Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: February 2013

INDIA UPDATE – Significant Changes Proposed by India’s Competition Bill Amendment, 2012

Editors’ Note:  This third edition of the India Board Report is contributed by Zia Mody, founding partner of AZB & Partners and a member of XBMA’s Legal Roundtable.  Ms. Mody has led many of India’s most significant corporate transactions, been recognized by Business Today as one of the Most Powerful Women in Indian Business and received the Economic Times Award for Corporate Excellence as Businesswoman of the Year (2010).


  •  The Competition Amendment Bill, 2012 (‘Bill’) has been introduced in the lower house of the Indian Parliament and if passed, will bring significant changes to Indian competition law.
  • Most significant is the introduction of the concept of ‘joint dominance’ under Section 4 of the Competition Act, 2002, providing for an enabling provision which will give the Government of India the flexibility to specify sector/industry specific asset or turnover thresholds, which trigger the pre-merger notification requirement.
  • The Bill seeks to make way for easier operation of the Act’s ‘search and seizure’ provisions and several other small, yet significant, changes that would further enhance the powers of the Competition Commission of India (‘CCI’) and pose a new set of challenges for entities doing business in India.

Main Article:

Competition Amendment Bill, 2012: An Overview

The Indian competition law is all set to undergo significant changes. In June 2011, the Government of India (‘GoI’) had set up an expert committee to examine and suggest modifications to the Competition Act, 2002 (the ‘Act’). Based on the recommendations of the expert committee, GoI introduced the Competition Amendment Bill, 2012 (‘Bill’) in the lower house of the Indian Parliament, the Lok Sabha. However, the Bill was not tabled for voting by the Lok Sabha and will most likely come up for voting in the upcoming budget session of the Parliament.

The Bill seeks to introduce significant changes to the Act. Most notably, the Bill seeks to introduce the concept of ‘joint dominance’ under Section 4 of the Act, and provides an enabling provision which will give GoI the flexibility to specify sector/industry specific asset or turnover thresholds, which trigger the pre-merger notification requirement. In terms of procedure, the Bill seeks to make way for easier operation of the Act’s ‘search and seizure’ provisions. The Bill also seeks to introduce several other small, yet significant, changes to the Act. To sum up, these changes, if passed by both the houses of Parliament, will further enhance the powers of the Competition Commission of India (‘CCI’) and pose a new set of challenges for entities doing business in India.

This article seeks to identify the key changes sought to be introduced by the Bill and provides a brief assessment of the likely impact they will have on the operation of the Act.

Introduction of the concept of ‘joint’ dominance:

Section 4 of the Act prohibits the abuse of dominant position. The current text of Section 4 does not envisage the concept of ‘joint’ dominance. It merely seeks to prohibit abusive unilateral conduct by an ‘enterprise’ or its ‘group’. The Bill seeks to alter this provision by introducing the concept of ‘joint’ dominance by modifying the current text of Section 4(1) of the Act to read as: “No enterprise or group jointly or singly shall abuse its dominant position.”

The inclusion of the terms ‘jointly or singly’ in the existing text of Section 4(1) of the Act means that CCI will now be able to scrutinize business conduct of an enterprise, even if such an enterprise does not qualify as being dominant on its own. Rather, CCI may now assess dominance on the basis of combined or joint ability of two or more enterprises to act independently of the competitive forces in the relevant market.


The introduction of the concept of ‘joint’ abuse of dominance raises several concerns some of which have been set forth below:

i.   It is unclear how CCI will implement the provision on ‘joint’ abuse of dominance. Globally, competition courts and tribunals have been extremely reluctant to invoke the concept of ‘joint’ abuse of dominance. For instance, in the United States of America (‘U.S.’) the attempts by the Federal Trade Commission or the Department of Justice to bring claims of joint abuse of dominance have almost always been turned down by the U.S. courts. Similarly, the European Commission (‘EC’) has been very reluctant to apply the provision on ‘joint’ abuse of dominance. In limited instances, where EC has invoked the concept of ‘joint’ abuse of dominance, it has done so only after finding evidence of structural linkages between the allegedly dominant enterprises. The application of the concept of ‘joint’ dominance by EC has been so reduced that its 2008 Guidance Paper on Enforcement Priorities in applying Article 82 of the EC Treaty to Abusive Conduct by Dominant Undertakings (‘Guidance Paper’), merely recognises ‘joint’ abuse of dominance as a theoretical concept and limits the scope of the Guidance Paper to abuses committed by an undertaking holding a single dominant position. While more mature jurisdictions appear reluctant to invoke the concept of ‘joint’ dominance, the Bill paves way for the inclusion of this concept under the Act. Introduction of this concept increases the uncertainty surrounding the application of Section 4 of the Act (which deals with abuse of dominance).

ii.  The Bill increases the risk of scrutiny both under Section 3(3) of the Act (which deems certain agreements entered into between enterprises as having an appreciable adverse effect on competition (‘Adverse Effect’)), as well as under Section 4 of the Act. In concentrated markets, a small number of firms may be able to easily observe each other’s actions and thus behave in a manner that may be characterized as co-operative rather than competitive. Typically, if the number of firms is sufficiently small, and important market characteristics such as prices and capacity are sufficiently transparent, firms may behave in a co-operative manner without the necessity of resorting to explicit discussions or agreements. Such behaviour will ideally be examined under Section 3(3) of the Act, which deals with anti-competitive horizontal agreements. In the absence of clear evidence on concerted action (which may be lacking in concentrated markets), it may be difficult for CCI to establish a case under Section 3(3) of the Act. In such an event, CCI may bring a case under Section 4(1) of the Act, which does not require it to show the existence of an agreement or concerted action. Introduction of the concept of ‘joint’ dominance is thus likely to blur the distinction between Section 3(3) and Section 4 of the Act.

iii. The introduction of the concept of joint dominance under Section 4 of the Act is likely to increase the cost of compliance for enterprises doing business in India. Section 4 of the Act contains a list of business practices which become abusive when carried out by a dominant enterprise. In other words, these business practices are perfectly legal and permissible if they are carried out by a non-dominant enterprise. The introduction of the concept of ‘joint’ abuse of dominance would mean that an enterprise which was, on its own, not likely to be considered as a dominant enterprise, may now become one. Consequently, its business practices, which were permissible thus far, may become susceptible to scrutiny once the Bill becomes Law. Firms, which were traditionally not concerned about compliance risks under Section 4 of the Act, will now have to tread with caution and re-assess their business practices.

Changes to the “search and seizure” norms

The current text of Section 41 of the Act already empowers CCI’s investigative arm – the Directorate General (‘DG’) to carry out “search and seizure” (commonly known as “dawn raids”) operations. However, DG has appeared reluctant to use its powers under Section 41 of the Act, and this provision has largely remained unutilized.

The Bill seeks to make it easier for DG to carry out dawn raids. Specifically, by replacing the requirement to seek prior sanction from the Chief Judicial or Metropolitan Magistrate with a requirement to seek prior sanction from the Chairperson of CCI instead, the Bill makes it easier for DG to carry out dawn raids. Additionally, the Bill makes certain other small but important changes to the procedure with regard to dawn raids.

Firstly, the Bill increases the trigger points for conducting dawn raids. The current text of Section 41 of the Act empowers DG to carry out dawn raids only when it considers that certain evidence is likely to be destroyed, mutilated, altered, falsified or secreted. Whereas the Bill expands the trigger point for conducting dawn raids to also include instances where, in DG’s view, a person or enterprise has omitted or failed to provide the information or produce documents as required by the notice; or would not provide such relevant information.

Secondly, the Bill empowers DG to record statements of a wider group of people. The current text of Section 41 of the Act empowers DG to record statements (on oath) of only the past and present officers, employees or agents of the company under investigation. The Bill empowers DG to record statements (on oath) of all persons having knowledge of such information or documents that it thinks are being withheld or are likely to be destroyed.

In sum, the Bill makes it easier for DG to conduct dawn raids. However, the removal of judicial oversight, expansion of the list of trigger events for conduct of raids and the power to record statements of all persons who may, in DG’s view, have information that it may be searching for that is likely to provide DG with unbridled powers.

Raid on an individual’s premises seriously impinges on its right to privacy and must hence be conducted in the rarest of rare cases. For this reason, the existing Act as well as most Indian statutes analogous to the Act also provide for judicial oversight over the decision to conduct raids. This helps check the investigating body from transgressing its powers. Nevertheless, post the amendment, this safeguard envisaged in the existing Act is likely to be reduced once the power to sanction raids shifts from Magistrate First Class, or the Chief Metropolitan Magistrate to the Chairperson of CCI. Moreover, since DG is the investigative arm of CCI, and conducts investigations once CCI has formed its prima facie view about the existence of a case, the Chairperson may suffer from institutional bias while deciding whether to sanction a raid or not. The Chairperson has an inherent interest in ensuring that CCI’s prima facie decisions result in final convictions. Consequently, the likelihood that the Chairperson may sanction raids in situations which may not necessarily require the extreme step of raids would increase.

Opportunity to be heard before imposition of penalty

Section 27(b) of the Act empowers CCI to impose penalties upon contravention of Section 3 and Section 4 of the Act. For entering into anti-competitive agreements or abusing dominant position, the penalty may go up to 10% of the average turnover of each erring enterprise for the three financial years immediately preceding the finding of guilt. The penalty gets harsher in case of cartel agreements, and may extend up to the higher of 10% of the average turnover, or three times the profits made by the guilty enterprises during the entire duration of the cartel agreement.

The current text of Section 27 of the Act is broadly worded and gives CCI significant discretion while determining the quantum of penalty. Moreover, the current text of Section 27 of the Act does not provide for an opportunity to be heard on the issue of quantum of penalty. Consequently, parties to an investigation under the current scheme of Section 27 of the Act are required to make submissions on the quantum of penalty at a stage when neither the contravention, nor their role in such contravention, has been established.

The Bill seeks to provide parties to an investigation a separate opportunity to make submissions on the issue of quantum of penalty. By doing so, the Bill seeks to make the process of computation of penalties more transparent and predictable.

Expansion of the list of intellectual property related exemptions

The current text of Section 3(5)(i) of the Act provides an important gateway for enterprises to protect and make use of their intellectual property rights, without falling foul of Section 3 of the Act. To prevent infringement of their intellectual property rights, enterprises are permitted to impose reasonable restrictions in their agreements with other business partners.

However, the limited exemption or gateway under Section 3(5)(i) of the Act, for imposing reasonable restrictions, is available only with respect to intellectual property rights recognized under six specific statutes listed therein. These statutes do not recognize or protect several forms of intellectual property, including ‘trade secrets’, and ‘know-how’. Consequently, a number of commercial arrangements, particularly arrangements involving transfer of technology in the form of ‘trade secrets’ and ‘know-how’ are not likely to benefit from the limited exemption envisaged under the current Section 3(5)(i) of the Act. Arguably, CCI may view the restrictions imposed to protect ‘trade secrets’ and ‘know-how’ as being anti-competitive.

The Bill seeks to bridge the above mentioned gap by inserting a catch-all provision towards the end of the current text of Section 3(5) (i) of the Act, which reads as, “any other law for the time being in force relating to the protection of other intellectual property rights.” In essence, such a provision will ensure that an enterprise is not denied the flexibility to impose reasonable restrictions for protecting its intellectual property rights, simply because certain rights are not protected under the six statutes listed under the current Section 3(5) (i) of the Act.

Sector-specific thresholds for combinations

When the merger control related provisions under Section 5 and 6 of the Act were brought into force in June 2011, GoI had increased the asset/turnover thresholds which trigger the prior notification requirement by a significant 50%. While the Indian industry was largely satisfied with this change, GoI was concerned that in certain sensitive sectors, such as pharmaceuticals, the increase in thresholds coupled with removal of restrictions on foreign direct investment (‘FDI’) limits could completely remove its oversight.

GoI was particularly keen to maintain its oversight on foreign investments in preexisting Indian companies in the pharmaceutical sector, i.e. brownfield investments which it would have lost subsequent to the easing of FDI norms. It feared that easing of FDI norms in the pharmaceuticals sector would lead to the entry of large foreign companies who may, in turn, acquire smaller home grown pharmaceutical companies. To address these concerns, GoI constituted Arun Maira Committee on FDI Policy in Pharmaceutical Industry had recommended that CCI be empowered to examine acquisitions of domestic pharmaceutical firms by foreign enterprises. However, since smaller Indian pharmaceutical companies may not meet the relatively higher asset/turnover thresholds prescribed under the Act, even CCI could not scrutinize such acquisitions. Accordingly, GoI seeks to introduce a new Section 5A in the Act which would give it the flexibility to specify separate asset/turnover thresholds for any class or classes of enterprises which it considers sensitive and would like CCI to monitor.

The introduction of the new Section 5A to the Act is likely to lead to over-regulation, and the creation of uncertainty in how the competitive effects of a combination (merger, acquisition or amalgamation) will be assessed, and may make the process of pre-merger notification more cumbersome.


i. The inclusion of such an empowering provision under the Act may lead to the dilution of asset/turnover thresholds prescribed under Section 5 of the Act, for transactions in various other sectors, which GoI may, from time to time, consider as being “sensitive”. The new Section 5A therefore paves way for increased intervention by GoI in the administration of merger control rules under the Act.

ii. The new Section 5A is likely to result in non-economic factors being considered by CCI while evaluating combinations. Prior to the introduction of Section 5A, the accepted wisdom was that transactions involving smaller companies are unlikely to cause an Adverse Effect in India, and hence need not be notified to CCI for its scrutiny. The asset/turnover thresholds that may be prescribed under the new Section 5A are likely to be lower than the asset/turnover thresholds prescribed under the current Section 5 of the Act. While reviewing the special category of transactions that meet the thresholds which may be prescribed under the new Section 5A, CCI will have to make a departure from the assumption that transactions involving smaller companies do not cause an Adverse Effect. Such a situation may warrant a different approach to how CCI carries out its Adverse Effect analysis. It is likely that CCI may be guided by larger political-economy considerations, which may have been responsible for the introduction of different thresholds for a class of enterprises under the new Section 5A.

iii. Further, the introduction of sector specific thresholds is also likely to add another layer of complexity to the merger control regulations. For instance, in transactions involving conglomerates which have presence in several industrial sectors, parties will now have to conduct an additional examination of which set of thresholds would apply. This is likely to make the pre-merger filing process more cumbersome.

In sum, it appears that the likely benefits of GoI’s attempt to keep an eye on transactions in the pharmaceutical sector through the merger control related rules may pale in comparison to the hurdles that it may create.

Other amendments

In addition to the above changes, the Bill also introduces several other changes to the existing text of the Act. To reduce the likelihood of friction between CCI and other sector-specific regulators, the Bill seeks to make it mandatory for sector-specific regulators to seek CCI’s views when they think that an issue may raise competition concerns. Equally, the Bill makes it mandatory for CCI to consult with sectoral regulators in the event that an issue of overlap between the Act and other sector specific laws arises.

The Bill clarifies the definition of the term ‘turnover’ to exclude the taxes, if any, levied on sale of such goods or provision of services. The Bill also amends the definition of the term ‘group’ to now include two or more enterprises which exercise 50% or more of the voting rights in the other enterprise. In another change aimed at clarifying the existing text of the Act, the Bill seeks to introduce express language to extend the scope of Section 3(4) of the Act to agreements for the provision of ‘services’. It also seeks to reduce the ‘waiting period’ for merger clearance from the existing 210 days to 180 days. The revised 180 days outer limit for clearing transactions may, however, be extended if CCI requests additional information from notifying parties and the clock stops ticking for the time period allowed for furnishing such information.

On the procedural front, the Bill creates certain additional opportunities for parties to an inquiry to make submissions during the course of an inquiry. The Bill also makes an important change in the constitution of the Selection Committee, which recommends the names of eligible persons to be considered for the post of Members of CCI. The Bill proposes to include the Chairman of CCI as one of the members of the Selection Committee.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

U.S. UPDATE – Checklist for Successful Acquisitions in the U.S.

Editors’ Note:  This submission updates a checklist co-authored by Messrs. Emmerich and Panovka, members of XBMA’s Legal Roundtable, with their partners at Wachtell Lipton: David A. Katz, Scott K. Charles, Ilene Knable Gotts, Andrew J. Nussbaum, Joshua R. Cammaker, Eric M. Rosof, Joshua M. Holmes and T. Eiko Stange.


  • More than 40% of global M&A in 2012 involved acquirors and targets in different countries, including $170 billion of acquisitions in the U.S. by non-U.S. acquirors.  Given the continuing accumulation of U.S. Dollars in emerging economies, many expect the trend to continue as Dollars are re-invested in the U.S.  Natural resources will continue to be an important part of this story, including in the U.S., where substantial non-U.S. investment has been an important trend.
  • Despite the empty election-year protectionist rhetoric in the U.S. last year, and continuing global concern over access to resources and technology by non-domestic actors, U.S. deal markets continue to be some of the most hospitable markets to off-shore acquirors and investors.
  • With careful advance preparation, strategically thoughtful implementation and sophisticated deal structures that anticipate likely concerns, most acquisitions in the U.S. can be successfully achieved.  Cross-border deals involving investment into the U.S. are more likely to fail because of poor planning and execution rather than fundamental legal or political restrictions.
  • Following is our updated checklist of issues that should be carefully considered in advance of an acquisition or strategic investment in the United States.  Because each cross-border deal is different, the relative significance of the issues discussed below will depend upon the specific facts, circumstances and dynamics of each particular situation.


More than 40% of global M&A in 2012 involved acquirors and targets in different countries, including $170 billion of acquisitions in the U.S. by non-U.S. acquirors.  Given the continuing accumulation of U.S. Dollars in emerging economies, many expect the trend to continue as Dollars are re-invested in the U.S.  Natural resources will continue to be an important part of this story, including in the U.S., where substantial non-U.S. investment has been an important trend, as well as in resource-rich developed nations such as Canada and Australia, where non-domestic investment has lately been highly controversial.

Despite the empty election-year protectionist rhetoric in the U.S. last year, and continuing global concern over access to resources and technology by non-domestic actors, U.S. deal markets continue to be some of the most hospitable markets to off-shore acquirors and investors.  With careful advance preparation, strategically thoughtful implementation and sophisticated deal structures that anticipate likely concerns, most acquisitions in the U.S. can be successfully achieved.  Cross-border deals involving investment into the U.S. are more likely to fail because of poor planning and execution rather than fundamental legal or political restrictions.

Following is our updated checklist of issues that should be carefully considered in advance of an acquisition or strategic investment in the United States.  Because each cross-border deal is different, the relative significance of the issues discussed below will depend upon the specific facts, circumstances and dynamics of each particular situation:

  • Political and Regulatory Considerations.  Even though non-U.S. investment in the U.S. remains generally well received and rarely becomes a political issue, in the context of specific transactions, prospective non-U.S. acquirors of U.S. businesses or assets should undertake a comprehensive analysis of the U.S. political and regulatory implications well in advance of any acquisition proposal or program, particularly if the target company operates in a sensitive industry or if the acquiror is sponsored or financed by a foreign government, or organized in a jurisdiction where a high level of government involvement in business is generally understood to exist.  It is imperative that the likely concerns of federal, state and local government agencies, employees, customers, suppliers, communities and other interested parties be thoroughly considered and, if possible, addressed prior to any acquisition or investment proposal becoming public.  It is also essential that a comprehensive communications plan be in place prior to the announcement of a transaction so that all of the relevant constituencies can be addressed with the appropriate messages.  It may be useful to involve local public relations firms at an early stage in the planning process.  Similarly, potential regulatory hurdles require sophisticated advance planning.  In addition to securities and antitrust regulations, acquisitions may be subject to CFIUS review (discussed below), and acquisitions in regulated industries (e.g., energy, public utilities, gaming, insurance, telecommunications and media, financial institutions, transportation and defense contracting) may be subject to an additional layer of regulatory approvals.  Regulation in these areas is often complex, and political opponents, reluctant targets and competitors may seize on any perceived weaknesses in an acquiror’s ability to clear regulatory obstacles.  With the re-election of President Obama, we expect to see continuity in the enforcement policies at the federal level for the foreseeable future despite expected changes in the leadership of the regulatory bodies.  In addition, depending on the industry involved and the geographical distribution of the workforce, labor unions will continue to play an active role during the review process.
  • Transaction Structures.  Non-U.S. acquirors should be willing to consider a variety of potential transaction structures, especially in strategically or politically sensitive transactions.  Structures that may be helpful in particular circumstances include no-governance and low-governance investments, minority positions or joint ventures, possibly with the right to increase to greater ownership or governance over time; making the acquisition in partnership with a U.S. company or management or in collaboration with a U.S. source of financing or co-investor (such as a private equity firm); or utilizing a controlled or partly-controlled U.S. acquisition vehicle, possibly with a board of directors having a substantial number of U.S. citizens and a prominent U.S. citizen as a non-executive chairman.  Use of preferred securities (rather than ordinary common stock) or structured debt securities should also be considered.  Even more modest social issues, such as the name of the continuing enterprise and its corporate location or headquarters, or the choice of the nominal acquiror in a merger, can affect the perspective of government and labor officials.
  • CFIUS.  Under current U.S. federal law, the Committee on Foreign Investment in the United States (CFIUS) — a multi-agency governmental body chaired by the Secretary of the Treasury, and recommendations of which the President of the United States has personal authority to accept or reject — has discretion to review transactions in which non-U.S. acquirors could obtain “control” of a U.S. business or in which a non-U.S. acquiror invests in U.S. infrastructure, technology or energy assets.  Although filings with CFIUS are voluntary, CFIUS also has the ability to investigate transactions at its discretion, including after the transaction has closed.  Three useful rules of thumb in dealing with CFIUS are:
    • first, in general it is prudent to make a voluntary filing with CFIUS if the likelihood of an investigation is reasonably high or if competing bidders are likely to take advantage of the uncertainty of a potential investigation;
    • second, it is often best to take the initiative and suggest methods of mitigation early in the review process in order to help shape any remedial measures and avoid delay or potential disapproval; and
    • third, it is often a mistake to make a CFIUS filing prior to initiating discussions with the Treasury Department and other officials and relevant parties.  In some cases, it may even be prudent to make the initial contact prior to the public announcement of the transaction.  CFIUS is not as mysterious or unpredictable as some fear — consultation with U.S. Treasury and other officials (who generally want to be supportive and promote investment in the U.S. economy) and CFIUS specialists will generally provide a good sense of what it will take to clear the process.  Retaining advisors with significant CFIUS expertise and experience is often crucial to successful navigation of the CFIUS process.  Transactions that may require a CFIUS filing should have a carefully crafted communications plan in place prior to any public announcement or disclosure of the pending transactions.
  • Acquisition Currency.  While cash remains the predominant (although not exclusive) form of consideration in cross-border deals, non-U.S. acquirors should think creatively about potential avenues for offering U.S. target shareholders a security that allows them to participate in the resulting global enterprise.  For example, publicly listed acquirors may consider offering existing common stock or depositary receipts (e.g., ADRs) or  special securities (e.g., contingent value rights).  When U.S. target shareholders obtain a continuing interest in a surviving corporation that had not already been publicly listed in the U.S., expect heightened focus on the corporate governance and other ownership and structural arrangements of the non-U.S. acquiror, including as to the presence of any controlling or large shareholders, and heightened scrutiny placed on any de facto controllers or promoters.  Creative structures, such as the issuance of non-voting stock or other special securities of a non-U.S. acquiror, may minimize or mitigate the issues raised by U.S. corporate governance concerns.
  • M&A Practice.  It is essential to understand the custom and practice in U.S. M&A transactions.  For instance, understanding when to respect — and when to challenge — a target’s sale “process” may be critical.  Knowing how and at what price level to enter the discussions will often determine the success or failure of a proposal; in some situations it is prudent to start with an offer on the low side, while in other situations offering a full price at the outset may be essential to achieving a negotiated deal and discouraging competitors, including those who might raise political or regulatory issues.  In strategically or politically sensitive transactions, hostile maneuvers may be imprudent; in other cases, unsolicited pressure might be the only way to force a transaction.  U.S. takeover regulations differ in many significant respects from those in non-U.S. jurisdictions; for example, the mandatory bid concept common in Europe, India and other countries is not present in U.S. practice.  Permissible deal protection structures, pricing requirements and defensive measures available to U.S. targets also may differ from what non-U.S. acquirors are accustomed to in deals in their home countries.  Sensitivity must also be given to the distinct contours of the target board’s fiduciary duties and decision-making obligations under U.S. law.
  • U.S. Board Practice and Custom.  Where the target is a U.S. public company, the customs and formalities surrounding board of director participation in the M&A process, including the participation of legal and financial advisors, the provision of customary fairness opinions and the inquiry and analysis surrounding the activities of the board and the financial advisors, can be unfamiliar and potentially confusing to non-U.S. transaction participants and can lead to misunderstandings that threaten to upset delicate transaction negotiations.  Non-U.S. participants need to be well-advised as to the role of U.S. public company boards and the legal, regulatory and litigation framework and risks that can constrain or prescribe board action.  These factors can impact both tactics and timing of M&A processes and the nature of communications with the target company.
  • Distressed Acquisitions.  Distressed M&A is a well developed specialty in the U.S., with its own sub-culture of sophisticated investors, lawyers and financial advisors.  When evaluating a distressed target, acquirors should consider the full array of tools that may be available, including acquisition of the target’s fulcrum debt securities that are expected to become the equity through an out-of-court restructuring or plan of reorganization, acting as a plan investor or sponsor in connection with a plan, backstopping a plan-related rights offering or participating as a bidder in a court-supervised “Section 363” auction process, among others.  Transaction certainty is important to success in a “Section 363” sale process, and non-U.S. participants accordingly need to plan carefully (especially with respect to transactions that might be subject to CFIUS review, as discussed above) for transaction structures that will result in a relatively even playing field with U.S. participants.  Acquirors also need to consider the differing interests and sometimes-conflicting agendas of the various constituencies, including bank lenders, bondholders, distressed-focused hedge funds and holders of structured debt securities and credit default protection.
  • Financing.  While ongoing volatility in the global credit markets has resulted in frequent opening and closing of the “windows” in which particular sorts of financing are available, overall the volume of financing and the rates at which financing is available have been unprecedented and have facilitated acquisitions, particularly by larger, well-established corporates and sovereign-affiliated borrowers.  Important questions to consider include where financing with the most favorable terms and conditions is available; how committed the financing is; which lenders have the best understanding of the acquiror’s and target’s businesses; whether to explore alternative, non-traditional financing sources and structures, including seller paper; whether there are transaction structures that can minimize refinancing requirements; and how comfortable the target will feel with the terms and conditions of the financing.  Note that under U.S. law, unlike the laws of some other jurisdictions, non-U.S. acquirors are not prohibited from borrowing from U.S. lenders, and they generally may use the assets of U.S. targets as collateral (although there are some important limitations on using stock of U.S. targets as collateral).  Likewise, the relative ease of structured financing in the U.S. market should benefit an offshore acquiror, with both asset-based and other sophisticated securitized lending strategies relatively easy to implement and available in the market.
  • LitigationShareholder litigation accompanies virtually every transaction involving a U.S. public company, but is generally not a cause for concern.  There are virtually no examples of major acquisitions of U.S. public companies being blocked or prevented due to shareholder litigation, nor of materially increased costs being imposed on acquirors.  (Excluding the context of competing bids in which litigation plays a role in the contest, and of going-private transactions initiated by controlling shareholders or management, which form a separate category, requiring special care and planning.)  In most cases, where a transaction has been properly planned and implemented with the benefit of appropriate legal and investment banking advice on both sides, such litigation can be dismissed or settled for relatively small amounts or other concessions, with the positive effect of foreclosing future claims and insulating the company from future liability.  Sophisticated counsel can usually predict the likely range of litigation outcomes or settlement costs, which should be viewed as a cost of the deal.  In all cases, the acquiror, its directors, shareholders and offshore reporters and regulators should be conditioned in advance (to the extent possible) to expect litigation and not to view it as a sign of trouble.  In addition, it is important to understand the U.S. discovery process in litigation as it is significantly different than the process in other jurisdictions and, even in the context of a settlement, will require the acquiror to provide responsive information and documents (including emails) to the plaintiffs.
  • Tax Considerations.  U.S. tax issues affecting target shareholders or the combined group may be critical to structuring the transaction.  The receipt by U.S. target shareholders of non-U.S. acquiror stock generally will be tax-free only if the transaction satisfies the U.S. requirements that apply to tax-free transactions generally as well as special rules intended to combat “inversion” transactions.  Non-U.S. acquirors frequently will need to consider whether to invest directly from their home jurisdiction or through U.S. or non-U.S. subsidiaries, the impact of the transaction on tax attributes of the U.S. target (e.g., loss carryforwards), the deductibility of interest expense incurred on an acquisition indebtedness, and eligibility for reduced rates of withholding on cross-border payments of interest, dividends and royalties under applicable U.S. tax treaties.  Because the U.S. does not have a “participation exemption” regime that exempts dividend income from non-U.S. subsidiaries, a non-U.S. acquiror of a U.S. target with non-U.S. subsidiaries may wish to analyze the tax cost of extracting such subsidiaries from the U.S. group.
  • Disclosure Obligations.  How and when an acquiror’s interest in the target is publicly disclosed should be carefully controlled and considered, keeping in mind the various ownership thresholds that trigger mandatory disclosure on a Schedule 13D under the federal securities laws and under regulatory agency rules such as those of the Federal Reserve Board, the Federal Energy Regulatory Commission (FERC) and the Federal Communications Commission (FCC).  While the Hart-Scott-Rodino Antitrust Improvements Act (HSR) does not require disclosure to the general public, the HSR rules do require disclosure to the target’s management before relatively low ownership thresholds can be crossed.  Non-U.S. acquirors have to be mindful of disclosure norms and timing requirements relating to home country requirements with respect to cross-border investment and acquisition activity.  In many cases, the U.S. disclosure regime is subject to greater judgment and analysis than the strict requirements of other jurisdictions.  Treatment of derivative securities and other pecuniary interests in a target other than common stock holdings also varies by jurisdiction and such investments have received heightened regulatory focus in recent periods.
  • Shareholder Approval.  Because few U.S. public companies have one or more controlling shareholders, obtaining public shareholder approval is typically a key consideration in U.S. transactions.  Understanding in advance the roles of arbitrageurs, hedge funds, institutional investors, private equity funds, proxy voting advisors and other important market players — and their likely views of the anticipated acquisition attempt as well as when they appear and disappear from the scene — can be pivotal to the success or failure of the transaction.  It is advisable to retain a proxy solicitation firm to provide advice prior to the announcement of a transaction so that an effective strategy to obtain shareholder approval can be implemented.
  • Integration Planning.  One of the reasons deals sometimes fail is poor post-acquisition integration, particularly in cross-border deals where multiple cultures, languages and historic business methods may create friction.  If possible, the executives and consultants that will be responsible for integration should be involved in the early stages of the deal so that they can help formulate and “own” the plans that they will be expected to execute.  Too often, a separation between the deal team and the integration/execution teams invites slippage in execution of a plan that in hindsight is labeled by the new team as unrealistic or overly ambitious.  However, integration planning needs to be carefully phased in as implementation cannot occur prior to the receipt of certain regulatory approvals.
  • Corporate Governance and Securities Law.  U.S. securities and corporate governance rules can be troublesome for non-U.S. acquirors who will be issuing securities that will become publicly traded in the U.S. as a result of an acquisition.  SEC rules, the Sarbanes-Oxley and Dodd-Frank Acts and stock exchange requirements should be evaluated to ensure compatibility with home country rules and to be certain that the non-U.S. acquiror will be able to comply.  Rules relating to director independence, internal control reports and loans to officers and directors, among others, can frequently raise issues for non-U.S. companies listing in the U.S.  Non-U.S. acquirors should also be mindful that U.S. securities regulations may apply to acquisitions and other business combination activities involving non-U.S. companies with U.S. security holders.
  • Antitrust Issues.  To the extent that a non-U.S. acquiror directly or indirectly competes or holds an interest in a company that competes in the same industry as the target company, antitrust concerns may arise either at the federal agency or state attorneys general level.  Although less typical, concerns can also arise if the foreign acquiror competes either in an upstream or downstream market of the target.  As noted above, pre-closing integration efforts should also be conducted with sensitivity to antitrust requirements that can be limiting.  Home country competition laws may raise their own sets of issues that should be carefully analyzed with counsel.  The administration of the antitrust laws in the U.S. is carried out by highly professional agencies relying on well-established analytical frameworks.  The outcomes of the vast majority of transactions can be easily predicted.  In borderline cases, while the outcome of any particular proposed transaction cannot be known with certainty, the likelihood of a proposed transaction being viewed by the agencies as raising substantive antitrust concerns and the degree of difficulty in overcoming those concerns can be.  In situations presenting actual or potential substantive issues, careful planning is imperative and a pro-active approach to engagement with the agencies is generally advisable.
  • Due Diligence.  Wholesale application of the acquiror’s domestic due diligence standards to the target’s jurisdiction can cause delay, waste time and resources or result in missing a problem.  Due diligence methods must take account of the target jurisdiction’s legal regime and, particularly important in a competitive auction situation, local norms.  Many due diligence requests are best channeled through legal or financial intermediaries as opposed to being made directly to the target company.  Making due diligence requests that appear to the target as particularly unusual or unreasonable (not uncommon in cross-border deals) can easily cause a bidder to lose credibility.  Similarly, missing a significant local issue for lack of local knowledge can be highly problematic and costly.
  • Collaboration.  Most obstacles to a deal are best addressed in partnership with local players whose interests are aligned with those of the acquiror.  If possible, relationships with the target company’s management and other local forces should be established well in advance so that political and other concerns can be addressed together, and so that all politicians, regulators and other stakeholders can be approached by the whole group in a consistent, collaborative and cooperative fashion.

As always in the global M&A game, results, highpoints and lowpoints for 2013 are likely to include many surprises, and sophisticated market participants will need to continually refine their strategies and tactics as the global and local environment develops.  However, despite the still turbulent political and economic environment around the world, the rules of the road for successful M&A transactions in the U.S. remain well understood and eminently capable of being mastered by well-prepared and well-advised acquirors from all parts of the globe.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Australian Update – Foreign Investment in Agriculture

Editors’ Note: This report was authored by Philip Podzebenko, a member of XBMA’s Legal Roundtable, and Linda Sweeney, solicitor. Mr. Podzebenko and Ms. Sweeney are members of Herbert Smith Freehills’ Corporate Group, which is at the forefront of developments shaping Australia’s corporate landscape.


  • The Australian government is planning to introduce a foreign ownership register for agricultural land to provide the community with better information about foreign agricultural landholdings.
  • The government has also published guidance as to factors that it will consider when assessing foreign investment applications involving Australian agriculture.

Main Article:


Foreign investment in the Australian agricultural sector is increasing. Recent mergers and acquisitions activity in the agricultural sector includes the acquisition of a large Australian cotton farm, Cubbie Station, by a consortium led by Shandong Ruyi, and Archer Daniels Midland’s proposal to acquire Graincorp, both in October 2012.

Foreign investment in agricultural land and agribusinesses has attracted controversy in Australia, partly fuelled by a lack of adequate information as to the extent of foreign ownership in the Australian agricultural sector.

Australia’s government has reiterated that it strongly supports foreign investment in the agricultural sector in its National Food Plan Green Paper 2012 and in the Australia in the Asian Century White Paper 2012.

Policy guidance

Under Australia’s current system, certain types of proposed acquisitions by foreign persons are subject to review by the Foreign Investment Review Board (FIRB) and may be rejected if they are considered not to be in the national interest.

For these purposes, land is classified as either ‘rural land’ which is land that is used wholly and exclusively for carrying on a business of primary production or ‘urban land’ which covers all land that is not rural land. Although acquisitions of urban land are subject to a separate notification and approval regime, acquisitions of rural land are assessed under the rules for general business acquisitions.

This means that for most agriculture sector acquisitions, FIRB approval is only required where the value of the business or agricultural land exceeds AUD248 million (or AUD1,078 million for acquisitions by United States residents), or where the acquirer is a foreign government or related entity.

In January 2012, the Australian government released a Policy Statement on Foreign Investment in Agriculture. This policy statement provides guidance to foreign investors as to specific factors that FIRB will consider when assessing whether an acquisition in the agricultural sector is in Australia’s national interest. These factors include the effect of a proposal on:

  • the quality and availability of Australia’s agricultural resources, including water;
  • land access and use;
  • agricultural production and productivity;
  • Australia’s capacity to remain a reliable supplier of agricultural production, both to the Australian community and its trading partners;
  • biodiversity; and
  • employment and prosperity in Australia’s local and regional communities.

When notifying FIRB of a proposed acquisition, foreign investors now need to address these specific factors as well as addressing the impact of the proposal on the following national interest considerations which apply to foreign acquisitions generally:

  • national security;
  • competition;
  • the economy and community;
  • other government policies including tax revenue and environmental impact; and
  • the character of the investor.

Proposed foreign ownership register

Reliable information about foreign ownership of Australian agricultural land is currently limited as most Australian states do not maintain a register of foreign owned land.

In October 2012, the Australian government announced that it will introduce a foreign ownership register for agricultural land following consultation with stakeholders.

The purpose of the register will be to improve the transparency of foreign ownership by providing the community with a comprehensive picture of the location and size of foreign agricultural landholdings.

The design of the register is still to be determined with the consultation process ongoing, but the consultation paper makes it clear that the register will be a record system only and will not form part of the foreign investment approval process.


Although increased foreign investment activity in the agricultural sector has attracted controversy, policy responses have been measured, with the Australian government:

  • seeking to provide additional transparency to foreign investors as to the policy considerations that it takes into account when assessing agriculture sector acquisitions; and
  • proposing measures designed to provide additional information about the levels of foreign ownership of agricultural land, so as to better inform public debate.

Nevertheless, with food security and access to agricultural resources becoming increasingly important global issues, foreign investment in the Australian agricultural sector will likely be the subject of ongoing policy and regulatory developments.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

INDIAN UPDATE – International Merger Control Regimes – It’s Time to Re-examine the Merger Control Regimes of India and other Emerging Economies

Editors’ Note:  The following thought provoking address was presented by Mr. Bharat Vasani at a recent conference on Competition Law.   Mr. Vasani is the general counsel and a key member of the senior management team of the Tata Group, India’s largest conglomerate and a fast-growing force in global M&A.  Mr. Vasani is recognized as one of India’s leading experts on mergers and acquisitions (both domestic within India and cross-border), corporate restructuring, JVs, foreign collaborations, divestments, and  other legal and regulatory issues involved in cross-border deals, having led many of the most important Indian domestic and outbound M&A transactions over the last decade.  In addition to his responsibilities as Tata’s general counsel, Mr. Vasani serves on the boards of Rallis India, Tata Sky, Tata Capital Markets, Tata Motors Finance and Tata Securities.


  • Mr. Vasani argues that competition regulators around the globe should re-examine the  pre-merger clearance process currently being practiced.  He argues that competition regulators worldwide need to have solid empirical evidence to suggest that the existing review process really ensures healthy market competition and even if it does, whether it yields results to the consumers in real terms.
  • It is submitted that it is pointless and rather counterproductive to mindlessly adopt the American anti-trust regime, and that many countries that have done so ought to instead frame a regulatory policy suitable to their specific needs.
  • The paper analyzes the need for merger control and its desirable model in emerging economies in three segments, taking India as a case study: (i) the purpose and policy goals of merger control, (ii) the cost of implementation and the externalities (e.g. the institutional and socio-economic factors) that have a bearing on the effective and efficient implementation of merger control, and (iii) the existing model and the one that ought to be.
  • The paper concludes, among other things, that for a developing economy like India a voluntary regime – where merging parties have the option, but not an obligation, to get their transaction vetted by the Competition authorities – is more suitable.  Mr. Vasani argues that in India, where most sectors are fragmented, monopolies and oligopolies may have to be accommodated in that such structures may be more efficient, and it may be more prudent to shift the focus to remedies for certain conduct, rather than restricting ‘size’ per se.

Main Article:

The advent of globalization, and adoption of a liberalized free market economy model brings with it the need for regulation; the idea being that an appropriate regulatory framework must be put in place otherwise governmental barriers to trade will simply be replaced by private barriers, preventing the achievement of the very objectives of liberalization. While this is a very sound proposition, getting the right mix of regulatory framework is always a challenge as it has to maintain the fine balance between sub serving the public interest or the policy goals on one hand and efficiency and market freedom on the other hand. Indeed, it is this balancing act that a national government professing to foster free market economy has to constantly grapple with – the global financial crisis and the debate over the advisability of greater regulation being a case in point. Again, the degree of regulatory needs would vary in developed economies and newly industrialized countries.

Merger control is undoubtedly one of the important components of the regulatory mix. The real question, however, is what should be the approach to its enforcement. As a thumb rule, one can say that ‘one size fits all’ approach to its adoption and implementation would be inappropriate. The need for the law has to be justified on the basis of a clearly defined legislative purpose, which may not be – and cannot be – the same for all countries.  Unfortunately however, most countries have adopted the American model of merger control regime without examining its suitability to local economic and market conditions.

The global economic crisis of 2008 has forced the world leaders to re-look at some of the fundamental economic policies, which are being practiced for centuries and which have not borne desired results.  It is a good time, therefore, to also relook at the global merger control regime that is being followed and question its underlying assumptions. This becomes all the more critical for emerging countries which have adopted the Anglo-Saxon model of Competition Law, and indeed this is the theme which I would humbly put before this august gathering today. The question that we need to ponder over is: Is it the case that the present model of merger control being followed in the developed world can be imported and implemented in the developing economies? If yes, whether it is suitable and sustainable?

While there has been an exponential growth in the number of countries that have adopted competition law – and merger control – as part of market reform, this alone, in my opinion, cannot be a sufficiently compelling argument to justify the implementation of a merger control regime adopted from the developed world. In fact, there is a case, in my opinion, for even the developed countries to rethink their approach to merger control and whether the present regulatory model – on a cost-benefit analysis – has worked well.

The basic theme of my presentation is to persuade various competition regulators around the globe and national governments to have a serious re-look at the suspensory pre-merger clearance process currently being practiced.  The Competition regulators worldwide need to have solid empirical evidence to suggest that the extant review process really ensures healthy market competition and even if it does, whether it yields results to the consumers in real terms. It is submitted that it is pointless and rather counterproductive to mindlessly adopt the American anti-trust regime and many countries that have done so ought to remedy the same and frame a regulatory policy suitable to their specific needs.

I would like to anyalyse the need for merger control and its desirable model in emerging economies on broadly three counts, taking India as a case study: (i) the purpose and policy goals of merger control, (ii) the cost of implementation and the externalities (e.g. the institutional and socio-economic factors) that have a bearing on the effective and efficient implementation of merger control, and (iii) the existing model and the one that ought to be.  I shall end with some thoughts on the need for streamlining the multi-jurisdictional merger review.

I. The utility of merger control: purpose and policy goals

As I mentioned earlier, the need for a law or regulation has to be justified on the basis of a clearly defined legislative purpose, which may not be – and cannot be – the same for all countries. The need for implementation of merger control, therefore, has to be supported by a sound and convincing legislative purpose.

There are enough justifications for the two limbs of competition law – prohibition of anticompetitive agreements and abuse of dominance. These are prohibited conducts and hence, need to be regulated It is the third limb, “Merger Control”, is the one that merits debate. Admittedly, Mergers are not bad per se (in fact, mergers, joint ventures, and strategic alliances, unlike naked price-fixing arrangements, involve the integration of resources; hence, they have the ability to generate real efficiencies); they need to be regulated to prevent the two prohibited conducts – the argument being, when two firms merge they may attain dominance and thereafter abuse their dominance. The core purpose of merger policy is to prevent the prospective anti-competitive effects of such mergers through appropriate remedies, including prohibition if necessary. Therefore, merger control is more in the nature of a preventive measure. The utility of this preventive measure has to be then necessarily seen in light of the mischief it seeks to address, and the resulting harm that absence of this preventive measure will lead to. Particularly, for emerging economies, the justification for adopting merger control needs a candid assessment.

The Indian Scenario:
In my humble opinion, India– one of the latest entrants into the list of countries that have enacted competition law – can be studied as a classic example of unsuitable merger control policy being thrust upon it threatening to stall the economic progress made in recent years. Given India’s current stage of economic development, it would be most inappropriate to transplant the Anglo-Saxon model of merger control regime of the Western world in the Indian system.

India did not have merger control regulations until 2002 when the Indian Parliament enacted the Competition Act (“Indian Competition Act”) providing for a mandatory pre-merger notification regime. India did have an antiquated merger control regime prior to 1991 under the (now repealed) Monopolies and Restrictive Trade Practices Act, 1969 (“MRTP Act”) – a law enacted during India’s long and economically fatal tryst with socialism. The MRTP Act was, in its letter and spirit, based on the flawed principle of “Big is bad” and sought to restrict – which would later have disastrous results – size of the enterprises notwithstanding the efficiency which the ‘size’ could generate. These provisions were enforced in such a manner that the M&A activity in India was virtually non-existent during the period (1969-1991) when they were in force. Therefore, when Indian economy was liberalized in the year 1991, the obsolete merger control provisions under the MRTP Act were abolished.  For the past 20 years, there has been no merger control law in force in India and unsurprisingly, no need for the same has actually been felt in the market place. The empirical evidence suggests that competition has in fact substantially increased in every sector of the economy as compared to 1991 when the old merger control regime was abolished.

The utility of merger control in India needs to be appreciated in the larger context – the current stage of India’s economic growth.

India followed socialistic economic policies for more than 40 years after gaining independence where the Government of India regulated the size of the manufacturing facility, technology to be used, and the capital to be raised with total inflexibility in the labour market and reservation of more than 800 products for the manufacture in the small scale sector.  This has resulted in India setting up several manufacturing capacities of uneconomic sizes. With the opening up of Indian economy and freeing of imports and significant reduction in import tariff, Indian industry is finding it difficult to compete with global economic giants who have an advantage of economies of scale.  The size and scale of the Indian industry, compared to its global counterparts, not only in the developed world but even amongst the developing economies like China, is quite small. India Inc., therefore, needs to consolidate in many sectors and the M&A activity needs to be encouraged so that healthy efficient units can take over small unviable units.

As regards those sectors where there is concentration of ownership and control over resources, the market monopoly is either in the hands of public sector enterprises or where the dominance is in the hands of private enterprises, the sectors are already regulated by sectoral regulators who regulate different aspects of business conduct, including competition and consolidation. For example, while The Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications regulate the conduct of telecom players in the market, including mergers, the Insurance Regulator regulates enterprises engaged in the insurance business. Similarly, the Central bank – the Reserve Bank of India regulates, among other things, business combinations in the banking and financial sector.

Furthermore, the past Indian experience with scrutiny of M&A transactions was counterproductive.  It did not result in any increase in the competition in the market place.  On the contrary, it made many M&A transactions unviable due to delays in getting Governmental clearances.

Although the stated objectives of the new Indian Competition Act- “to promote and sustain competition in markets and to ensure freedom of trade”- are laudable, it has provoked serious criticism primarily with respect to its merger control provisions. The past legacy combined with inefficient enforcement of the erstwhile MRTP Act has given rise to doubts on whether India has the appetite and the resources to implement a truly effective merger control regime. The industry fears that the mandatory notification requirement would impede the pace of M&A activities in the country and thereby adversely impact our economic growth. The mandatory pre-merger scrutiny may be justifiable in a mature economy but not in a developing economies where enterprises need to achieve scale of economies to compete effectively in a global market.

It may be pertinent to quote in extensor a paragraph from the dissent note of renowned Indian economist Sudhir Mulji forming part of the Expert Committee Report on which India’s new Competition Act is based. Writing against the need for merger control at India’s current economic development, Mulji wote with notable candour:

“…Finally my conclusion is therefore that the law and policy that must emerge from the proposals of this [Expert Committee] are wholly inappropriate for India at this present juncture of her development. What we should be promoting is freedom of the markets and we should even tolerate excesses. The release of what economists call animal spirits among Indian businessman is the first and the most difficult task of policy makers. It is for me sad that after two hundred years of colonial rule, we have been emasculated from thinking about issues on first principles and continue to imitate the ideas of others.”

The policy approach to merger control in countries like India also has to be in sync with a fundamental change in the Indian economic environment.  The abolition of industrial licensing, significant liberalization of FDI, lowering of customs tariff barriers, liberalization of import controls, reduction in the list of items reserved for small scale industry, freedom to large companies to seek growth in any market has fuelled the pace of competition in the Indian economy to an extent never witnessed in the post-independent era of India.  It is changes such as these in the overall business environment that need to be further strengthened rather than putting curbs/slowing down combinations which are likely to make industry more competitive and fuel growth both in employment and in the economy.

II. The cost of implementing merger control and the externalities

Competition law and merger control cannot operate in isolation as there are several factors that have a bearing on effectiveness and efficiency of the process employed to regulate mergers.

The cost factor
While the merits of pre-merge notification cannot be dismissed – and indeed, pre-merger appraisal of transactions may be essential in certain cases – the merits must be weighed against the increasing burdens the system is placing on business and regulators.

Studies conducted in June 2003 by PriceWaterhouse Coopers (PwC) suggest that the financial cost of undertaking multi-jurisdictional merger review in a large cross border M&A spanning several countries can be as high as 42% of the transaction cost if detailed investigations are ordered.  Even otherwise, in a routine transaction, which is cleared on a prima facie scrutiny, the cost of such review is around 20% of the total transaction cost.  This is in fact a tax on M&A activity and does not serve any useful purpose as there is enough empirical evidence to suggest that 95% of the M&A transactions do not undergo any modification post such a review. Significant and unnecessary transaction costs are imposed on proposed transactions through the notification and review procedures of merger control regulation. The cost gets compounded by the proliferation of merger control provisions and the requirement to file multiple merger notifications.

The world, especially the developing world, therefore needs to have a complete re-look at this traditional model of merger review and decide on a more appropriate policy frame work. If the tangible benefit – which is projected to be achieved by the proponents of merger control – is disproportionate to the enforcement cost for the regulator and transaction cost for the parties, then there is really no justification to hastily and mindlessly implement such law.

Apart from cost, there are other externalities which need to be looked at:

The Time-Factor: cost of delays
Apart from the real filing cost, the cost of delays due to regulatory review – in multiple jurisdictions – is another major area of concern, and must be taken into account before adopting the mandatory pre-merger scrutiny model of merger control. A paper presented at EC Merger Control 10th Anniversary Conference in 2000 estimates that without considering the cost of delays due to regulatory review, the cost to the global economy would be at least US$180 million a year just to complete merger filings in the EU and the US in 250 non-problematic transactions. The opportunity costs due to delay are potentially even more significant. For every day that non-problematic mergers are delayed, the merging parties – and ultimately consumers – lose the benefit of synergies and efficiencies that accrue from most mergers.

Seen in this context, the delay cost due to the merger control could be alarming in a country like India. The Indian Competition Act gives the Competition Commission 210 days to reach a decision; much longer than most, if not all, other jurisdictions worldwide.  The Act follows a suspensory system wherein pending clearance, the parties cannot close their deal. M&A transactions, in the present-day global context do not admit of a 210 days’ waiting period as envisaged by this new Act.  There are multiple suitors for every worthwhile target and target undertakings/companies will be extremely reluctant to wait for 210 days and will much rather prefer to go with someone else who can complete the transaction faster, albeit, at a lower value.  This is because global business environment could undergo dramatic shifts in a long period of seven months and targets may not be willing to risk significant diminution in value while hoping to optimize on realization. In such transactions which are mostly driven by strategic considerations, speed and certainty are at a premium and absolute price/consideration becomes a somewhat secondary criterion. Given that ‘time’ is of the essence in M&A transactions, a long waiting period, for many deals, could be fatal.

Furthermore, the right of third parties to appeal and file objections may be misused. For instance, even if a merger proposal is cleared by the Commission at prima facie review stage, it may be appealed against by ‘any person aggrieved’. This coupled with the appellate jurisdiction of Competition Appellate Tribunal, without a mandatory timeline for disposal of appeals, with a further appeal to the Supreme Court may elude finality of M&A transactions.

The provisions are also not aligned with other laws; for example the 210 days waiting period may result in anomalous situation under the SEBI Takeover Code. Also, while the Act repeals the MRTP Act, it does not repeal the provisions under sections 108A-I of the Companies Act – thus retaining a parallel merger control law.

The legislative flaws

Assuming that there are enough justifications for implementation of merger control, it is imperative that the drafting of the law is as per the best practices, as substantive flaws n the law would create a legislation that could be at war with itself and significantly impede the very objective it is intended to foster and achieve.

In India, the merger control provisions of the Indian Competition Act have some serious flaws:

  • The Act lays down asset or turnover based threshold. The ‘asset’ based criteria may not be objective in case of industries such as telecom, power, petrochemicals, etc. Also, the thresholds are to be computed on a combined basis and no specific thresholds have been prescribed for the ‘target.’ This is exacerbated by the faulty definition of ‘group’ based on 26 % shareholding. The definition does not take into account ‘commonality/ identity of products or services’ which the members of the group are engaged in.
  • No ‘size of transaction test’ has been laid down which will result in a number of technical filings in respect of a large number of global transactions that have little or no relevance to India.
  • Equally perplexing is the absence of a convincing ‘effects test’ even though the Act makes provision for its extraterritorial application. This will imply that even foreign transaction with no substantial India impact would be subject to mandatory pre-merger filing requirement. This clearly is inconsistent with the International Competition Network’s Recommended Practices that merger control regulations should incorporate appropriate standards of materiality as to the level of ‘local nexus’ required for merger notification.

The institutional and socio-cultural factors

Another important factor that is worth considering is that the estimated and projected gains from merger control may be offset by the inadequate institutional infrastructure and poor governance. The bigger problem in emerging economies which may make it difficult to realize similar benefits as in the western world is poor governance, widespread corruption, poor management of public finances and inadequate judicial and oversight institutions. Thus, it is possible that merger control may become another tool for misuse by vested interests and itself become a barrier to trade and commerce.

India, for instance, presently does not have the required administrative resources and technological infrastructure in place which developed countries have evolved over the years. Even the best of laws cannot be applied without adequate human resources i.e. staff of sufficient size with adequate technical competence. This further requires adequate financial resources as they are a necessary complement to human resources. The inevitable disparities between private and public sector salaries create problems of professional staff retention. The importance and relevance of administrative mechanism cannot be ignored in the effective and efficient implementation of competition law, which is still in its nascent stage in India. The immediate fallout of the Act would be overburdening of the CCI by the likely volume of filings that the mandatory notification requirement would necessitate. The “gatekeeper” provision would lead to inordinate procedural delays and shift focus of the CCI from real substantive issues to routine and irrelevant tasks of scrutinizing technical filings. In a country like India, the regulators are likely to take a very long time to evolve as most of them do not have firsthand experience of dealing with Competition Law issues.

Moreover, given the Indian socio-cultural realities, extraneous considerations will definitely play a big role in sanctions / refusals of the proposals by the CCI. Corruption is a known menace and the problem is compounded by the fact that most of the officers are grossly underpaid, having lesser motivation to successfully implement Competition Law and particularly the provisions relating to M&As, which due to their subjective nature (no objective criteria being defined in the Act) can be easily tweaked.

Another aspect of global M&A dynamics that the India bureaucracy is not prepared for is the need to maintain confidentiality in sensitive transactions. In India, the minute a file reaches a governmental body, the same is for all practical purposes in public domain. Due to the flawed criteria in the Act for determining combinations, many transactions which may have no India impact will definitely have Indian ‘publicity’ once the mandatory pre-merger notification regime is brought into effect.

III. The existing model and the one that ought to be

Voluntary v. Mandatory Regime

Even the proponents of merger control will have to admit that the new Competition Act is not against dominance, it is against abuse of dominance. In other words, ‘Size’ per se is not bad. The justification for merger control is that if two firms are allowed to merge without scrutiny, they may attain a size which can later be abused in the market to the detriment of the consumers. While this is a valid concern, this does not justify a mandatory merger control regime, at least for a developing economy like India; instead a voluntary regime – where merging parties have the option, but not an obligation, to get their transaction vetted by the Competition authorities – would have been suited more to the Indian scenario. This system has, after all, worked well in countries like UK and Australia. The fear of ‘unscrambling the egg’ is rather overstated.

In the Indian context it is pertinent to note that the Competition Act, as originally enacted in 2002, provided for voluntary notification but without coming into force for a single day, the merger control provisions were drastically amended in 2006 to provide for the mandatory process.

The introduction of mandatory notification requirement seems to stem from the Standing Committee’s concern that were India to adopt a voluntary notification regime, the Commission may miss out on transactions that are likely to cause an adverse effect on competition in India. This is, however, misconceived. Firstly, the Commission is empowered under the Act to independently investigate a combination irrespective of the fact that it is notified. Therefore, even though a transaction is not notified by the parties, the Commission can, on its own, take notice of the transaction, decide upon its implication on competition in the market, and take necessary actions. Secondly, the chances of any significant combination going unnoticed are minimal because even where parties themselves do not approach the Commission, it is likely to be informed of such transaction by the parties’ competitors, customers and the media.

In practice, problematic transactions having implication on competition do come to the attention of competition authorities even in voluntary regime. Parties to a transaction, which they consider may impact competition, will themselves notify to the Commission to avoid any potential regulatory uncertainty over the transaction post-completion. However, making the notification requirement a mandatory legal procedure will force the parties to notify all transactions even though they are insignificant in terms of their scale and impact in the market. This would result in unnecessary delays and consequently, increased transaction cost for the parties.

Given that mandatory pre-merger review is the law now, one option, considering the overall repercussions, could be to defer the enforcement of mandatory notification provisions in the Act. The Act could be implemented in phases i.e. to start with only the provisions dealing with anti-competitive agreements and abuse of dominant position (which are already in force), while the merger control provisions can be notified later. This would offer time not only to the Indian industry to attain global size and scale, but would also enable the newly constituted Competition Commission to gain the required experience with requisite administrative & technical infrastructure in order to effectively and efficiently  perform their regulatory role. Alternatively, the Government could identify those sectors where concentration is clearly visible and implement merger control in those sectors alone. Sectors which are intensely competitive, sectors in which goods and services could be easily imported, and sectors which are serviced by several market players, do not raise competition law concerns and hence, keeping those sectors out of the merger control process, at least for the time being, would not be out of place. The Commission should conduct an empirical study to identify whether, and if at all, absence of merger control has encouraged proliferation of anti-competitive practices in the market to the detriment of consumers.

It is, therefore, critical that the legislation does not seek to regulate and control and thereby slow down consolidation – both local and international – by Indian Corporates to make a place for themselves in the global economy and compete effectively in the market place.  Balance of convenience is clearly in favor of not regulating combinations, and at the first instance, it will be in public interest if the Competition Commission restricts itself to exclusively focus on abuse of dominance.  Such an approach will be in national as well as public interest, since it has the potential to present an optimal balance between accelerated growth of domestic economy, while dealing on an exceptional basis for any cases of abuse of dominance.

In fact, in developing economies like India – where most sectors are fragmented in terms of number of players – monopolies and oligopolies may have to be accommodated in that such structures may be more efficient and the focus may have to be on conduct remedies rather than restriction of ‘size’ per se.

Inorganic growth and consolidation actually constitute the most desirable solution in certain sectors to ensure that economic resources of the nation are employed for creating assets and are not swindled away in ruthless competition in the market place, as also to ensure a healthy competition in the long run.

India and China are the growth drivers post the Global financial crisis of 2008-09.  India reported a GDP growth of 8.6% in the last quarter.  India has a golden opportunity to transform its economic condition from an underdeveloped economy to a global economic giant in the next 20 years.  It is therefore of critical importance that the Government of India should not take any legislative steps, which would put unnecessary shackles on the entrepreneurial spirit of Indian businessman or put restrictions or delays the healthy economic activity including M&A transactions.  It would be most unwise for India to introduce one more gatekeeper at this stage when it is uniquely poised to take the full advantage of the position in which it is placed vis-a-vis Europe and the US, post the global financial crisis.

While one cannot deny that merger control is an important component of competition law and it is necessary for the Indian government to bring their antitrust policy up to the global standards but at the same time it is also necessary to tailor the law appropriately to suit the needs of India’s developing economy. ‘Just because other countries have it, we should also have’ is not an argument compelling enough to justify enforcement of mandatory pre-merger review and spend huge resources which such enforcement would necessitate. To once again quote from the dissent note of Sudhir Mulji, “..I do not find the argument that eighty nations have passed laws regulating competitive behavior an intellectually compelling one. These eighty countries have simply copied or adapted American legislation. America brought in this [anti-trust regulations] legislation for particular reasons arising out of her own history, which may not be relevant elsewhere.”

Streamlining multi-jurisdictional merger review

Any debate over merger control cannot be isolated from the global context. Therefore, I would like to end with some thoughts on the multi-jurisdictional merger review that currently being employed.

Internationally, there is a need for serious introspection by all the policy makers and the competition regulators of different countries as to whether  having such a complex, expensive and time-consuming multi-jurisdictional merger control regime is advisable and does it serve any useful economic purpose. The proliferation of pre-closing reporting regimes presents a serious challenge to the business community. The world therefore needs to have a complete re-look at this traditional model of merger review and decide on a more appropriate policy frame work which ought to be suited and customized to each economy’s peculiar characteristics. Given that national economic boundaries are increasingly getting blurred and corporate mergers are a worldwide phenomenon, it is now more important than ever to ensure that the procedures employed to regulate cross-border mergers are as efficient and consistent as possible.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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