8 April, 2020
The Competition Commission of India (CCI) has introduced updated guidance notes for drafting the short form merger filing i.e., Form I. The guidance lists the scope of information and documents required to be submitted as part of the Form I notification that one files with the CCI. Some of the key changes to the guidance notes and their implications have been discussed below:
- Information relating to controlling and non-controlling interests of the parties:
The Notes clarify that parties need to provide information in respect of only those affiliates/entities in which they hold shares and/or have control (including their group entities) if:
- they have direct or indirect shareholding of 10% or more – previously this threshold was informally set at 5%; or
- have a right or ability to exercise any right (including any advantage of commercial nature with any of the party or its affiliates) that is not available to an ordinary shareholder; or
- have a right or ability to nominate a director or observer in another enterprise(s).
While the scope of this disclosure and consequent assessment could still be considered intensive and granular, this explanatory note is an important step in reducing the burden for entities such as private equity funds and sovereign wealth funds with minority shareholding in numerous companies, including through on-market purchases and by being a unit holder in an investment funds.
The notes also provide much needed clarity and certainty in respect of the thresholds that the CCI would apply in order to identify any horizontal, vertical and complementary overlaps/links between the parties/their groups in order to assess the availability of the Green Channel route.
- Complementary activities: The latest format of Form I requires the parties to identify overlaps/links not just in respect of competing and vertically related products/services, but also in respect of ‘complementary products/services’.[1]The new guidance notes provide much needed clarity in respect of the scope of ‘complementary products/services’ , a concept which was introduced in August 2019 along with the green channel approval route. The notes clarify that generally, products/services are likely to be considered complementary when they are related because they are combined and used together (e.g., printers and ink cartridges). Complementary products/services do not compete with each other (actually or potentially) and are not vertically related. However, a complementary product/service enhances the value of combined product or service and therefore, similar to the assessment required in respect of vertically placed products / services, competition assessment of complementary product/service is relevant from the CCI’s perspective as a separate category. The notes have provided tabular formats to help parties understand the manner in which they need to provide such data.
- Threshold Assessment – Substance, Not Form: The notes provide that while assessing notification thresholds, parties are to calculate the value of assets and turnover in accordance with the substance of the transaction and not merely by its form or structure. The notes provide an example where, “if an enterprise A acquires a target entity B through a special purpose vehicle (SPV), then for enterprise level testing of thresholds, values of asset and turnover of A will be considered along with those of the SPV”. While this principle was already being applied over the last few years, the latest notes have now formalised it.
- Disclosures on the scope of rights acquired through the transaction: While the transaction documents submitted to the CCI as part of the merger filing contain information on the rights that are being acquired as part of the transaction, the notes now direct parties to highlight this information in the Form I itself. The notes seek information on the following specific rights: (i) veto rights, (ii) affirmative voting rights; (iii) any other rights or advantage of commercial nature; (iv) right or ability to appoint member or observer on the board of directors; and (v) information sharing rights.
- Three Year Market Data: The notes clarify that parties need to provide market data for three years for defined relevant markets only where the they have a combined market share of 10% or more for any horizontal (as competitors), vertical (at different stages or levels of the production chain) or complementary business activities. This will ease the burden of collating voluminous market data for parties to a transaction to a great extent.
- Details of Senior Officer: The notes direct notifying parties to identify an officer/manager at a senior level of each party having knowledge about the business, who may be present during the meetings with officers of the CCI. Whilst the CCI was always open to meet with the business personnel of parties along with lawyers, having their contact details as part of the merger filing would allow the CCI to connect directly with them so as to facilitate any technical understanding required by the CCI’s case officers.
- Other Regulatory Approvals: Parties are now required to provide information on (i) any regulatory approvals required from various Government authorities or regulators along with their status; (ii) details of proceedings against any of the parties that may have a bearing on the proposed transaction or its competition assessment, and (iii) orders of similar merger control cases (in terms of market definitions, industries, etc.) approved by the CCI or other regulators. Previously parties were only required to provide details of other jurisdictions where the transaction required any antitrust approvals. This additional information would be especially useful where transactions are subject to other time-bound regulatory approvals. The notes also direct parties to disclose information on any proceedings where they have been a party to before the CCI or any other competition authority during the last five years. This clarity is borrowed from a direct question under Form II, i.e., the longer template for merger filings in India.
Given the recent overhaul to the template of a short form (Form I) merger filing, the updated version of the guidance notes provides some much-needed clarity and certainty in respect of the disclosure requirements/availability of the Green Channel route. It takes into account the concerns raised by notifying parties regarding the data-intensive nature of the new form during the last few months. The revised Form I also introduced the concept of ‘complementary products/services’ without providing any guidance on the scope and manner in which parties could assess such overlaps. The notes now provide the required clarity on this nebulous concept, thereby also aiding in the assessment of a green channel merger filing. In the long run, the notes are likely to make the merger filing procedures more time efficient and less cumbersome for both, parties as well as the CCI.
For further information, please contact:
Anshuman Sakle, Partner, Cyril Amarchand Mangaldas
anshuman.sakle@cyrilshroff.com
[1] The concept of ‘complementary products/services’ was introduced in August 2019 along with the green channel approval route. The introduction of the green channel approval route is one of the most significant amendments to the merger control regime in India. This route allows parties to receive an on-spot approval from the CCI, instead of waiting for the 30 working day period (45 working days in case the CCI decides to reach out to third parties such as customers, competitors and government authorities). The green channel approval route can only be opted for those transactions where the acquirer (and the acquirer group) has no existing interests in companies:
(i) that may be seen as competitors of the target group’s business; or
(ii) that operate in markets with vertical linkages to the target group’s business; or
(iii) that have complementary linkages to the target group’s business.
