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: January 2014

U.S. UPDATE – 2014 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 colleagues at Wachtell Lipton David A. Katz, Scott K. Charles, Ilene Knable Gotts, Andrew J. Nussbaum, Joshua R. Cammaker, Mark Gordon, Eric M. Rosof, Joshua M. Holmes, T. Eiko Stange, Gordon S. Moodie, Raaj Narayan and Francis J. Stapleton.


  • More than 30% of global M&A in 2013 involved acquirors and targets in different countries, including $134.5 billion of acquisitions in the U.S. by non-U.S. acquirors (a growing 15% of which involved acquirors from emerging economies).
  • Noteworthy cross-border deals in 2013 included Verizon’s $130 billion acquisition of the remaining interest in Verizon Wireless from Vodafone, the second largest cross-border transaction in history, Applied Materials’ $9 billion acquisition of Tokyo Electron, and Shuanghui International’s $7 billion acquisition of Smithfield Foods.
  • U.S. deal markets continue to be relatively hospitable to off-shore acquirors and investors.
  • The checklist included in the Main Article below covers issues that should be carefully considered in advance of any acquisition or strategic investment in the U.S.


More than 30% of global M&A in 2013 involved acquirors and targets in different countries, including $134.5 billion of acquisitions in the U.S. by non-U.S. acquirors.  Noteworthy cross-border deals in 2013 included Verizon’s $130 billion acquisition of the remaining interest in Verizon Wireless from Vodafone, the second largest cross-border transaction in history, Applied Materials’ $9 billion acquisition of Tokyo Electron and Shuanghui International’s $7 billion acquisition of Smithfield Foods.  Notably, 15.1% percent of the acquisitions in the U.S. by non-U.S. acquirors in 2013 were made by companies from emerging economies, up from 8.4% in 2012.  We expect this trend to continue.

U.S. deal markets continue to be relatively hospitable to off-shore acquirors and investors.  With careful advance preparation, strategic 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 than fundamental legal or political restrictions.

The following is our updated checklist of issues that should be carefully considered in advance of an acquisition or strategic investment in the U.S.  Because each cross-border deal is unique, 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 is rarely politicized, in the context of specific transactions, prospective non-U.S. acquirors of U.S. businesses or assets should undertake a comprehensive analysis of 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.  We expect to see continuity in the enforcement policies at the federal level for the foreseeable future.  Finally, depending on the industry involved and the geographic 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 ownership or governance over time; partnering with a U.S. company or management or collaborating 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 the 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 U.S. Department of the Treasury 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 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 of 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 of critical importance  to success in a “Section 363” sale process or confirmation of a Chapter 11 plan, 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.  There has been less volatility in the global credit markets this year than in the immediate past, which resulted in fewer closings of the “windows” in which particular sorts of financing are available.  Overall, the recent volume of financing and the rates at which financing has been available is unprecedented and has facilitated acquisitions, particularly by larger, well-established corporates and sovereign-affiliated borrowers.  Important questions to consider when financing a transaction 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.  There may be adverse tax consequences for U.S. borrowers on using property of non-U.S. entities to secure their loans and that would include pledging stock of a non-U.S. entity to secure U.S. borrowings.  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.  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, 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.  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 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 proactive 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 global M&A, results, highpoints and lowpoints for 2014 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, 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.

RUSSIAN UPDATE – Changes in Russian Merger Control Regulations

Editors’ Note: This paper was authored by Vyacheslav Yugai, Senior Associate, Egorov Puginsky Afanasiev & Partners.

Executive Summary

Effective at January 30, 2014, Federal Law 423-FZ dated December 28, 2013 ends regulations requiring the subsequent notification of Russian competition authorities of corporate transactions of minor value as well as some intra-group transactions. The amendments to the merger control regulation would have a positive affect the entire Russian M&A market.

Main Article

The Russian government continues to move towards the liberalisation of the regulatory framework of mergers and acquisitions. Recent changes to the merger control regulations are aimed to ease sub-middle market deals. Consequently, after January 30, 2014, the majority of transactions which had previously been notified to the national competition authority (FAS) will no longer have to.

Current Regulation (before January 30, 2014)

Basically, the Russian merger control regulation recognises two kinds of control – prior approval and subsequent notification.

A corporate transaction requires prior approval if the combined total book value of assets of the undertakings concerned exceeds seven billion rubles (150 000 000 euros) or their total revenue for the preceding financial year exceeds ten billion rubles (214 000 000 euros) and the book value of assets of the target is more than 250 000 000 rubles (5 400 000 euros).

In general, subsequent notification is required for a corporate transaction where the combined total book value of assets of the undertakings concerned or their total revenue for the preceding financial year exceeds 400 000 000 rubles (8 500 000 euros).  In case of equity acquisition, the combined total book value of assets of the undertakings concerned or their total revenue for the preceding financial year must exceed 400 000 000 rubles and the book value of assets of the target is more than 60 000 000 rubles (1 300 000 euros).

Also, certain corporate transactions which would otherwise require prior approval, made between the members of the same group could qualify for subsequent notification.

Post January 30, 2014

Effective January 30, 2014, Federal Law 423-FZ of December 28, 2013 abolishes regulations requiring subsequent notification of FAS of corporate transactions of smaller value. Likewise, corporate transactions triggering a prior approval threshold but carried out between subsidiaries, e.g. a parent undertaking and a subsidiary, are no longer within the merger control rules. Hence, this method of governmental merger control will only be reserved for some intragroup corporate transactions.


Appearing as a minor regulatory fix, the amendments to the merger control regulation would result in hundreds of thousands of euros of legal fees for tedious filing work saved resulting in a more efficient spend in more meaningful areas. This is because a typical filing for merger clearance of a small or even an intragroup transaction is substantially no different than for a large M&A deal and could be some 500-1000 page bundle of legal and financial documents.

These changes will not only affect small and mid-market where the presence of governmental antitrust protection has been questionable. Considering that in many cases large corporate transactions are preceded by internal restructuring, overcoming additional regulatory constraints could be burdensome, especially in terms of timing. Therefore, the new regulations will have positive effect on larger deals as well.

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.

Global Update – Capital Insights: Oil and Gas

Editors’ Note: Franny Yao (Yao Fang), who contributed this article, is a Partner & Leader at Ernst & Young in Beijing, responsible for Key Accounts and Government Relations in China. She is a founding director of XBMA and has broad expertise in cross-border M&A, representing major Chinese companies in their global expansion and other strategic drives. This article comes to us from Ernst & Young’s Capital Insights. 


  • Increased demand, high oil prices and steady production have increased sector confidence, but challenges lie ahead.
  • Managing return on capital invested is a major issue for the industry, despite high prices and rising demand.
  • Corporates need to keep focused on upstream core assets to increase returns.
  • Partnerships, investment in new technology and a focus on quality, as well as scale of production, are fundamentals for the future success of the industry.

Main Article:

The oil and gas sector is changing. Capital Insights explores how corporates are seeking growth by consolidating and innovating.

At first glance, oil and gas companies seem to be doing better than ever. Production is running at near record levels. According to the BP Statistical Review of World Energy 2013, the world produced 86.1b barrels of oil in 2012 — a 15% increase on total production 10 years ago.

At the same time, oil prices have averaged a historically high level of US$111 per barrel for the past two years, according to the US Energy Information Administration (EIA). A decade ago, oil was priced at just US$25 a barrel. The high pricing is a result of growing demand. According to BP, consumption increased to a record high of 89.7 billion barrels last year, a 14% increase on the 78.4 billion barrels consumed in 2002. Strong growth in emerging markets (EM) has driven the increase, with a rise in consumption of 3.3% in countries that are not members of the Organization for Economic Co-operation and Development (OECD).

Oil and gas executives have taken heart from this backdrop of increasing demand, high oil prices and steady production. “For the bulk of the last decade, we have been in an environment where oil prices were rising quite quickly and gas prices were either flat or rising,” says Andy Brogan, Global Oil & Gas Transactions Leader at EY. “Fields that came on stream when prices were still low are economical at those lower prices and are still producing. When the oil price is trading above those levels, the energy companies are making money, and that underpins confidence.”

This is shown by EY’s latest Capital Confidence Barometer, in which 58% of respondents were focused on growth — up from 41% in October 2012.

This underlying industry confidence supported a record year for M&A in 2012.

According to EY’s Global Oil and Gas Transactions Review 2012, deals worth US$402b were closed in the oil & gas sector last year, significantly higher than the US$337b in 2011. There were 92 transactions exceeding US$1b in 2012, compared with 71 in 2011, a further sign of confidence as corporates demonstrated a willingness to invest large sums in long-term projects. Major deals include the acquisition by CNOOC Ltd, a China National Offshore Oil Corporation subsidiary, of offshore group Nexen for US$15.1b.

Despite a falloff in M&A activity in 2013 (as there has been in many sectors due to continued economic uncertainty — for more, see “The big picture”) and a cautious approach to additional investment by corporates, there have still been substantial deals. These include US company Freeport-McMoran Copper & Gold buying offshore driller Plains Exploration and Production for US$10.8b in May, while in April, US company Hess sold its Russian assets to the country’s second-largest oil producer, Lukoil, for US$2b.

“The industry has been blessed with quite a long period of relative stability with the commodity price at reasonably strong levels,” says Jon Clark, UK Leader for Oil & Gas Transaction Advisory Services at EY. “That has helped to build balance sheets in larger companies, but it has also made people feel more comfortable about making long-term capital commitments and investment decisions.”

Capital constraints

However, despite the positives, the industry faces challenges. Managing return on capital is one of the major issues with which the industry has been confronted, even in an environment where prices and demand have stayed high.

A May 2013 Citigroup study, Investing for Commodity Uncertainty, found that the return on capital employed for 30 of the world’s largest oil companies fell to 9% in 2012. Between 2005 and 2008, figures show that return on capital averaged over 15%. That return could drop to 8% by 2015, if Brent crude prices fall below the US$100-per-barrel threshold.

“There is no doubt that it is more costly to produce resources today than it was 20 years ago,” says Kevin Forbes, Partner at specialist oil and gas technology investor Epi-V. “There is a huge cost differential between a relatively simple drilling operation in Saudi Arabia and drilling under 10,000 feet of water in a deep-water project.”

Finding new sources

Discovering and producing reserves in more hostile conditions has been one of the major contributing factors to the pressure on return on capital.

Government-backed national oil companies (NOCs) now control the bulk of the world’s oilfields — according to the BP Statistical Review, countries outside of the OECD now control 85% of the world’s proven reserves. A recent example of the growing strength of NOCs can be seen in China’s CNPC acquiring a 20% stake in Offshore Area 4 in Mozambique from Italy’s Eni for US$4.2b in July 2013. International oil companies, which used to control more than four-fifths of global reserves before the rise of NOCs, have had to look to difficult-to-access, deep-water assets and unconventional sources of energy, such as oil locked in shale and tar sands.

For example, in September this year, US company Ensco took delivery of an ultra-deep-water drilling ship, ENSCO-DS7, which is set to become its fourth rig working in the West Africa deep-water market.

A 2013 Goldman Sachs analysis of Europe’s largest oil and gas companies demonstrates how challenging it has been for some groups to improve return on capital when the sites are so difficult and technical. The investment bank found that 18% of the capital invested by Europe’s largest oil and gas companies has gone on projects that need the oil price to be US$80 or higher just to break even.


 Making the most of it

Even though unconventional and deep-water oil and gas assets are pricier and more challenging to develop, exploiting these resources is essential if the world is to continue meeting the mounting demand for hydrocarbons.

According to the International Energy Agency (IEA), the development of deep-water reserves, oil sands and shale gas is forecast to increase production from outside OPEC to 53 million barrels a day by 2015, up from fewer than 49 million barrels a day in 2011. By 2035, the IEA forecasts that unconventional gas will account for half the increase in global gas production.

Unconventional resources have become key for oil companies, as they provide access to new reserves that are not controlled by the dominant NOCs. Many of these projects can be operated profitably thanks to improvements in technology, and supplies are plentiful. The EIA estimates that the world holds reserves of 345 billion barrels of technically recoverable shale oil and 7,299 trillion cubic feet of shale gas.

This is a significant source of new assets for international oil companies, easing pressure to replace reserves.

“The shale plays have made a very significant contribution to our business. These assets … provide tremendous optionality for ConocoPhillips,” said Matt Fox, Executive Vice President of Exploration and Production at US oil group ConocoPhillips, in its 2012 annual report. “They are resource rich, with years of scalable drilling inventory.”

Brogan adds that another advantage of unconventional resources is that they provide oil companies with greater capital flexibility than plays in deep-water or traditional wells. “If you are in huge offshore assets operated by a consortium, [this] usually means that you are in assets that have very long lead times and very little flexibility about the capital you deploy once you have made the decision to go. Unconventionals are a good alternative to that, because you can scale those up and down quickly,” says Brogan.

The only way is upstream

The focus on return on capital among the oil companies, coupled with moves to make plays for deepwater and unconventional assets, have been the major drivers of oil and gas M&A recently. These priorities mean that the largest growth in investment is in upstream assets (operations involving exploration and production stages), where deal value increased by 68% to US$284b, according to EY’s Global Oil and Gas Transactions Review 2012.

Upstream deals have continued to dominate deal activity in 2013, with Royal Dutch Shell’s US$6.7b buyout of Repsol’s liquefied natural gas (LNG) assets one of the standout deals of the year. Activity in the downstream market (operations that take place after production through to retail), by contrast, has been slower, with downstream deal volumes falling 6% to 162 deals in 2012, and deal values staying flat at around US$42b.

Oil companies have been eager to sell off downstream operations and focus on potentially more lucrative upstream plays. Examples from 2012 include Exxon Mobil selling its Japanese retail, refining and storage division, TonenGeneral Sekiyu, for US$3.9b, Statoil selling a 54% stake in its road-transport fuel retailer to Alimentation Couche-Tard, and BP selling its Carson refinery and Southern California refining and marketing business to Tesoro Corporation. Meanwhile, in September 2013, US oil company Chevron agreed to sell its downstream assets in Pakistan.

“Downstream assets tend to have a lower unlevered return than upstream assets, so you have seen companies selling those assets or, at the most extreme end, completely splitting downstream and upstream,” says Brogan.


The road ahead

In a changing world, corporates in the oil and gas sector need to bear in mind the following factors when trying to compete:

1. Return on capital. Although the oil price is trading at near-record highs and demand is increasing, return on capital is still a key area of focus as resources become more difficult and expensive to produce. “As the rocks that companies are producing oil from become progressively harder to get at or are more remote, and the focus on health, safety and environmental concerns becomes even greater, then the cost of developing them increases. Processes have become more technical and difficult. Deep-water is more expensive than shallow-water, and unconventional resources are more expensive than conventional,” says Brogan.

2. Partner up. Partnerships have always played a large part in the industry, but the fact that many oil and gas fields have become more technically challenging to operate and require large capital investment has prompted an increase in joint ventures (JV) and strategic alliances between oil and gas companies to mitigate risk.

“We are now entering a third era, where cooperation between partners is the key to unlocking the resources found in the most challenging locations,” said BP Chairman Carl-Henric Svanberg in the company’s latest annual report.

A recent example of this is the JV deal announced in June 2013, between Pangean Energy and PetroTech Oil and Gas, which saw the companies enter a contract to buy mineral rights in the huge Bakken shale oil reserves in North Dakota.

3. Upstream deals. The record M&A level in 2012 — particularly in upstream activity —

demonstrates the importance of using acquisitions as a tool for breaking into new geographies and taking control of unconventional resources such as shale or deep-water. And, while 2013 has been quieter for M&A, there is reason for optimism. The second quarter of 2013 saw an improvement in upstream deals — although it was a modest one. According to Derrick Petroleum Services, volumes rose from 117 deals in Q1 to 141 in Q2, with value also rising from US$20.9b to US$24.9b. The indication is that the sector is still focusing on its core activities.

Upstream deals are extremely key to positioning oil companies to achieve the best return on capital. “In an environment where capital is more constrained than in the past, companies have rightly focused on where they can get the best returns on that capital. Traditionally, the upstream segment of the market is where bigger returns on capital are possible,” says Clark.

4. Invest in technology. Advances in technology have been the key enabler for companies developing difficult-to-reach assets. Without technological developments, production on many assets operating today would be impossible. This is set to be an ongoing theme — investing in technology, either internally or through acquisitions, will allow companies to produce with greater efficiency and open up new resources in the future.

“Oil companies are making returns on capital on difficult assets, which they could never have made economical 20 years ago,” says Forbes. “Given the recent technological breakthroughs, there is every chance the industry can continue to open up hard-to-access reserves in the future.”

5. Quality not quantity. Producing as much as possible used to be the main focus for international oil companies. Now, with the focus on return on capital, quality, as well as scale of production, is the priority. “For BP, advantage now comes from exceptional capability rather than exceptional scale. Our future is about high-margin, high-quality production, not simply volume,” said BP’s Svanberg in the annual report.  Indeed, technical ability and high margins are likely to remain crucial, as oil companies rely more on deep-water and unconventional reserves to replace oil stocks and meet the world’s ever-increasing energy needs.

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 – 2013 Private Equity Year in Review

Editor’s Note: Andrew J. Nussbaum is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton firm memorandum by Mr. Nussbaum, Steven A. Cohen, Amanda N. Persaud, and Joshua A. Feltman.

Main Article:

Private equity deal activity ebbed and flowed, often unexpectedly, in 2013. Despite some slow periods, strong debt and equity markets helped support first nine-months numbers that are well ahead of 2012, although Q4 2013 is unlikely to match Q4 2012, where activity was stimulated by anticipated changes in the tax laws. Successful sponsors again demonstrated their ability to perceive and exploit changing market conditions. Moreover, the private equity industry posted its best fundraising numbers in years. It was a year that showed that Semper Paratus may indeed be the industry’s new motto.

What Types of Deals Are Getting Done? Lots of deals got done in 2013, although only two topped $20 billion and barely a handful exceeded $5 billion. But the volume totals do not reflect the many challenges of getting a deal over the finish line. While deal activity was helped in some cases by announced or behind-the-scenes activism—which may motivate listed companies to exit certain areas of the portfolio or consider a public-to-private for the entire business—there is no question that deals are getting harder to do (e.g., Dell), and attractive assets have multiple suitors (e.g., BMC Software).

Perhaps not surprisingly, in an environment of rising stock prices, cheap financing and cautious economic optimism, private equity sponsors faced ample competition for attractive targets, including from strategics willing to borrow and pay all cash. The winning bidder needed an edge—speed of execution, deal philosophy or capital structure creativity, or all of the above. Sponsors who focused on a substantive investment theory as to how the deal makes sense (e.g., Neiman Marcus and Albertsons), or how to cleverly put it together (e.g., Heinz), achieved potentially hallmark transactions.

Private equity sponsors also reacted to challenging market conditions by increasing the proportion of “add-on” acquisitions and minority investments. The latter types of investments can fly under the radar of other private equity firms, resulting in less competition, and typically require less time and fewer resources from the private equity sponsor after the investment is consummated.

Dry powder in the private equity industry remains high, the investment window is closing on funds raised in 2007 and 2008, and the Federal Reserve seems to be moving away from the policies that let the historically cheap financing of 2012 survive through 2013, all suggesting that sponsors will want to continue to put capital to work even in challenging market conditions.

What About Exits? The trend toward private equity sponsors selling to other private equity sponsors continued in 2013, but for the first time in 4 years the volume of sponsor-to-sponsor activity declined. The public equity markets were solid for much of the year, which permitted certain very large deals (e.g., Seaworld and Hilton) to launch. In the first half of the year there appeared to be more dual track processes than in the second half, perhaps a result of the buoyant public equity markets and sponsors becoming less interested in chasing them. These trends should continue as long as stock market valuations remain strong.

Fundraising and Limited Partners. After a prolonged period of contraction, private equity achieved in the first three quarters alone the highest fundraising totals since 2009. Particularly noteworthy is that a number of sponsors raising multi-billion dollar funds hit their target much quicker than anticipated, and in some cases high investor demand has resulted in sponsors increasing fund sizes.

Sponsors successfully raising capital have adapted to the balance of power having tilted in favor of limited partners. Not uncommon these days are customized arrangements for significant investors, various discounts to the 2 and 20 model, sector specific funds and co-investment and direct investment platforms. While the numbers are still small, some sponsors are raising capital through the public markets by employing novel structures to manage the complicated retail regulatory regimes. Others are managing platforms that invest in small cap managers who often have the ability to post higher returns than larger funds. Regardless of the amount of assets under management, sponsors are working harder to maintain investor relationships in the hopes of maximizing commitments to future capital raises.

Consolidation Ahead? The alternative asset management industry is highly fragmented, with the top 25 sponsors controlling less than one-third of assets. We expect that institutional investors, in particular, will continue to direct most of their capital to sponsors with top brand names and diverse product offerings. These sponsors often have stronger internal governance and controls to effectively manage the myriad of US and foreign regulations affecting their business. They also tend to be more adept at handling complex fund structuring arrangements. The ever-increasing regulatory burden also drives consolidation, as costs and the need for sophisticated risk management personnel raise challenges for smaller managers.

* * *

We have predicted since 2007 that the post-recession private equity industry would reward focused endeavors and distinctive strategies. 2013 was a case in point. Successful fundraising required clear articulation of specific strategies, and, ideally, the track record to prove the thesis; the M&A and IPO markets rewarded “bespoke” dealmakers and those nimble enough to move quickly in response to markets. We see reason for optimism for the well-prepared in the coming year.

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 – Unilateral Conduct: The Competition Commission of India’s Enforcement Priorities

Editors’ Note:Cyril Shroff is a member of XBMA’s Legal Roundtable and one of the deans of the Indian corporate bar and a leading authority on Indian M&A, with extensive experience handling many of the largest and most complex domestic and cross-border M&A, takeover, banking and project finance transactions in India.

Executive Summary:

The following article Unilateral Conduct: The Competition Commission of India’s Enforcement Priorities analyses the principles and trends enunciated by the Competition Commission of India (“CCI”) in the abuse of dominance cases dealt with by the CCI to date. 

Main Article: 

Introduction: Legal Framework

The Competition Act, 2002 (“Act”) (as amended) is the principal legislation governing competition law in India. The provisions of the Act dealing with abuse of dominance (the operative provision being Section 4 of the Act), came into effect from 20 May 2009.

The Concept

An abuse of dominance occurs when a dominant entity substantially prevents or lessens competition, by taking advantage of its peculiar position of strength in a particular market. Although an abuse is not defined under the provisions of the Act, Section 4(2) provides a list of abuses which are prohibited.

In India, determination of ‘dominance’ is not a function of any set arithmetical parameters or pedantic norms. Instead, dominance of an enterprise is to be judged by its power to operate independently of competitive forces or to affect its competitors or consumers in its favour. Thus, the test is more qualitative in nature than quantitative, involving  multi-faceted analysis.

Scope of the Act

Section 4 of the Act prohibits an abuse of a dominant position by any “enterprise”[1] or “group”[2]. Therefore, by implication, the concept of collective dominance is not yet envisaged under Section 4 of the Act, although the Competition (Amendment) Bill, 2012 which is currently pending before the Indian Parliament envisages the concept of collective dominance.

Section 4(2) of the Act lists certain acts which are presumed to be an abuse, if the dominant position of the enterprise, indulging in such conduct, is established:

(a)                directly and indirectly imposing unfair or discriminatory conditions or prices (including predatory price) for purchase or sale of goods or services,[3] unless such conduct is adopted to meet the competition;

(b)               limiting or restricting production of goods or services, technical or scientific development;

(c)               indulging in practices resulting in denial of market access in any manner;

(d)               making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts (i.e., tying and bundling); or

(e)               using a dominant position in one relevant market to enter into or protect other relevant market.

Therefore, strict liability is imposed by law, violations are to be adjudged under the ‘per se’ rule and there is no requirement to assess the actual adverse effect on competition in the market, if any. A limited exception to this is available in relation to imposition of unfair or discriminatory condition or price in relation to purchase or sale (including predatory price) where the dominant enterprise may plead that their behaviour was objectively justified in the particular circumstances i.e. that the unfair or discriminatory conditions or prices (including predatory prices) were adopted “to meet competition”.

However, an analysis of the abuse of dominance cases adjudicated by the CCI to date reveals that the CCI has so far avoided delivering orders based on the concept of ‘per se’ illegality by setting very high standards for establishing dominance and defining the contours of the relevant market. In reality, the CCI does embark upon a rule of reason analysis by assessing the strength in the relevant market of the party complained against and thereby determining the effect that any alleged abusive conduct might have on competition in the market.

Interestingly, the Act deals with both: exclusionary as well as exploitative abuses. Unlike some other jurisdictions, purely exploitative conduct, even if it has no exclusionary effect, can and has been scrutinized under the abuse of dominance provisions of the Act (for instance, in the DLF Order). The Act therefore, continues, to perpetuate the legacy of the erstwhile  Monopolies and Restrictive Trade Practices regime by allowing purely exploitative consumer disputes to be litigated within the ambit of competition law.

Stages involved in an Abuse of Dominance Investigation

A dominant position held by an enterprise or a group is not per se prohibited; however, abuse of such dominance by an enterprise or a group attracts the provisions of Section 4 of the Act. The provisions of the Act dealing with abuse of dominance draw heavily from EU jurisprudence on the topic and specifically from Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).
For the purposes of determining whether the enterprise/ group has engaged in an abuse of dominance, the CCI has to undertake a three stage process:

(a)              determination of the relevant market;
(b)              determination of “dominance” in such relevant market; and
(c)               determination of an “abuse” of such dominant position.
We examine these concepts as under:

Determination of a Relevant Market

Dominance of an enterprise can only be established in a defined relevant market. Therefore, determination of the relevant market is critical in abuse of dominance cases. The relevant market is a function of the relevant product market as well as the relevant geographic market.[4]

The “relevant product market” is defined in the Act as 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.

The “relevant geographic market” is defined as 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.

When assessing the relevant market, the SSNIP test or the “hypothetical monopolist” test is commonly used.[5] There are however, some limitations on the application of the SSNIP test in abuse of dominance cases. The recent trend by parties before the CCI has been to rely heavily on economic evidence by submitting an expert report by an economist.

Establishing Dominance in the Relevant Market

Before applying the vigour of Section 4, the CCI will first ascertain whether an enterprise or group is dominant in the relevant market. While determining dominance, the CCI is required to consider all or any of the factors listed in Section 19(4) of the Act which includes a catch-all factor i.e. “any other” factor which the CCI may consider relevant for the inquiry.[6]

Although market share is generally considered to be an important factor in determining dominance, there are no bright line tests prescribed in the Act or by the CCI in this regard. However, it is not the only factor to be considered. This is evident from two seminal orders passed by the CCI relating to abuse of dominance, referred to below.

(a)    The CCI in the NSE Order held the National Stock Exchange of India Limited (“NSE”) to be dominant based on its overall financial strength and vertical integration in the stock market, despite it having a lesser market share than the informant, MCX-SX. The CCI observed that “due consideration to some important cases from international jurisdictions … as also guidance papers of some other jurisdictions…indicates that authorities have taken a very wide and varied range of market shares as indicators of dominance, going down to 40% in some jurisdictions.  In context of the Indian law, this indicator does not have to be pegged at any point but has to be considered in conjunction with numerous factors given in Section 19(4) of the Act.”[7] The CCI noted that in terms of the prevalent market structure, MCX SX had a market share of 34%, NSE had a market share of 30% and the only other competitor in the market had a share of 36%. As such, the number three player in the market was held to be abusing its dominance based on a complaint filed with the CCI by the number two player in the market.

(b)               Further, in its assessment of dominance in the DLF Order, where the CCI imposed a penalty of Rs. 6300 million on DLF Limited for having violated Section 4 of the Act, the CCI and the Director General (“DG”) took into account various factors other than market share, such as statements issued by DLF Limited in the public domain, vast amounts of fixed assets and capital, turnover, brand value, strategic relationships, wide sales network, etc. The relevant market in this case was narrowly defined to comprise the market for high-end residential apartments in Gurgaon, Haryana, in which DLF had a market share exceeding 55%.

Establishing Abuse

It is important to note that dominance itself or the presence of rightfully earned market power is not frowned upon, but it is the misuse or ‘abuse’ of this dominance that creates a competition law concern which is sought to be addressed by way of specialized legislation which will ensure the existence of a competitive market structure.

The Act does not define “abuse”. However, Section 4(2) of the Act provides a list of conduct which is presumed to be abusive and is therefore prohibited. Some of the conditions generally imposed by enterprises, which may fall squarely within the purview of the Act are excessive pricing, predatory pricing, price discrimination between entities in the same circumstances, granting of rebates under certain circumstances, exclusivity agreements, tying and bundling, refusals to supply, leveraging[8] and unfair price or terms and conditions.[9]

However, unfair and discriminatory conditions imposed in the purchase or sale of goods or services and unfair, discriminatory and predatory pricing may be justified if such conduct is adopted to meet the competition.[10]

However, the category of specific arrangements or agreements which could amount to abuse, as provided in the Act, are not exhaustive and there may be other scenarios where a party may be found guilty of abusing its dominant position, for instance by indulging in resale price maintenance or imposing non-negotiable vertical restraints.

Burden of Proof

The burden of proof to prima facie establish the abuse of a dominant position rests on the informant.[11] In case the CCI is satisfied that there is a prima facie case, it will pass an order under Section 26 of the Act directing the DG office to conduct an investigation into the alleged abuse of dominance. The DG is then required to submit an investigation report to the CCI as regards its findings on the allegation of abuse of dominance. As stated earlier, given that an abuse of dominance is a per se violation, the burden of proof to prove that there has been no abuse of dominance shifts to the enterprise under investigation.
Once ‘abuse’ by a dominant enterprise is established, the Act imposes strict liability on an enterprise abusing its dominant position and does not make any reference to an effects based analysis except a limited defence of actions undertaken to meet competition. However, this limited defence is only available in respect of imposition of unfair or discriminatory prices or conditions and not in relation to any other types of abuses. This approach is contrary to the provisions of EU competition law, where the “objective justification” or the “efficiencies” defence can be submitted as a valid defence for a dominant enterprise to engage in abusive conduct.

Determination of Penalty

If the CCI comes to the conclusion that there has been an abuse of dominance by an enterprise or group, it can pass all or any of the following orders, in terms of Section 27 and Section 28 of the Act:
(a)                direct discontinuance of such abuse of dominance;
(b)               impose penalty to the extent of 10 per cent. of the average of the enterprise’s turnover for the last three preceding financial years;
(c)                order division of the enterprise enjoying dominant position; and
(d)               pass any other order/direction which it deems fit.
There is presently very little guidance on the mitigating and aggravating factors which weigh with the CCI, if at all, at the time of determining the penalty to be levied in a particular case. Apart from the ceiling fine prescribed by the Act in Section 27, there is no guidance on the quantum of fine to be actually levied in different cases.

Thus far, the absolute level of fines imposed in the abuse cases investigated and adjudicated upon by the CCI is hefty and suggests that the CCI is adopting a deterrent approach. Further, given the uncertainty of concepts dealt with by this new law and a general lack of awareness regarding the scope of activities that may attract penalization under this law, the CCI has taken a rather aggressive stand not only in respect of adopting narrow relevant market definitions but also in terms of the headline penalties imposed by it on individual entities.

Recent Trends in Abuse of Dominance cases in India

In the first case decided by the CCI on abuse of dominance i.e. the NSE Order case,[12] the CCI concluded that NSE held a dominant position in the relevant market although at the time of passing of the order, NSE’s market share in the relevant market (i.e. the CD Segment of the securities market) was 30% while the complainant’s market share was 34%. For the purpose of abuse analysis, the CCI developed a concept of ‘unfair pricing’ distinct from ‘predatory pricing’ and termed it as a clear method of leveraging done by NSE of its profits made in other segments to set-off losses in the CD segment. The CCI arrived at the conclusion that NSE was drawing on its economies of scale with the intention to impede future market access to potential competitors and foreclose existing competition, which it deemed completely unfair from a competition law perspective.

In the second case decided by the CCI on abuse of dominance i.e. the DLF Order case[13], the CCI analyzed the unfair terms imposed in the Apartment Buyers’ Agreements (“Agreement”) entered into between the real estate developer DLF Limited (“DLF”) and a society comprising allottees of apartments in a housing complex that was proposed to be constructed in Gurgaon, Haryana, by DLF and based on an extremely refined and niche definition of the relevant market, determined DLF to be in a position of dominance in the relevant market comprising high-end residences in Gurgoan. The CCI rejected DLF’s arguments to the effect that the impugned terms of the Agreement were “industry practice” and concluded that as a dominant enterprise in the relevant market, a greater responsibility was imposed on DLF to ensure the terms offered by them were fair and equitable. The CCI noted that the allottees in this case were clearly ‘captured customers’ who were victims of DLF’s abusive conduct. Accordingly, the CCI imposed a hefty penalty of Rs. 6300 million (i.e. 7% of the average of the annual turnover of DLF for the previous three years ). Thus far, the Indian industry’s understanding of ‘abuse of dominance’ has been restricted to instances of exclusionary conduct like predatory pricing or refusal to deal etc; the DLF Order however explored the exploitative angle in abuse of dominance cases.

The most recent CCI case dealing with abuse of dominance is the case of Surinder Singh Barmi v. Board of Control for Cricket in India[14] (“BCCI case”)[15] in which, on a complaint made by a cricket fan in relation to grant of various rights in the Indian Premier League (“IPL”) , the CCI has found the Board of Control for Cricket in India (“BCCI”) to be guilty of abusing its dominance in the market for organization of private professional cricket leagues/events in India. Interestingly, the relevant market definition considered by the CCI in the present case does not take into account the various individual constituent markets which together create the IPL. For instance, the market for call of media rights, franchise rights, sponsorship rights etc arguably constitute a separate relevant market with respect to the bidders for each such right. This is on account of the fact that the demand side substitution and supply side substitution should be observed from the view point of the customer at each level of the value chain.

However, the CCI held that Clause 9.1(c)(i) of a media rights agreement which provided that BCCI shall not organize, sanction, recognize, or support during the existing Rights period (as defined in the agreement) another professional domestic Indian T20 competition that is competitive to the league, resulted in denial of market access in violation of Section 4(2)(c) of the Act. The CCI has directed the BCCI to delete the said clause from the media rights agreement and has imposed a penalty of Rs. 522 million on BCCI, at the rate of 6% of the average annual revenue of BCCI for past three years. The matter is presently pending before the Competition Appellate Tribunal (“COMPAT”) which has stayed the CCI’s order on grounds of a prima facie case existing in favour of BCCI.


The CCI while aggressively enforcing AOD cases and awarding headline penalties does not seem to discriminate between exploitative and exclusionary conduct. Given the way the Act is drafted, the CCI is even considering effective consumer disputes like DLF within the garb of competition law. It remains to be seen whether the CCI continues to stick to its ‘fairness’ mandate or moves beyond it to focus on pure competition concerns.

[1] An enterprise, as defined under the Act, includes all its divisions, units and subsidiaries.

[2] A group, for the purposes of abuse of dominance cases, means two or more enterprises, which directly or indirectly, are in a position to:
exercise 50% or more of the voting rights in the other enterprise; or
appoint more than 50% of the members of the board of directors in the other enterprise; or
control the management or affairs of the other enterprise.

[3]The CCI considered unfair and discriminatory conduct in the Belaire Owner’s Association v. DLF Limited and HUDA case (“DLF Order”), where the CCI imposed a penalty of Rs. 6300 million on the dominant enterprise.

[4] Section 2(r), read with Sections 2(s) and (t) of the Act.

[5]The Small but Significant Non-transitory Increase in Prices (“SSNIP”) test is widely used by the competition authorities around the world to define the relevant market. Starting with the narrowest possible market definition, if it is profitable for a hypothetical monopolist to increase the price(s) of the product(s) in this narrowly defined relevant market by 5%, substitution away from this class of products is small, so the products in the relevant market do not face significant competitive constraints from products outside it, and the candidate market is therefore the relevant market. If, on the other hand, the increase in price(s) is not profitable because consumers would substitute/switch to products outside the candidate market, the market definition would be extended to include the closest of these substitutes, in order to ensure that any product exercising a competitive constraint on the product(s) in question is included in the market definition.

[6] These factors are:
(a)    market share of the enterprise;
(b)    size and resources of the enterprise;
(c)    size and importance of the competitors;
(d)   economic power of the enterprise, including commercial advantages over competitors;
(e)    vertical integration of the enterprises or sale or service network of such enterprises;
(f)     dependence of consumers on the enterprise;
(g)    monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or a public sector undertaking or otherwise;
(h)    entry barriers, including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
(i)      countervailing buying power[6];
(j)     market structure and size of market;
(k)    social obligations and social costs;
(l)      relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an AAEC; and
(m)  any other factor which the CCI may consider relevant for the inquiry.

[7] Paragraph 10.48 of the NSE order.

[8] Using dominant position in one market to enter into or protect the other relevant market is an abuse (for instance, the NSE Order case). Therefore, the existence of dominance and the abusive conduct are not required to be in the same market.

[9] The CCI has elaborated on the concept of “unfair pricing” in the NSE Order, which is distinct from predatory pricing. In the NSE Order, the CCI held that the zero price policy of NSE in the currency derivatives segment of the financial services market is “unfair”. Unfairness, it was held, was required to be determined, not on the basis of cost estimates such as average variable cost, average avoidable cost, long run average incremental cost, etc., but on the basis of the facts of the case, and “in the context of unfairness to the customer, or in relation to a competitor.” The NSE Order specifically notes that the two competitors, i.e., NSE and the MCX Stock Exchange Limited were not “on equal footing” in relation to financial resources.

[10] Explanation to Section 4(2)(a) of the Act.

[11] PDA Trade Fairs v. India Trade Promotion Organisation, Case No. 48 of 2012.

[12] Case No. 13/2009, available at:

[13] Case No. 19/2010, available at:

[14] Case No, 61 of 2010, available at:

[15] The authors are advising the BCCI in this matter.

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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