Opinion Mergers & apprehensions

Admittedly,the Competition Commission of India (CCI) has had very little time to devote to this sort of painstaking work,as it has had a long tortuous route since its birth. But,presumably,these would also be the routes where abuse of competitive behaviour would be most manifest. For a firm bent on acquiring monopoly,or at least monopolistic power,it makes much more sense to build up control quietly than use M&A,which is like announcing your intentions to the regulator with a semaphore.

To that extent,how timely is the CCI’s interest in M&A activities? The stakes are,of course,substantial. Data released by market tracker Mergermarket on Friday shows in the first quarter of 2011,Indian companies were involved in $18.3 billion worth of deals,that is a 270 per cent rise over the same period last year. Most of the deals were inbound. So we are certainly talking big money here. This is also the reason why companies are extremely keen to ensure that regulations fall on the easier side of compliance. To its credit,the CCI too has said its interest in M&A regulations is not to police the phenomenon but to weed out that which aims at cartelisation. 

The problem with the draft M&A regulations is three-fold. Industry will not say it upfront; but,buffeted by the upsurge within the government and civil society to subject it to regulations like the 2 per cent tax to finance corporate governance,the draft regulations look to them suspiciously like another document to keep companies from growing too big. From a stage where the prime minister was keen to obtain the industry perspective on most issues in early 2010,to one in April 2011 where even calling of a formal meeting of the Council of Trade and Industry is a political hot potato,the relations have deteriorated a lot. Bringing in M&A regulations at this stage is,therefore,not the best of ideas. 

One feels that once this overhang of mistrust dissipates,the concerns of industry will come down significantly. But,as of now,pushing ahead with the regulations will mean,for one,having to dilute the provisions sharply to win the support of the industry. That will leave the CCI with little to mount an inquiry. Else,if the CCI and he ministry of corporate affairs play hardball,the entire field of regulations may still have to be dropped in very messy circumstances,but that will make a return to this topic extremely difficult.

The second unstated apprehension of industry is the composition of the CCI. This has been pointed out earlier as well. While comparisons with foreign organisations are not always accurate,the difference between the CCI and the Federal Trade Commission of the US is largely in the personnel manning the two. Since the Indian body has been built with the staff from the earlier Monopolies and Restrictive Trade Practices Commission,which had a very different mandate from the CCI,a question mark on the worldview of the personnel is bound to remain.

The third is the annoyance within industry about making the reportage of any M&A mandatory,from the original stated position of voluntary compliance. The voluntary approach was based on the UK model. The change was brought in on the basis of the report of the standing committee on finance that examined the initial set of regulations. This means that while the onus was earlier on the company to report such deals if it felt it would impact competition,it is now the CCI’s headache to pore over each deal. 

This is quite in line with our sarkari mai-baap approach that refuses to acknowledge that responsibility must be shared in a mature polity. The CCI has to prove at every point that it is vigilant and anticipate every possible demon in the market before it okays a deal. But as of now it seems difficult that this provision will ever be rolled back. The Registrar of Companies,for instance,gets snowed under by balance sheets that fall far short of compliance standards but no one ever complains. 

As an aside,once the M&A regulations are notified,it will be impossible to ever merge any of the subsidiaries of the State Bank of India with it. A merger among any of the other public-sector banks will also become very tricky,but since the RBI or the banks have not shown any great hurry to get on with it,one can obviously live with it. 

The other issues which industry is livid about are procedural. For instance,there is the possible clash with the Sebi Takeover Code where the CCI has said any investment by a company which is above the threshold limit into any similar-sized company must be informed beforehand. These are something like the drafting issues that set the industry and the revenue department at loggerheads in the finance bill and are often the debris from budget preparations; they can be overcome. 

The writer is Executive Editor (News),‘The Financial Express’,subhomoy.bhattacharjee@expressindia.com