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!
Even a company of the size of Reliance Industries could not monopolise retail in India as competitors had feared. The latest is the claim of the company that it had become the country’s largest food & grocery retailer with a business of Rs.25.13 billion from Reliance Fresh was quickly countered by Pantaloon CEO Kishore Biyani in the media. Meanwhile, Wal-Mart is gaining traction and international players like Carrefour would further open up the market. However, one cannot ignore that when it comes to the private sector in India, a number of situations amounts to oligopolies or monopolistic competition across industries. And when it comes to understanding whether a monopoly situation exists or is being misused in diverse sectors, financial benchmarks can fall short. For instance, in aviation, even a Jet-Sahara (which just managed a profit of Rs.96.9 million in FY 2010-11) or a Kingfisher-Air Deccan combine (net loss of Rs.10.27 billion for FY-2010-11) has found it tough to stay in the black. And these players are actually monopolising some key sectors in the aviation space! In industries like cement and steel or even real estate, the dominant issue that has pestered the government has been cartelisation. Indeed, private companies in such sectors have succeeded in duping customers and artificially raising prices, but can M&A laws specific to one combined entity/corporate group really help there?
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!
Even a company of the size of Reliance Industries could not monopolise retail in India as competitors had feared. The latest is the claim of the company that it had become the country’s largest food & grocery retailer with a business of Rs.25.13 billion from Reliance Fresh was quickly countered by Pantaloon CEO Kishore Biyani in the media. Meanwhile, Wal-Mart is gaining traction and international players like Carrefour would further open up the market. However, one cannot ignore that when it comes to the private sector in India, a number of situations amounts to oligopolies or monopolistic competition across industries. And when it comes to understanding whether a monopoly situation exists or is being misused in diverse sectors, financial benchmarks can fall short. For instance, in aviation, even a Jet-Sahara (which just managed a profit of Rs.96.9 million in FY 2010-11) or a Kingfisher-Air Deccan combine (net loss of Rs.10.27 billion for FY-2010-11) has found it tough to stay in the black. And these players are actually monopolising some key sectors in the aviation space! In industries like cement and steel or even real estate, the dominant issue that has pestered the government has been cartelisation. Indeed, private companies in such sectors have succeeded in duping customers and artificially raising prices, but can M&A laws specific to one combined entity/corporate group really help there?
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Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
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IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)
