COMBINATIONS

DEFINITION OF COMBINATION

 Combination under the Competition Act means acquisition of control,

shares, voting rights or assets, acquisition of control by a person over
an enterprise where such person has direct or indirect control over
another enterprise engaged in competing businesses, and mergers
and amalgamations between or amongst enterprises when the
combining parties exceed the thresholds set in the Act. The thresholds
are specified in the Act in terms of assets or turnover in India and
outside India.
o Acquisition or Take Over
o Merger or Amalgamation
 When used in the context of The Competition Act, a combination
means and implies M&A transactions which meet the threshold set out
in the Act. The Competition Act 2002 also uses the expressions
acquisition, merger and amalgamation in section 5 of the Act.
However, only those transactions which exceed the value of asset or
the turnover require prior-approval of the Competition Commission of
India and qualify to be called a “combination”.
 The primary criterion for examining whether a combination needs to
be notified is based on thresholds fixed on the basis of value of assets
and turnover of the parties to the combination, or the assets and
turnover of the group to which the parties belong. The thresholds are
further affected by the geographic scope of business operations of the
parties/group.

MERITS OF COMBINATION

1. Fast Growth of Business:

 Mergers and acquisitions allow companies to achieve rapid growth

by combining their resources, customer bases, and market
presence. This is especially beneficial when compared to organic
growth, where a company expands gradually through internal
processes.

2. Better Resources and Quality Improvement:

 Through a business combination, companies can access a broader

pool of resources, including human capital, technology, and
expertise. The synergy resulting from the combination often leads
to an overall improvement in the quality of products or services.

3. Cost Advantages:

 Mergers can generate cost efficiencies by eliminating

redundancies and streamlining operations. This can include cost
 savings through economies of scale, shared resources, and reduced
overhead expenses.

4. Economies of Scale:

 Merging companies often benefit from economies of scale, where

the cost per unit decreases as production increases. This results in
lower average costs, making the combined entity more efficient
and competitive.

5. Synergies in Operations:

 Synergies occur when the combined entity is more effective and

efficient than the sum of its individual parts. Operational synergies
can lead to improved productivity, reduced costs, and enhanced
overall performance.

6. Financial Synergies:

 Financial synergies involve benefits such as improved financial

stability, increased cash flow, and enhanced borrowing capacity.
The combined financial strength of merged entities can lead to
better investment opportunities and strategic flexibility.

7. Access to Technologies, Different Markets, Facilities, etc.:

 Mergers provide companies with access to new technologies,

markets, and facilities that they may not have had independently.
This can result in accelerated innovation, expanded customer
bases, and improved distribution channels.

8. Diversification:

 Mergers and acquisitions, especially conglomerate mergers, allow

companies to diversify their business interests. Diversification
helps spread risk across different industries or markets, reducing
the impact of adverse conditions in any single area

DEMERITS OF COMBINATION

1. Problems in integration of firms:

• The mergers and acquisitions are driven by the potential synergies

that they offer. However, at the core of this is an assumption that a
firm will be able to achieve seamless integration of their resources.
There is always some difference in working cultures of the merging
firms and this may hamper the integration process and the desired
efficiencies may not be achieved.

2. Valuation issues:
 • The most significant factor for acquirer after the target has been
narrowed down is to arrive at the purchase consideration or the
valuation of the firm. Valuation depends upon a number of factors
and also there are a number of approaches to arrive at firm’s
valuation. This entire process is based on underlying assumptions
and it is very possible that the actual outcome may be very
different from the planned. Thus, there is always an additional risk
due to valuation issues in the mergers and acquisitions

3. Adverse effect on competition:

• Mergers and acquisitions, especially horizontal lead to decrease in

competing market players. This reduction in number of
competitors may adversely affect the degree of competition and
lead to accumulation of market power with the merged entity. This
market power may potentially become a source of abusive business
practices impacting the development of markets and the state of
consumer welfare.

4. Lack of economic growth impetus:

• The organic growth process involves substantial investment in new

assets and creation of new jobs while in case of inorganic growth,
the growth of firm does not lead to growth of industry and
economy in the same proportion as the process merely leads to
change in ownership of resources rather than augmenting the
resources.

TYPES OF COMBINATIONS – HORIZONTAL, VERTICAL AND CONGLOMERATE

 Horizontal combinations :These are those that are between rivals and
are most likely to cause appreciable adverse effect on competition.
 Vertical combinations :These are those that are between enterprises
that are at different stages of the production chain and are less likely
to cause appreciable adverse effect on competition.
 Conglomerate combinations :These are those that are between
enterprises not in the same line of business or in the same relevant
market and are least likely to cause appreciable adverse effect on
competition.
1. Acquisitions – Section 2(A)(B)
a. It means, directly or indirectly, acquiring or agreeing to acquire —
i. Shares, voting rights or assets of any enterprise; or
ii. Control over management or control over assets of any
enterprise
b. SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011
i. Directly or indirectly, acquiring or agreeing to acquire
shares or voting rights in, or control over, a target company
 c. In simple terms, ‘When a person purchases the share capital in
such a way to control the interests enunciated with the all or
substantial number of shares or assets or liabilities of the target
entity, such an agreement is acquisition’

2. Take Over
a. Takeovers can be done in two ways; first, by acquiring the
liabilities and assets of the target company and second, by
acquiring the shares of the target company.
b. Takeovers can be done by purchasing a majority stake in the target
firm.
c. It occurs when one company makes a successful bid to assume
control of or acquire another.
d. In a takeover, the company making the bid is the acquirer and the
company it wishes to take control of is called the target.

3. Mergers
a. When two or more entities combine into a big entity, this
phenomenon is known as merger by virtue of which not only the
assets and liabilities of both the organizations gets added up but
the business of both the entities also become one.
b. Companies Act, 2013 - S. 232 Explanation(i)
i. Where under the scheme the undertaking, property and
liabilities of one or more companies, including the company
in respect of which the compromise or arrangement is
proposed, are to be transferred to another existing
company, it is a merger by absorption, or where the
undertaking, property and liabilities of two or more
companies, including the company in respect of which the
compromise or arrangement is proposed, are to be
transferred to a new company, whether or not a public
company, it is a merger by formation of a new company

4. Amalgamation
a. Section 2 (1A) of the Income Tax Act, 1961: Amalgamation is the
merger of one or more companies with another or the merger of
two or more companies to form a new company, in such a way that
all assets and liabilities of the amalgamating companies become
assets and liabilities of the amalgamated company and
shareholders not less than nine-tenths in value of the shares in the
amalgamating company or companies become shareholders of the
amalgamated company.
b. Slight difference between Merger & Amalgamation
i. In merger – New name and Management
ii. In Amalgamation – Similar manner even after consolidation
Merger or Amalgamation may take two forms:

 Through Absorption: It is a combination of two or more companies into

an existing company. All companies except one lose their identity in a
merger through absorption. For Example: Absorption of Tata Fertilizers
Ltd. (TFL) by Tata Chemicals Ltd. (TCL). TFL transferred its assets,
liabilities and shares to TCL.

 Consolidation: Is a combination of two or more companies into a 'new

company'. In this form of merger, all companies are legally dissolved and
a new entity is created. For example: Merger of Hindustan Computers
Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and
Indian Reprographics Ltd into an entirely new company called HCL Ltd

Types of Mergers

Horizontal Merger

• It occurs when actual or potential competitors of the same

product and market and at same level of production or
distribution merge.
• For Example: Brook Bond Lipton India Ltd. through the merger
of Lipton India and Brook Bond

Vertical Merger

• It occurs when two entities which operate at different but

complimentary levels of production chain.

• For Example: Nokia merging Airtel

Congeneric Merger

• It is a type of merger where two companies are in the same or

related industries but do not offer the same products.
• For Example: Sun Direct with Cable Service Provider

Conglomerate Merger

• It is a merger between entities which are not linked or

connected in any form.
• For Example: Colgate with Rotomac Pen

Combination under Competition Act, 2002

• Relevant Provisions – 5,6,20,29,30 and 31

• The Competition Commission of India (Procedure in regard to the
transaction of business relating to combinations) Regulations, 2011.
o Acquisitions
o Takeovers
 o Mergers
o Amalgamations

De Minimis Exemption

MCA NOTIFICATION ON TARGET EXEMPTION, 2017

1. RegExtension to Mergers/Amalgamations:

 The Revised Target Exemption, which was initially applicable to

acquisitions, is now extended to cover mergers and amalgamations
as well. This implies that the exemption criteria and thresholds
specified in the Revised Target Exemption apply not only to
acquisitions but also to situations where enterprises, divisions, or
businesses are merged or amalgamated.

2. Consideration of Assets/Turnover in Partial Transactions:

 In cases where only a portion of an enterprise, division, or business

is involved in the transaction (acquisition, taking control, merger,
or amalgamation), the value of assets or turnover pertaining to that
specific portion is taken into account. This is crucial for
determining whether the transaction breaches the thresholds
outlined in the Revised Target Exemption.

3. Calculation of Value:

 The value of assets or turnover related to the specific portion,

division, or business involved in the transaction is calculated based
on the annual report of the target enterprise. The relevant financial
figures are derived from the preceding financial year in which the
transaction occurs.

4. Alternative Source in Absence of Financial Statements:

 In cases where the financial statements of the target enterprise are

not available, the value of assets or turnover may be determined
from the auditor's report. This ensures that the assessment can
still take place even if comprehensive financial statements are not
readily accessible.

5. Thresholds of Revised Target Exemption:

  The comparison of the calculated value (assets or turnover) with
the thresholds specified in the Revised Target Exemption is crucial.
If the transaction falls within the specified thresholds, it may be
exempted from certain regulatory requirements or scrutiny that
would otherwise apply.

Regulations of Combinations

Concept of relevant Market

▪ Competition always takes place in markets.

▪ The competition in the market is always between products or services

provided by sellers or service providers in a particular geographical area.
So, competition is always closely related to one or several particular
markets.

▪ While determining the effect of a particular combination, the competition

enforcement authorities analyze the behavior and status of such market
player in relation to a particular market.

▪ This particular market is known as the ‘relevant market’

▪ S. 2 (r) Relevant Market means the market which may be determined by

the commission with reference to the relevant product market or the
relevant geographic market or with reference to both the markets;

▪ S. 2 (s) Relevant Geographic Market means a market comprising the area

in which the conditions of competition for supply of goods or provision of
services or demand of goods or services are distinctly homogenous and
can be distinguished from the conditions prevailing in the neighbouring
areas

▪ S. 2 (t) Relevant Product Market means a market comprising all those

products or services which are regarded as interchangeable or
substitutable by the consumer, by reason of characteristics of the
products or services, their prices and intended use

Determination of AAEC: Relevant Factors S. 20 (4)

▪ (a) actual and potential level of competition through imports in the

market

▪ (b) extent of barriers to entry into the market;

▪ (c) level of combination in the market;

▪ (d) degree of countervailing power in the market;

▪ (e) likelihood that the combination would result in the parties to the
combination being able to significantly and sustainably increase prices or
profit margins;
 ▪ (f) extent of effective competition likely to sustain in a market;

Regulations: Prohibition of Combinations

▪ No person or enterprise shall enter into a combination which causes or is

likely to cause an appreciable adverse effect on competition within the
relevant market in India and such a combination shall be void [S. 6(1)]

▪ The philosophy guiding ‘competition analysis’ are:

▪ Treating structure as per se bad

▪ Treating certain types of conduct as bad

▪ Judging acts based on their ‘Effects’

Information – Section 20(1)

▪ The Commission may, upon its own knowledge or information relating to

acquisition or acquiring of control or merger or amalgamation inquire
into whether such a combination has caused or is likely to cause an
appreciable adverse effect on competition in India

▪ Provided that the Commission shall not initiate any inquiry under this
subsection after the expiry of one year from the date on which such
combination has taken effect.

▪ Suo Moto

STEP 1: Requirement of Notification

Notification S. 6(2) Any “combination” likely to cause AAEC is VOID

Any person or enterprise, who or which proposes to enter into a combination,

shall give NOTICE to the Commission and the fee &in the prescribed form-
‘Form II, as specified in schedule II which may be determined, by The
Competition Commission of India (Procedure in regard to the
transaction of business relating to combinations) Regulations, 2011
disclosing the details of the proposed combination, within thirty days of:

▪ (a) APPROVAL OF THE PROPOSAL (Section 5 (c))relating to merger or

amalgamation, by the board of directors of the enterprises concerned
with such merger or amalgamation, as the case may be;

▪ (b) EXECUTION OF ANY AGREEMENT OR OTHER DOCUMENT for

acquisition or acquiring of control (Section 5 (a) and (b))

PENALTIES

Delay in Filing Notice

▪ Johnson and Johnson Innovation – Ethicon - Google

 ▪ Delay of 43 days in filing of the notice

▪ The Commission imposed a penalty of Rs. 5 lakhs

Absence of Filing Notice

▪ Piramal Enterprises Limited - Shriram Transport Finance Company

▪ Imposed a penalty of Rs. 5 Crore

MANDATORY WAITING PERIOD – Section 6(2A) and 31(11)

• The Proposed Combination shall not take effect for a period of 210 days
from the date, the Parties NOTIFY CCI or

• Till CCI passes order approving the Combination

Whichever is Earlier

(Means the Combination shall be deemed to be Approved if CCI doesn’t pass

order in 210 days)

STEP 2: Prima Facie Opinion

• CCI on receipt of NOTICE, deal with according to Sections 29, 30

& 31

• Sec.29(1) & Regulation 19

• CCI will form a Prima facie opinion within 30 days of receipt of the
notice, whether the proposed combination will cause an AAEC within the
RELEVANT MARKET {Sec.19(5),(6),(7)} in India

STEP 3: SHOW CAUSE NOTICE – Section 29(1)

• If the CCI forms an Opinion that the Combination will cause an AAEC ,
then :-

• CCI will issue a Show Cause Notice to the Parties to the Combination to
respond within 30 days

• After the receipt of response from the Parties, CCI may call for a Report
from the Director-General

• If the CCI is of the Opinion that the Combination will cause AAEC ,
then :- Sec.29(2)

• Within 7 working days, on the receipt of, Response from Parties & DG’s
Report, whichever is later,
 • CCI would direct the Parties to PUBLISH the details (to make aware the
Public) of the Combination ,within 10 working days of such direction

• CCI may invite written objections from the Affected Persons of the
Combination and the parties shall file written objections within 15 days
of Publication by the Parties to the Combination - Sec.29(3)

• After the expiry of above 15 days period, CCI may call for Additional or
Other Information, as it may deem fit, from the Parties to the
Combination – Sec.29(4)

• The Parties shall furnish Additional Information

• within 15 days after the expiry of above said period of 15 days

mentioned in 29(4)

• Within 45 working days after the expiry of above said 15 days,

CCI shall proceed deal with the case in accordance with
SEC.31

STEP 4: Orders – Section 31

⮚ Approval

⮚ Rejection

⮚ Modification

• Structural Remedies: Modification

• Behavioral Remedies: Prohibition of certain conducts.

• Example: No price increase for a period; etc.

• Within 210 days: Deemed Approval

APPEAL SECTION 53A

▪ It should be dealt as expeditiously as possible and endeavor shall be

made by it to dispose of the appeal within six months from the date of
receipt of the appeal.

▪ The National Company Law Appellate Tribunal constituted under Section

410 of the Companies Act, 2013 is the appellate forum.

FAILING FIRM DEFENCE

• A firm which is financially distressed qualifies as a failing firm.

• The causes that have positioned the firm to be financially distressed are
important

• Firm is failing is an acceptable ground for approval of a merger by the

CCI.
 • The failing entities which are seeking shelter through mergers and
acquisitions for survival may be able to receive deemed approval by the
CCI if the entities involved are not engaged in identical businesses.

• Section 20 (4)(k): Possibility of Failing Business

The doctrine of ‘failing firm defense’ requires three conditions:

⮚ The failing of the firm would result in it exiting the relevant industry
thereby diminishing competition;

⮚ There is no other effective alternative that would result in more

competition in the industry other than the proposed merger/acquisition
between competitors;

⮚ The exit of the failing firm from the industry would adversely impact the
competition in the industry and also prove detrimental to the consumers.

GREEN CHANNEL FING

▪ It eliminates the statutory 210 days time limit prescribed under the Act
for ex-ante examination of combinations by CCI

• Eligibility Criteria (Schedule III)

▪ If after considering all plausible alternative market definitions, the

transacting parties do not have any:

▪ Horizontal overlaps (i.e., they must not be already producing any

similar, identical or substitutable products/services); or

▪ Vertical overlaps (i.e., they must not be engaged in activities at

different stage or level of the production chain); or

▪ Complementary overlaps (i.e., products/services when combined

and used together enhance the value of the combined
good/service).

▪ The Competition Commission of India (Procedure in regard to the

transaction of business relating to combinations) Amendment
Regulations, 2019

▪ Green Channel route provides for automatic approval of certain

combinations under the Competition Act. 2002

▪ The notifying parties are required to self-assess that the Green Channel
Criteria has been met.

▪ If such criteria are met, the notifying parties are required to file a valid
and complete Form-I, along with a declaration confirming that the
proposed combination satisfies the Green Channel Criteria and "is not
likely to cause any adverse effect on competition".
 ▪ Deemed approval from the date of receipt of the acknowledgment of filing

▪ of the Notice in Form 1 in CCI.

CROSS BORDER MERGER

• Relevant Provisions: Sections 5, 6, 20, 29, 30 & 31

• The Competition Commission of India (Procedure in regard to the

transaction of business relating to combinations) Regulations, 2011

• Section 32: Extra - Territorial Application- Effects Doctrine

A combination has taken place outside India; or any party to combination is

outside India, if such combination has, or is likely to have, an appreciable
adverse effect on competition in the relevant market in India

EXAMPLES

⮚ Tata Steel – Corus

• Tata Steel Limited concluded a merger deals by acquiring the Anglo-

Dutch steel company, Corus Group Plc. in 2007

• The merged enterprise, Tata-Corus, employs 84,000 people across 45

countries.

• It has the capacity to produce 27 million tons of steel per annum, making
it the fifth largest steel producer in the world.

⮚ Tata Motors - Jaguar Land Rover

• Jaguar Cars Limited and Land Rover from Ford was acquired by Tata
Motors in 2008

⮚ Hindalco – Novelis

• Hindalco Industries Limited, Aditya Birla Group acquired Novelis in 2007

• The acquisition made Hindalco one of the world’s top integrated

aluminum players.

GE/HONEYWELL PROPOSAL

There was a proposal by General Electric to take over Honeywell

International Inc. GE was attracted by Honeywell's aerospace businesses.
The merger had been passed by the United States Department of Justice,
with the recommendation that GE divest itself of Honeywell's military
helicopter unit, to protect the US military. European Competition
Commissioner held that:

• ‘Merger between GE and Honeywell would create too powerful an

entity and consequently, have adverse effects on the competitive
position in the aerospace industry’.
 • The merger would give the two companies a very huge combined
market share in the common markets in which they operated, along
with providing them with the opportunity to bundle their
complementary products in future. This would harm competitors as
well as customers by creating a near monopoly situation. The EC
demanded that substantial structural changes. The demands were not
acceptable to GE, hence the proposed merger failed

BOEING/MCDONNEL DOUGLAS MERGER

• It involves merger by two US companies, Boeing and McDonnell Douglas.

The relevant market was the world market for large commercial jet
aircraft. At the time Boeing was the largest company in the market for
commercial aircraft (approximately 64% of sales). The only other
significant rival was the European corporation, Airbus Industries
(approximately 30% of the market).

• McDonnell Douglas accounted for the remaining 6% of the market. There

was evidence McDonnell Douglas’ share was decreasing while Airbus'
share was increasing. Barriers to entry were extremely high. The US FTC
(by majority) approved the merger

• EC concluded that the 'proposed concentration would lead to the

strengthening of a dominant position through which effective competition
would be significantly impeded in the common market‘

• Following negotiations between American and European officials and the

parties, the Commission approved the merger subject to concessions,
including that Boeing give up certain long-term exclusivity contracts and
that they licence to its competitors (Airbus) 'McDonnell technology
developed with US government funding.

GUN JUMPING

▪ Gun Jumping refers to a situation wherein the parties to the combination

consummate the combination directly without seeking approval from
CCI.

▪ Such an act by the parties is punishable with a fine in accordance with

Section 43A of the Competition Act,2002.

▪ For seeking permission for merger or amalgamation, or execution of an

agreement for the acquisition, the merger had to be filed with the CCI
within 30 days of approval.

▪ The 30 days requirement period has been removed by MCI notification in

2017.

▪ The requirement notifying the CCI about the combination and seeking
CCI’s prior approval before consummating the transaction is a
 mandatory procedure and failure to comply with the same, exposes the
parties for gun-jumping.

▪ SCM Solitifert Ltd. and Anr v. Competition Commission of India

▪ Supreme Court observed held that the legislative mandate of Section 6 is

that every combination would have to be notified prior to entering into
the same.

▪ This gives the opportunity to CCI that such a combination will have an
appreciable adverse effect on the market.

▪ If the approval for the combination is sought after the combination has

▪ been consummated, it will defeat the whole purpose of the act.

Delay in Filing Notice

▪ Johnson and Johnson Innovation – Ethicon - Google

▪ Delay of 43 days in filing of the notice

▪ The Commission imposed a penalty of Rs. 5 lakhs

Absence of Filing Notice

▪ Piramal Enterprises Limited - Shriram Transport Finance Company

▪ Imposed a penalty of Rs. 5 Crore