The competition regulator has over the years allowed companies to undertake innovative commitments to enable their mergers to go through, writes Soumya Hariharan of Trilegal.
In the past nine years, the merger regime in India has witnessed several unique commitments undertaken by companies across a range of sectors. The Competition Commission of India (CCI) has demonstrated considerable flexibility while implementing merger remedies for combinations that raise adverse competition law concerns.
The first structural remedy pursuant to a Phase II investigation was in the pharmaceutical sector. The Sun-Ranbaxy merger laid down the framework as to how the CCI would evaluate complex mergers involving market concentration as well as the manner of implementing the remedy package within the prescribed timelines. This case formed the bedrock for selecting the approved purchaser, hold-separate obligations, and the appointment and role of a monitoring agency for overseeing the divestment. In its first divestment order, the CCI imposed divestments of seven overlapping brands as a merger remedy.
Similarly, in the Abbott-St Jude merger, the parties divested the small-hole vascular closure segment of St Jude on a worldwide basis to an independent company, Terumo, as its post-combination market share amounted to 90%-100%. Terumo was an experienced global producer of cardiovascular products. This case marks the first voluntary structural divestment undertaken without undergoing an in-depth scrutiny.
The CCI implemented its first behavioural remedy in 2012, in the Orchid-Hospira merger, while evaluating the non-compete obligations. The duration of the non-compete was reduced from eight to four years, and the scope that restricted research, development and testing was modified to permit the same on new molecules for injectable formulations, which were non-existent globally.
In 2016, the scope of the non-compete was voluntarily amended by an institutional investor CDPQ, to the effect that the non-compete would be applicable until the investor group ceases to beneficially own a 10% shareholding, instead of 5% of the paid-up share capital of TVS Logistics. The framework for assessment of non-compete obligations is governed by CCI’s guidance note, issued in 2017.
In 2019, the CCI conditionally approved several large M&As based on voluntary commitments. In the radio taxi sector, Hyundai and Kia acquired a stake in Ola and Ola Electric, envisaging strategic co-operation between the two. With Ola being a known name and enjoying considerable market share, the CCI was concerned with the likelihood of preferential treatment and discrimination among drivers towards drivers owning cars manufactured by Hyundai and Kia, pursuant to the acquisition.
To remedy the competition concerns, the collaboration was to be implemented on a non-exclusive basis. Notably, this case marks the first instance where a commitment involved monitoring algorithms, where Ola was required to ensure that its algorithm did not give preference to, or discriminate against, a driver based solely on the brand of cars manufactured by Hyundai and Kia.
While approving an investment by a consortium of investors in GMR Airport, the CCI’s concerns pertained to TRIL (an investor from the Tata group), and a majority stake of the Tata group in two airlines in India, which could result in potential downstream foreclosure and conflict of interest. To remedy these concerns, the adopted voluntary commitments included restrictions on appointment and conduct of directors or key managerial personnel that could result in TRIL obtaining an undue advantage.
Schneider’s acquisition of L&T’s electric & automation (E&A) business witnessed the first and second leading players consolidate their businesses. Given the conventional nature of the E&A market, coupled with high market shares and concentration levels, the primary concerns of the CCI included potential entry barriers, a likely increase in the prices of products/solutions, portfolio effects and bundled offerings, a stronger distribution network leading to concentration, preference for use of the same brand of products, and potential reduction in R&D and innovation.
The novel commitments enabled the parties to adopt a behavioural remedy instead of the original remedy to divest certain products. Remarkably, the innovative remedy package aimed at strengthening existing competitors – white labelling on a long-term basis, transfer of technology on a non-exclusive basis, and eliminating exclusivity of the distribution network. The approach of the CCI to be open to unique remedies, namely, pricing mechanisms, export commitments, non-rationalization of the product range, and maintenance of R&D expenditure, demonstrates its willingness to adopt industry-specific solutions while implementing remedies.
Certain combinations involving collaborations among competitors have witnessed voluntary commitments including the “rule of information control”, that is, a commitment to restrict the exchange of information, which sets out the mechanism for information sharing between parties inter-se with third parties, with the joint venture, or with any other entity, along with a provision for disciplinary action and punishments for violation.
A joint co-ordination committee was implemented for the very first time in the integrated fuel facility at Mumbai airport, which aimed to review the operation of the open access system to ensure that fuel suppliers and air carriers were treated fairly and equitably. The creation of the joint venture was seen as problematic as it could potentially distort the level playing field in the supply of aviation turbine fuel. The remedy package also involved amendments to the definitive agreements.
The Competition Act, 2002, mandates the CCI to protect the interests of consumers, which it has specifically adopted in assessing combinations involving consumer interest. In the Videocon D2h-Dish TV merger, the combined entity undertook to bear the cost of realigning and reconfiguring the receiving antenna installed at customers’ premises, if required, as well as the cost of the antenna of the customer and/or set top box, which may have to be changed.
Similarly, this approach was implemented in Jio’s acquisition of a majority stake in Hathway and Den. Jio undertook not to carry out any technical realignment of the customers’ equipment, and if such a realignment was to be done, the costs would be borne by it. Keeping the interest of consumers paramount, the CCI ensured that customers would have the option to choose the services or bundle of services offered by Jio.
In the PVR-DT merger, a hybrid remedy package was implemented for the first time. The key concerns arising from PVR’s acquisition of the 39 screens of DT Cinema included high levels of market concentration, incremental market shares, the ability to increase price/profit margins, lack of competitive constraints, and limited incentives to innovate.
In order to alleviate these concerns, the integrated remedy package included divestment of seven screens, non-acquisition of influence or ownership in select DT screens for a period of five years, co-operation and non-compete agreements, commitments not to seek exclusivity of content from any distributor for a period of five years, and a freeze on future expansion for a period of five years from the completion of the transaction.
Likewise, a hybrid remedy was implemented in the China National Agrochemical-Syngenta merger to address concerns arising out of, inter alia, horizontal overlaps leading to high market shares in crop protection products, bundling, vertical integration, restrictions in technology agreements, and increased control of parties in the supply chain.
The commitments included divestment of three formulated crop protection products sold by Syngenta in India, and maintaining the companies of each party in India as separate, independent and competitive entities for a period of seven years post-closing. This case witnessed a long-term ring-fencing arrangement for the companies of each party in India from accessing confidential information through the central information technology networks of the parties, and ring-fencing confidential information pertaining to the divestment of products.
The fertilizer industry has been comprehensively assessed, with several combinations being conditionally approved. The CCI has imposed divestments in Agrium-Potash, Bayer AG-Monsanto and Dow-Du Pont, to allay potential concerns. The amalgamation of Agrium and Potash has been the only case where an appeal to the National Company Law Appellate Tribunal was made on procedural issues, pertaining to the timeline of submission of the modified remedy proposal.
Other sectors where the CCI has implemented divestments are cement and industrial gases, on account of high market concentration in each of the combinations. In Holcim’s acquisition of Lafarge, the CCI originally directed divestiture of two of Lafarge’s plants. However, due to regulatory hurdles concerning mining laws, an alternative remedy that pertained to a 100% share sale of Lafarge India was implemented.
In Linde/Praxair, on account of high market shares, Praxair’s plants in Jamshedpur and filling stations in Kolkata and Asansol, and Linde’s stake in Belloxy, plants in Bellary and filling stations in Chennai and Hyderabad, were to be divested.
The recent past has witnessed unique remedies being implemented globally to evaluate complex combinations involving technology and innovation-focused industries. The coming decade of merger control in India is likely to witness implementation of sector-specific remedies, thereby aligning India’s approach with its global counterparts.
Soumya Hariharan is a competition law partner at Trilegal.
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