MERGER Act 2002 was implemented. Here, we will discuss

MERGER

Merger and the role of
competition commission of India

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Introduction

                With the motive of promoting
competition and protecting the inquisitiveness of consumers, the competition
Act 2002 was implemented. Here, we will discuss about the growth of the MRTP
act and the gap in the act due to which the competition act came to existence.
Here, mainly the concepts of merger will be discussed and the essentials due to
which this business type increased in demand. We will also discuss about the
various kinds of merger. The part of the competition commission of India, along
with the ability under the act in relation with combinations are elaborated. We
will also discuss about the merger under the European Union in comparison with
the Indian Competition Act. The actual objective of making this article is to
elucidate the concept of merger along with the regulation process of
competition commission.

 

MRTP Act 1969

                The wore socialist was
inserted in the Preamble of the constitution of India by the 42nd
amendment. It was basically included to get rid of the disparities being
created due to income inequality, status and standard of life. To eradicate
such discriminations the government was not in favour of the economic powers
being in hands of just few people as it could lead to negligence of the
interests of the weaker sections of the society. While executing the advice
made by the monopolies inquiry commission a bill related to monopolies and
restrictive trade practices was introduced before the parliament. This act came
into existence in the year 1969. The Indian Constitution with respect to the
articles 30 and 39 constantly supports the well-being of the people of the
country in order to protect and promote justice in all spheres i.e. social,
economic and political for the common development and well-being. The MRTP act
also beliefs to the same policies as stated in the constitution.

 

Purpose of MRTP Act

·        
To eradicate the accumulation of economic wealth
in few hands as it hampers the involvement of others

·        
To put a check on monopolies

·        
To stop the trade operations that are banned

·        
To stop the trade operations that are
monopolistic

·        
To get rid of unjust trade operations.

 

Competition Law

                The purpose for which the
MRTP act was passed faced many changes due to which the new competition Act had
to be constituted. After the new act was passed the strategy of the government
of India introduced liberalisation and globalisation of trade as opposed to the
controlling and commanding strategies. MRTP act was regarded as the competition
law of India as it looked after the restriction of any trade practice which
prevented competition. It was later noticed that MRTP Act of the country was
not effective on competition in comparison to the competition law of other
countries.

Regulation of
Combinations

                Combination as regard to the
competition law may be explained as the merger and amalgamation of companies in
which acquisition of shares voting rights and control of assets of a company is
taken off by another company.

                There
is a need to regulate the competition so that no adverse effect is present on
competition. This is provided by the competition act as under stated in (sec 6)
:

·        
If any combination of enterprise leads to cause
an AAEC then such combinations are not to be entered by the organisations.

·        
If any organisation is willing to enter a
combination then the notice is to be provided to the commission mentioning the
policies of the combination within 30 days from the day on which it was being
approved.

·        
After 210 days of serving the notice to the
commission, the combination will start with its operations.

 

Procedure to Investigate combinations

·        
The CCI is responsible to check whether by
itself or through a Director General as to whether the combination offered can
lead to any kind of adverse effect on competition within India or not

·        
If CCI finds out that the combination may have
an appreciable adverse effect on competition then it will have to issue a show
cause notice and the parties related will have to present an answer regarding
this within a duration of 30 days from the receipt of the notice.

·        
Now the CCI may ask for a report from the
Director General

·        
Within seven working days of the receipt of the
parties response or receipt of the DG’s report, the CCI will direct the parties
to publish details of the combination to the public.

·        
CCI can call for the parties who might get
affected due to the combination to file objectives in writing

·        
CCI can ask for any information from the parties
to the combination within 15 working days of the expiry of the time for filling
objectives by affected parties or public.

·        
The parties will have to provide documents
within 15days.

·        
Once all the documents asked for by the CCI is
received then the case must be solved within 45 working days.

 

Merger and
Acquisitions under Competition Act 2002

            In context with the
process of globalisation and liberalisation there has been huge changes over
certain period of time. Globalisation has led to the end of controls and
entering into liberalisation in 1991. Due to this out country is facing
competition within the country and also beyond boundaries. There have been
large number of mergers and acquisitions across borders. To protect the markets
of our country from competition which may have adverse effect and maintaining
along with that the economic development and interest of consumers across the
border is difficult. To have a freedom of trade, India, introduced the
competition law. Mergers and amalgamations can lead to a higher rate of growth
and development of companies but on the other hand it may suffer from adverse
effects also. To control these competitions in the markets, regulatory process
have been implemented in the competition act 2002.

 

Combination under
Competition Act

                The definition of
combination is provided in the section 5 of the act. It is as follows:

                                Acquiring
one or more organisations by one or more persons or merger and amalgamation of
organisation shall be termed as combination of such organisations or persons
if:

1.      
Parties with intension to have control on the
voting rights or on the equity or assets of the organisation and the asset has
a value of more than a thousand crore or the turn over of the organisation
exceeds 3000 crore or the asset values within or outside the country borders or
exceeds 500 million US dollar.

2.      
In case a group seeks to have control over the
share, voting rights and assets of an organisation in India whose value of
asset exceeds 4000 crore or the turn over exceeds 12000 crore or the average
value of the assets amounts to 2 billion US dollar within or outside India.

3.      
If a person manages to have control over
organisation direct or indirect controlling power of another organisation which
maybe involve in production, distribution or trading of common or different or
substitute services.

4.      
If the assets valuation in an organisation
exceeds 1000 crore or the value of asset is measured to be 500 million US
dollar within or outside India after merger.

5.      
If a group after merger or amalgamation to an
organisation and it has assets exceeding 4000 crore or the average estimation of
the assets exceed 2 billion US dollar within or outside India.

Reason
behind Mergers and acquisitions

            Mergers among the
organisation has increased rapidly over a period of time. The following points
redress the reasons for an increase in the number of merger occurring in the
present scenario:

                                                        
i.           
Market
share : Amalgamation helps the companies to gain a dominant position in the
market. It also reduces competition and helps to increase the market share
which enables the organisation to exercise there will and limit the production
and increase the prices.

                                                     
ii.           
Large
economy : the organisations avails the profits of generating a huge amount
of revenues through the companies that have merged together as the size of the
business increases.

                                                   
iii.           
Diversification
: due to the increase in the increase earning through diversification, the
trust of the consumer increases.

                                                    
iv.           
Tax
issue : to reduce the tax the companies find a way to amalgamate. Due to
this it is considered to be an important factor as it deteriorate the income of
the government and reduces the development in the economic sector of the
country.

Examining
the part of competition commission

            The competition
commission place an important role in the government of India. It is answerable
for the imposition of the competition act, 2002.

Competition commission plays and
important role to prevent any adverse effects on competition in India. It acts
as a regulator of the markets in all sectors and mainly focuses on restraining
the anti-competitive practices which are harmful to the competition.
Competition commission of India has the power to notice anti-competitive
practices existing in the Indian market. The competition commission was
establish on 14th October and came into effect on may 2009.

 

Duties of competition commission

            Some duties
have been provided to the competition commission under the competition act,
2002. The essential duties of the competition commission are:

·        
To eradicate the proceeding which may happen to
increase the adverse effect on competition

·        
To conserve the competition in the market to
develop the scope of trade and eradicate any obstacles in the entry with in the
market.

·        
To preserve the consumer interest and eradicate
such practices which may affect the interest of the consumers adversely. To
induce new organisations to penetrate into the market for manufacturing higher
quality of goods and rendering better services.

·        
Competition commission should also provide its
ideas on important matters effecting competition or any citation made to it by
the statutory authority.

·        
The competition commission should also create
awareness among the public and provide training facilities on competition
issues.

Section 18 of the competition act
deals with the duties of competition commission of India.

 

 

 

 

 

 

What is merger?

A merger is a combination of different companies into one
single company.  It is a corporate
procedure to increase the financial and operational strengths of both
companies.

Example:  When two
companies combine to form a single larger company, it is known as a merger. A
transfer of ownership, either through a stock swap or a cash payment in between
the two companies is made during the combination of two companies.

 

Points to differentiate :

1.      
Integration Form :- Mergers can be organised on
the basis of the physical combination of both the companies in the transaction
to form an entity.

 

2.      
Relatedness of business activities :- It can be
categorised on how the business activities of both the companies relate to one
another. The kinds of mergers can be defined by the economic function and the
motive of the transaction.

 

Different types of mergers on
the basis of integration :

1. Statutory Merger :- A merger
in which all the assets and liabilities of the smaller company is obtained by
the bigger company is said to be a statutory merger. Due to this the smaller target
company loses its existence as a separate entity.

Company A + Company B
= Company A

 

2. Subsidiary Merger :- A merger
in which the target company becomes a subsidiary of the bigger acquiring company
is said to be a subsidiary merger. This may happen due to the strong image of
the target company which the acquiring company would like to retain.

Company A + Company B
= (Company A + Company B)

 

3. Consolidation Merger :- Where
both the companies lose their identities as separate entities to become a part of
a bigger new company, it is known as a consolidation merger. These mergers generally
occur between the companies of the same sizes.

Company A + Company B
= Company C

 

 

 

 

Categorisation on the basis of
relatedness of the business activities:

 

Ø 
Horizontal Merger :- When companies belonging to
the same industry merge together which have businesses within the same space,
is a horizontal merger. These companies are generally competitors of each other.
The competition level is high and the gains after the mergers are much higher
for companies in such industries.

The
inspiration of such merger is economics of scale and the control of bigger
market share.

 

Ø 
Vertical Merger :- A merger between the
companies that produce different goods or different service to get the
resultant one common finished product is known as a vertical merger.

Within the same industry, these
companies operate at different levels in the supply chain. The advantages of
such mergers are cost efficiency, operational efficiency, increased margins and
extra control on the production or the distribution process.

There are two
types of vertical mergers :-

·        
Backward Integration :- A vertical integration
in which a company acquires the suppliers of its raw materials.

·        
Forward Integration :- A vertical integration in
which a company acquires the distributors of its products.

 

Ø 
Conglomerate Merger :- Mergers in which the
companies operate in different and unrelated industries. Merger with totally
nothing in common between the companies is a pure conglomerate merger. Merger between
companies looking for market or product extensions are mixed conglomerate
mergers.

 

Ø 
Market Extension Mergers :- Mergers which happen
between the companies having same products to offer but the markets are
different. These mergers are made to make access in bigger markets with an
increase in client base.

 

Ø 
Product Extension Mergers :- Companies with
different but related products with same market merge together. These mergers
allow companies to offer their products and approach more consumers.

 

Other Categorization:

Other than the above mentioned
categorizations, there are few more types of mergers. These are :-

     
Complementary or supplementary merger :- A
complementary merger targets to compensate some limitation of the acquiring
company. The target company can be a way to improve the process or enter a new market.

A merger in which the target
company strengthens the acquiring company is a supplementary merger. The aim
may be to the same to the acquiring company in this scenario.

 

     
Hostile or friendly merger :- The approval of
the directors of the companies depends as to whether the merger will be a
hostile one or it will be a friendly merger.

A hostile merger is one in which
the boards of directors and the mergers of the company are against the merger.

                                Whereas
in a friendly merger, both the board of directors and the managers approve to
the merger.

 

     
Arm’s Length Merger :- The merger approved by the
disinterested directors along with the disinterested stockholders is termed to
be Arm’s Length Merger.

 

     
Strategic Merger :- This merger is one where the
target company objects a strategic hold for a longer period.