Introduction
Mergers and acquisitions in India reached near an all-time high in the year 2021 after deals worth US $90.4 billion were struck in the first nine months.[1] Of these, a total of 95 combinations were notified to the Competition Commission of India (“CCI”). While 6 combinations were filed under Form II (i.e., the long form of notification), 29 were notified through green channel[2], i.e., automatic system of approval for combinations with no horizontal or vertical overlaps and the remaining under Form I. Under the green channel route, a combination is deemed to have been approved upon filing the notice in the prescribed format.
The year 2021 also marks a decade of enforcement of the merger control regime in India. Since the regime came into effect on 1 June 2011, the CCI has approved over 800 combinations which is no insubstantial milestone in itself. In the past year, a majority of combinations notified to the CCI related to investment by private equity players, transactions in the digital markets sector, internal restructurings of companies etc. The year was also marked by one of the largest acquisitions in the aviation as well as the renewable energy sector. Further, in an unprecedented turn of events, the CCI revoked the approval granted to a combination in 2019. In the ensuing discussion, we will be analysing the highlights of the year gone by.
Combination Highlights of 2021
The underlying theme for acquisitions in 2021 has been build scale and capability and entering adjacent business categories and new geographies.
Digital Markets
One of the most significant acquisitions in the digital ed-tech space, Think & Learn Private Limited (“BYJU’s”) acquired Aakash Educational Services Limited (“Aakash”), a test preparatory coaching for students, extending its presence to offline channel to provide a comprehensive omnichannel experience to its audience. This involved BYJU’s acquiring 70% of the equity shareholding (on a fully diluted basis) of Aakash followed by a merger of Aakash with BYJU’s. As a consequence, now BYJU’S has sole control over Aakash.
Another significant capability driven acquisition in the digital markets was the acquisition of BigBasket by Tata Digital. TATA Sons through its wholly owned subsidiary TATA Digital Ltd. (“TATA Digital”) acquired India’s biggest groceries delivery company Big Basket.[3] The proposed transaction involved the acquisition by TATA Digital of up to 64.3% of the total share capital of Supermarket Grocery Supplies Private Ltd. (“SGS”) which is engaged in B2B sales of food and grocery, household products and personal and beauty care products. Subsequently, through a separate transaction, SGS may acquire sole control over Innovative Retail Concepts Private Limited (“IRC”) which is engaged in B2C sales of the similar products through its website bigbasket.com. The proposed transaction resulted in the acquisition by TATA Digital of majority stake and control over SGS.
Determining relevant turnover for application of de-minimis exemption
The CCI for the first time carried out a detailed assessment of calculation of the relevant turnover to test the applicability of the de minimis exemption while analysing the acquisition of Parexel International Corporation (“Parexel”), jointly by EQT Fund Management S.à r.l. (EFMS) and the Goldman Sachs.[4] The proposition for consideration by the CCI was, whether either (i) turnover originating from outside India and terminating in India (Import Turnover in India); or (ii) intra-group turnover originating from India and terminating outside India (Intra-Group Export Turnover) should be excluded for the purpose of testing of de-minimis exemption threshold.
The CCI noted that, the computation of turnover for the purposes of availing de-minimis exemption has to include Import Turnover in India as it relates to rendering of services to customers in India, i.e., value of business relatable to India. In relation to Intra-Group Export Turnover, the CCI noted that the purpose of exclusion of intra-group turnover is to avoid double counting. When overseas group entity makes further supply of these services (supplied to it under intra-group export) outside India, the turnover relating to such subsequent sale will not be counted as turnover in India. If one were to also exclude Intra-Group Export Turnover, then the economic value addition generated from India goes unaccounted. Intra-group turnover cannot be excluded mechanically. Location of the parties to the intragroup sales and the scope of acquisition needs to be appropriately factored in the determination of turnover.
Landmark Government Divestment
One of the landmark combinations approved by the CCI involved the acquisition of Air India (the national carrier) by TATA Sons in the last month of 2021.[5] This involved Talace Private Limited (“Talace”), a wholly owned subsidiary of TATA Sons acquiring 100% equity share capital and sole control over the management and operations of Air India Limited (“Air India”) and Air India Express Limited (“AIXL”), and 50% equity share capital and joint control over the management and operations of Air India Airport Services Private Limited (“AISATS”). The proposed transaction was in relation to the proposed strategic divestment by the Government of India of its 100% equity share capital and control in Air India.
Combinations of necessity – under the insolvency regime
Piramal Capital & Housing Finance Limited (“PCHFL”) acquired Dewan Housing and Finance Limited (“DHFL”) and Pramerica Life Insurance Limited (“PLIL”) for US$4.7 billion through Corporate Insolvency Resolution Process (“CIRP”) initiated under the Insolvency and Bankruptcy Code, 2016 against DHFL.[6]
Strategic Acquisitions
Acquisition of SB Energy Holdings Limited (“SB Energy India”) by Adani Green Energy Limited (“Adani Green”) was one of the largest strategic acquisitions approved by the CCI in the renewables market.[7] Both SB Energy and Adani Green were involved in power generation through renewable sources.
Change in control
The acquisition of sole control over Mukand Ltd. by Bajaj Group of companies[8], which was previously under the joint control of Bajaj Group along with Mr. Rajesh V. Shah and certain other individuals (“Shah Group”) was approved by the CCI pursuant to an assessment of the extent to which the parties competed with each other, prior to the change in control. While the acquirers are investment and lending companies and are not engaged in the manufacturing or trading of any goods directly[9], the target i.e., Mukund Ltd. is engaged in the business of steel and heavy machinery. The CCI considered (i) the presence of the Bajaj Group in the overlapping segments which was minuscule; and (ii) the nature of change in control resulting from the proposed combination and observed that the proposed combination is not likely to result in any significant changes in competition dynamics in any plausible relevant market that could be delineated.
Similarly, the CCI approved the acquisition of an additional 16.40% shareholding by Heineken International B.V. (“Heineken”) in United Breweries Ltd. (“UBL”) in addition to its already existing shareholding of 46.53% in UBL.[10] Additionally, the proposed increase in shareholding would also lead to a change in control of UBL which will now be under the sole control of the Heineken Group. Given that the proposed combination involved competitors as both Heineken and UBL, engaged in the manufacture and sale of beer, the CCI was required to assess the change in the competitiveness of the market resulting from the change in control of UBL. The CCI observed that the Heineken Group is primarily selling its beers in India through UBL by way of an agreement and does not directly manufacture and sell beer in India, which implies a lack of direct and independent presence of the Heineken Group in India in the larger beer segment. Accordingly, the proposed transaction was found unlikely to alter the competitiveness of the market.
Another such combination assessed by the CCI related to the increase in control over TVS Supply Chain Solutions Limited (“TVS Supply Chain/Target”) by the TS Rajam Family[11] through TS Rajam Rubbers Private Limited and Dhinrama Mobility Solution Private Limited (and the exit of CDPQ Private Equity Asia Pte. Ltd (“CDPQ”).[12] TVS Supply Chain prior to the transaction was under the joint control of, CDPQ and the TS Rajam Family. Pursuant to the proposed combination, the TS Rajam Family will be able to exercise greater control over the TVS Supply Chain. Considering that the proposed combination envisaged change in the degree of control of TS Rajam Family over the TVS Supply Chain, the relevant activities for the purpose of competition assessment were identified by considering activities of TS Rajam Family other than through TVS Supply Chain and that of TVS Supply Chain. The combination was approved as it was unlikely to raise competitive concerns.
Beginning of the firsts – purpose trumps form
In an unprecedented move, the CCI last year imposed a penalty of INR 202 crores on Amazon for gun-jumping and suppressing material information while suspending the approval granted to Amazon/Future Coupon deal on 17 December 2021 which envisaged Amazon’s acquisition of 49% equity share capital of Future Coupons Private Limited (“Future Coupons”).[13]
The CCI while imposing the penalty used its discretion to impose the maximum penalty in respect of combinations for false representations and gun-jumping given the fact that Amazon had deliberately suppressed the true purpose of the combination and had suppressed material information. For the same, the CCI relied on the internal correspondence within the Amazon group which included e-mail sent to Mr. Jeff Bezos in relation to Amazon/ Future Coupon deal to understand the intent behind the deal.
Conclusion
The businesses in India in 2021 have responded to the disruption caused by Covid-19 across sectors by transforming their businesses and reshaping their portfolios through mergers, acquisition and divestitures. Further, during the pandemic, the digital insurgents seems to have leveraged the need for technology across sectors resulting into an unprecedented level of transactions by digital insurgents. It seems that the M&A hotspots for the year 2021 such as renewable energy, EdTech, fintech and consumer durables are going to stay lucrative sectors in the up-coming year as well. Further, the CCI has laid down a significant precedent to establish unequivocally that it is concerned not only with the structure but the true intent and purpose of a transaction and the same would play a major role while seeking an approval. Anther significant position established by the CCI relates to determining the relevant turnover for applying the de minimis exemption. It seems that the CCI will continue to have a significant influx of such notifications for substantive review despite the introduction of the green channel route and M&A hotspots for the year 2021 such as renewable energy, EdTech, fintech and consumer durables are going to stay lucrative sectors in the up-coming year as well.
[The author is a Joint Partner in the Competition Law team at Lakshmikumaran & Sridharan Attorneys, New Delhi.]
[1] “India M&A: Acquiring to Transform”, Bain & Company, last accessed on 21 December 2021, India M&A: Acquiring to Transform | Bain & Company
[2] Under the green channel route, a combination is deemed to have been approved upon filing the notice in the prescribed format.
[3] C-2021-03-822.pdf (cci.gov.in)
[4] https://www.cci.gov.in/sites/default/files/Notice_order_document/Order863.pdf
[5] C-2021-11-883.pdf (cci.gov.in)
[9] Bajaj Group does not have any other business similar (horizontal or vertical) to that carried out by the ML (and its subsidiary Mukand Sumi Metal Processing Limited (‘MSMPL’) except for the business of Mukand Sumi Special Steel Limited (‘MSSSL’) - an indirect subsidiary of BSPL. Considering the operations of ML, MSMPL and MSSSL, the Commission observed that the Proposed Combination involves horizontal overlaps in the broader segment for long steel products which, inter alia, include (i) bars and rods and (ii) billets and blooms. Further, the Commission noted that the billets and blooms manufactured by ML are supplied to MSSSL, and a portion of the bars and wire rods produced by MSSSL are supplied to MSMPL.
[10] Order843.pdf (cci.gov.in)
[11] The Acquirers are wholly owned subsidiaries of TVS Mobility Private Limited (‘TVS Mobility’), which is owned and controlled by the TS Rajam Family. TS Rajam Family holds 25% shareholding in TV Sundram Iyengar & Sons Private Limited (‘TVS & Sons’), the ultimate holding entity of the TVS Group. The remaining shareholding of TVS & Sons is held by the respective families of the three other children of Mr. TV Sundaram Iyengar (25% each). As submitted, TVS & Sons is under the control of, inter alia, the TS Rajam Family, by virtue of shareholding, right to board representation and other rights, which amount to decisive influence/control.
