Global deals worth over ₹2,000 crore under CCI lens from Tuesday

New Delhi: The Competition Commission of India (CCI) on Monday said that global mergers and acquisitions (M&As) involving digital entities and the transaction value exceeding ₹2,000 crore and companies with significant operations in India will need approval from Tuesday even if they otherwise do not meet the asset and sale criteria for approval.

The CCI’s move effectively creates a new class of global M&As that will require its approval in India. This is part of its efforts to cover transactions involving digital economy companies that have high valuations and the potential to impact markets but do not meet the traditional threshold for merger regulation regarding assets and sales.

This new merger regulation based on transaction value was incorporated into law in April 2023 through an amendment to the Competition Act, but has now been announced.

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To put it into perspective, the $19 billion global acquisition of WhatsApp by Meta Platforms Inc. (formerly Facebook Inc.) in 2014 did not fall under the CCI’s merger control laws, despite the companies’ market reach in India. The transaction did not meet India’s asset and revenue thresholds.

“The recently announced amendments to the merger control regime herald the biggest overhaul of the Indian merger control regime: the introduction of the transaction value threshold of ₹2,000 crore for companies having substantial business operations in India,” said Nisha Kaur Uberoi, partner and chairman, competition law, at JSA Advocates & Solicitors.

“It puts CCI on par with global regulators such as the US, Germany and Austria. However, the devil is in the detail: the regulation and the need for CCI to increase capacity to maintain its efficient track record in clearing M&A transactions are essential to ensure that the ease of doing business remains unaffected,” Uberoi added.

Policymakers believe that digital companies focus on increasing customer size in the early years of their existence, which gives them access to large amounts of data and valuation. Yet, transactions involving them remain outside the scrutiny of the competition watchdog. Reducing the number of players in the market is a key criterion that regulators keep in mind when assessing the potential negative impact of a deal on competition.

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The sales and asset-based thresholds for merger regulation were originally set in the Competition Act 2002 and were later revised for inflation. Following the latest amendments, the thresholds are now 150% higher than the levels prescribed in the 2002 Act.

In 2016, the thresholds were revised to take into account transactions between companies with joint assets of ₹2,000 crore or ₹6,000 crore turnover in India. They were revised in March this year, allowing transactions between companies with combined assets of ₹2,500 crore or a turnover of ₹7,500 crore for which CCI approval is required.

In the case of companies with a cross-border presence, the threshold is now $1.25 billion in total assets, of which at least ₹1,250 crore should be in India, or $3.75 billion in revenue for all parties in the transaction combined, of which ₹3,750 crore should come from India.

However, these thresholds do not apply to digital companies, as they may not have the physical assets and turnover to meet the CCI criteria.

Rahul Rai, partner at law firm Axiom5 Law Chambers Llp, said the legislative changes introduced in the Competition Act in April 2023 have now also led to significant changes in merger regulation.

To simplify the filing process, the ministry has also announced a list of transactions that are exempted from reporting requirements under the Competition Act. The new rules for exempted transactions provide clear and concise guidance, resolving the often confusing interpretation of earlier exemptions. “These changes clearly reflect the government’s determination to facilitate ease of doing business in India,” Rai said.