SYMBIOSIS LAW SCHOOL, PUNE

CARE | COURAGE | COMPETENCE | COLLABORATION

“MERGERS AND ACQUISITIONS”

INTERNAL ASSESSMENT III

SUBMITTED BY –

ABHISHEK MISHRA

IV B.A. LL.B. (HONS.)

ROLL NO. 061 | DIV. C | PRN -14010125061

DR. SWAPNIL BANGALI

PROF. PALLAVI MISHRA

PROF. ANU SOLANKI

SYMBIOSIS LAW SCHOOL, PUNE

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 Table of Content

Introduction ........................................................................................................... 3
Kinds of mergers: Competitive Effect .................................................................. 3
1) Horizontal Mergers................................................................................... 3
2) Vertical Mergers ....................................................................................... 4
3) Potential Competition Merger .................................................................. 4
Competition Act, 2002 & Mergers & Acquisitions .............................................. 5
Conclusion ............................................................................................................ 7

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 Introduction

Mergers & Acquisitions (combinations) mean any situation in which the ownership of two or
more enterprises is joined together. In business world joining of ownership may take many
different forms, and may be either amicable and consensual, or unwelcome and hostile. In
India Mergers are regulated under the Companies Act and also under the SEBI Act. With the
enactment of the Competition Act in 2002, mergers also come within the ambit of this
legislation. Does it not appear that too much of legislations on one topic? It does appear so
yet there is necessity for having different legislations to regulate mergers differently. In the
Companies Act mergers between companies inter alia essentially tries to protect the interests
of the secured creditors and in the SEBI Act1 it tries to protect the interests of the investors.
Apart from protecting the interests of private parties, the objective of them is different or
mutually exclusive. In the Competition Act, the objective is much broader. It aims at
protecting the appreciable adverse effect on trade-related competition in the relevant market
in India (AAEC).2

Kinds of mergers: Competitive Effect

The law bars mergers when the effect "may be substantially to lessen competition3 or to tend
to create a monopoly." Three basic kinds of mergers may have this effect: horizontal mergers,
which involve two competitors; vertical mergers, which involve firms in a buyer-seller
relationship; and potential competition mergers, in which the buyer is likely to enter the
market and become a potential competitor of the seller, or vice versa.

1) Horizontal Mergers
This type of merger takes place between the enterprises that are engaged in the trading
of similar goods and services. It mainly takes place to improve the market share and to
carry out the operations of the enterprises on a large scale. There are two ways that a
merger between competitors can lessen competition and harm consumers: (1) by
creating or enhancing the ability of the remaining firms to act in a coordinated way on

1
Securities and Exchange Board of India Act, 1992, Act No. 15 of 1992.
2
PSA, Anti-Competitive Agreements: Tests And Tribulation,
<http://www.mondaq.com/india/x/250048/Trade+Regulation+Practices/AntiCompetitive+Agreements+Tests+A
nd+Tribulation>
3
D.P. Mittal, Competition Law & Practice , (Taxmann Publishers).

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 some competitive dimension (coordinated interaction), or (2) by permitting the
merged firm to raise prices profitably on its own (unilateral effect). In either case,
consumers may face higher prices, lower quality, reduced service, or fewer choices as
a result of the merger.

2) Vertical Mergers
Vertical mergers involve firms in a buyer-seller relationship.4 They can generate
significant cost savings and improve coordination of manufacturing or distribution.
But some vertical mergers present competitive problems. For instance, a vertical
merger can make it difficult for competitors to gain access to an important component
product or to an important channel of distribution. This problem occurs when the
merged firm gains the ability and incentive to limit its rivals' access to key inputs or
outlets.

3) Potential Competition Merger

A potential competition merger involves one competitor buying a company that is
planning to enter its market to compete (or vice versa). Such an acquisition could be
harmful in two ways. For one thing, it can prevent the actual increased competition
that would result from the firm's entry. For another, it would eliminate the pro-
competitive effect that an outside firm can have on a market simply by being
recognized as a possible entrant. What accounts for that effect? The firms already in
the market may avoid raising prices to levels that would make the outside firm's entry
more likely. Eliminating the potential entrant through a merger would remove the
threat of entry and possibly lead to higher prices.

4
Swapneshwar Goutam, Mergers Control Regime in India.

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 Competition Act, 2002 & Mergers & Acquisitions

It is a regulatory act of the Commission, there are at least four ‘filters’5 available in the law
before a notification of merger can be taken up for investigation and inquiry6 by the
Competition Commission of India.7 The filters8 are as under:

1. Establishment of ‘prima facie’ case - Section 29 of the Act

2. Exceeding thresholds - Section 59
3. Establishing AAEC in relevant market- Section 20(4)
4. Effect in relevant market only - Section 19(5) to (7)

5
Amitabh Kumar , Regulating Mergers& Acquisitions, Economic Times ( December, 2007)
6
Legal and procedural aspects of competition law, <http://www.competition-commission
india.nic.in/competition forum/merger_and_combinations.pdf>
7
Rajinder Kumar, Role and functions of CCI,
<http://cci.gov.in/images/media/presentations/RajinderPresen041011.pdf>
8
Madhav Mehra , Competition Law& Inclusive Growth, The Economic Times , (November 2009)
9
H.K.Saharay, Competition Law, (Universal Law Publication Co. Pvt. Ltd., New Delhi, 2012).

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There are fourteen factors under this sub-section and any one or all shall have to be
considered by the Commission so as to ascertain the cause of AAEC in any given case.

1. actual and potential level of competition through imports in the market;

2. extent of barriers to entry into the market;
3. level of competition in the market;
4. degree of countervailing power in the market;
5. likelihood that the combination would result in the parties to the combination being
able to significantly and sustainably increase prices or profit margins;
6. extent of effective competition likely to sustain in a market;
7. extent to which substitutes are available or are likely to be available in the market;
8. market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;
9. likelihood that the combination would result in the removal of a vigorous and
effective competitor or competitors in the market;
10. nature and extent of vertical integration in the market;
11. possibility of a failing business;
12. nature and extent of innovation;
13. relative advantage, by way of the contribution to the economic development by any
combination having or likely to have appreciable adverse effect on competition;
14. whether the benefits of the combination outweigh the adverse impact of the
combination, if any.

Apart from the aforesaid conditions need to be fulfilled before any matter is formally
admitted for inquiry and investigation, the AAEC also needs to be happening in a relevant
product/geographic market in India. If the cause of AAEC is not conclusively proved to
have happened in a relevant product/geographic market then again the action against a
merger notification fails. In short, the entire process is business-friendly and not that the
moment a reference or information comes to the Commission it sets out to serve a notice
and then proceeds to pass quasi-judicial order.10

10
Hari Krishan, Mergers and acquisitions in India,
<http://cci.gov.in/images/media/ResearchReports/3102012.pdf>

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 Conclusion

It is a modern piece of economic legislation. Worldwide, competition or anti-trust laws have

three main contours. They are – i) prohibition of anti-competitive agreements; (ii) prohibition
of abuse of dominance; (iii) regulating mergers & acquisitions. Indian law has all these
essential ingredients of anti-competitive practice provisions.

Anti-competitive agreements and abuse of dominance are intended to be prohibited by orders

of the Commission; whereas, combinations (mergers etc.) are to be regulated by orders. This
distinction in law indicates the intentions of the legislators. Combinations ensure economic
growth, more economic opportunities for businesses to compete with their overseas
counterparts and consumer welfare ultimately. On the other hand, anti-competitive
combinations harm markets and subvert the interests of the consumers. In amicable and
consensual mergers the parties have unanimity of interests and any Competition Authority
would really have not much to do but to allow such proposals. On examination of Annual
Reports of several Competition Authorities it is seen that in almost all jurisdictions across the
globe 90% cases of merger notifications are allowed and in the remaining 10% cases they are
either modified or rejected. This clearly indicates that our law is moving in the right direction.

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 References

Amitabh Kumar , Regulating Mergers& Acquisitions, Economic Times ( December, 2007) ................ 5
D.P. Mittal,Competition Law & Practice , (Taxmann Publishers). ........................................................ 3
H.K.Saharay, Competition Law, (Universal Law Publication Co. Pvt. Ltd., New Delhi, 2012). .......... 5
Hari Krishan, Mergers and acquisitions in India,
<http://cci.gov.in/images/media/ResearchReports/3102012.pdf> ...................................................... 6
Legal and procedural aspects of competition law, <http://www.competition-commission
india.nic.in/competition forum/merger_and_combinations.pdf> ....................................................... 5
Madhav Mehra , Competition Law& Inclusive Growth, The Economic Times , (November 2009) ..... 5
PSA, Anti-Competitive Agreements: Tests And Tribulation,
<http://www.mondaq.com/india/x/250048/Trade+Regulation+Practices/AntiCompetitive+Agreeme
nts+Tests+And+Tribulation>.............................................................................................................. 3
Rajinder Kumar, Role and functions of CCI,
<http://cci.gov.in/images/media/presentations/RajinderPresen041011.pdf>...................................... 5
Securities and Exchange Board of India Act, 1992, Act No. 15 of 1992. .............................................. 3
Swapneshwar Goutam, Mergers Control Regime in India. .................................................................... 4

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