The future cost of deal valuation notifications

By Swathi Girimaji and Amruth Anand, Bharucha & Partners

Antitrust regulators the world over have begun to reassess their regulatory frameworks after several high-value acquisitions of entities in the digital space were recently completed without merger control scrutiny. India is no different. Although the acquisitions of WhatsApp by Facebook for USD19 billion in 2014, and Uber Eats and Blinkit by Zomato for USD350 million and USD570 million respectively raised competition-related concerns, they were not submitted to the Competition Commission of India (CCI). In each case, the target was within the applicable exemption limits of assets not exceeding INR3.5 billion (USD42.8 million) or turnover not exceeding INR10 billion (de minimis exemption).

Swathi Girimaji
Swathi Girimaji
Bharucha & Partners

In August 2022, the Competition Amendment Bill, 2022 (bill), was referred to the parliamentary standing committee for scrutiny. Following the recommendations in the Report of the Competition Law Committee (2019), there was inserted into the bill the concept of a deal value threshold to address combinations that may have an appreciable adverse effect on competition, even if they fall within the de minimis exemption. Under the bill, the completion of a deal involving consideration of INR20 billion or more will require the prior approval of the CCI if a party has “substantial business operations in India”. The target de minimis exemption will not be available for such transactions.

Deal value thresholds have been introduced in other jurisdictions such as the United States of America, Germany, Austria and South Korea. However, other countries, such as the United Kingdom, have decided that they do not require separate deal value thresholds as they do not rely solely on turnover thresholds. As an illustration, the United Kingdom antitrust regulator may examine any transaction that results in the parties acquiring or supplying at least 25 per cent of the particular goods or services in the country.

The bill appears to have adopted the model applied in Germany and Austria, which provides that consideration, for the purposes of the deal value threshold, includes “every valuable consideration whether direct or indirect or deferred”. Therefore, it may include the value of the purchase consideration actually paid to the sellers or to the company for shares; the value of all liabilities assumed by the acquirer or even retained by the company in case of a 100 per cent acquisition; the value of employee stock options and deferred incentives to founders under their employment contracts, and non-compete fees.

It is unclear whether, in the case of multiple purchasers, it is the consideration paid by a single purchaser or the aggregate consideration from all purchasers involved in the transaction that has to be considered. The latter may unintentionally subject large funding rounds involving several private equity investors to competition assessment. The bill also does not clarify whether the transactions, which the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, (regulations), recognise as not ordinarily having an adverse effect on competition (e.g. those in respect of acquisitions made solely as financial investments) will be notifiable if they meet the deal value threshold.

The bill does not define substantial business operations in India but, apparently, the regulations will do so. In their joint notification guidance paper, antitrust regulators in Germany and Austria stated that while an objective list of indicators may be inappropriate for the digital sector, factors such as the number of active users, the location of the target, the place where customers are located and the place where research and development are conducted may determine whether a party has substantial operations in a country.

Should the CCI follow the approach of the regulators in Germany and Austria, global transactions, irrespective of their impact on markets in India, will be subject to merger scrutiny if one party has a presence in India. Indeed, in its Competition Policy for the Digital Era Report, 2019, the European Union criticised the introduction of a deal value threshold because regulators will capture “too many” transactions that satisfy the thresholds and will result in an increased administrative burden.

The parliamentary standing committee should further consider these issues and unintended consequences and address them in the bill.

Swathi Girimaji is a partner and Amruth Anand is an associate at Bharucha & Partners.

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