was issued in 2009. In that sense, this is a favourable development. However, it is hoped that a similar approach with equal efficiency will be followed even in transactions where the facts are not as straightforward as this maiden case.

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