Tuesday, April 2, 2013

Right idea, wrong radar

Competition Commission of India has notified its norms to prevent M&As from creating monopoly like situations. But they may prove ineffective and even counterproductive in their current form by virat bahri

Chances are bright that you will not catch the usually staid Bill Gates make a politically sensitive statement. But in one of his very famous comments a few years back, he had made three of them in one go. He lampooned his own country for not being able to catch Saddam Hussein, called the EU a passing fad (doesn’t look so way off anymore!) and also exclaimed that he was sick of fascist lawsuits! Gates’ reaction was to the different lawsuits that Microsoft had to confront on either side of the Atlantic. A number of companies like Microsoft have gone through hell facing legal ire when they are deemed to have reached dominant positions in their respective industries and also misused these positions to generate supernormal returns, kill competition or exploit customers.

The Competition Commission of India (CCI) has recently taken some steps to prevent the possibility of M&As leading to monopoly-like situations in India, whether they are solemnised within or beyond its borders. The norms stipulate that post merger/acquisition entities with combined assets greater than Rs.15 billion (or > $750 million globally and at least Rs.7.5 billion in India) or belonging to a corporate group with turnovers greater than Rs.60 billion in India (or >$3 billion globally & at least Rs.7.5 billion in India) will have to notify. Similarly, combinations with turnovers greater than Rs.45 billion in India (or > $2.25 billion globally & at least Rs.22.5 billion in India) or belonging to groups with turnovers over Rs.180 billion in India (or >9 billion globally & at least Rs.22.5 billion in India) will have to seek approval. Industry people hail it as a great decision for a country that is seeing increasing M&A activity. But will these norms be effective enough? Or can they prove counterproductive instead?

As per data from PwC, M&A deals in India reached $36.15 billion in 2010, a growth of 85.67% yoy. The more interesting part is that $10.7 billion from the value is accounted for by the Bharti-Zain deal, one of the key strategic bases for which was the unparalleled extent of competition in the Indian telecom market! A point that needs to be underscored is that when you are discussing the entire concept of past and current monopolies in the Indian market, a number of names would actually come up from the public sector itself like Coal India, SAIL (when you consider captive ore mines) NMDC, BHEL, or Indian Railways!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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