This article was first published in The Practical Lawyer
Within a short span of about six years, the Competition Commission of India (Commission) has steadily emerged as an effective merger control regulator. Since 2011, the Commission has approved over 430 transactions in diverse sectors. An overwhelming majority of the approvals have been unconditional in nature; only three transactions have been examined and cleared post a detailed Phase II investigation; and not a single one has been blocked.
Recently, the Commission approved a transaction with structural remedies in Phase I (prima facie investigation stage) itself. While conditionally approving the proposed transaction between Abbott Laboratories and St. Jude Medical, Inc. in the medical devices sector, the Commission noted that the market for small-hole Vascular Closure Devices (VCDs) was highly concentrated, with the combined market share of the parties being in the range of 90-100 percent and the market share of Cardinal Health, the only other competitor, being in the range of 0-5 percent. The Commission accepted a voluntary divestiture offered by Abbott and St. Jude Medical of the entire small hole VCD segment of St. Jude Medical on a worldwide basis to a third party, observing that such modification would eliminate the overlap in the Indian market and enable fair competition.
The Commission’s approach deserves consideration in light of the fact that this case involves a voluntary divestment of assets in Phase I against the ordinary trend of Phase II divestments. Prior to this, the Commission had accepted voluntary modifications on several occasions (such as in Orchid/Hospira, Mylan/Agila and Torrent/Elder) where it conditionally approved those transactions, subject to modifications which were predominantly in the scope of non-compete obligations. A shift in the Commission’s approach from such behavioural to structural modifications in Phase I was first witnessed in the case involving ZF Friedrichshafen (ZF) and TRW Automotive (TRW), where the Commission accepted ZF’s commitment to exit (through divestment of shares) from a joint venture operating in steering system products thereby significantly diluting the horizontal overlap between ZF and TRW. A key difference between the ZF and Abbott cases is that while ZF had already decided to terminate the joint venture prior to notifying the Commission, in the Abbott case, the parties appear to have proposed the divestiture post the Commission identifying concerns over the significant overlap in the relevant market.
As stated above, while there have been several instances of voluntary modifications in Phase I, Abbott/St. Jude stands out since a sizeable voluntary modification (involving a divestment of assets) has been approved by the Commission without delving into a Phase II investigation. Prior to this, the Commission has ordered divestment of assets only in two cases – Holcim/Lafarge and Sun Pharma/Ranbaxy, both being full fledged Phase II investigations. The Commission’s pro-active ability and approach to “nip the issue in its bud” possibly also stems from the extended Phase I timeline of 30 ‘working days’ instead of 30 ‘calendar days’, that the Commission had awarded itself through the 2015 amendments to the Combination Regulations.
The Commission has evidently leveraged its experience of assessing a large number of cases in the pharmaceutical space in the last few years while reviewing Abbott/St. Jude, enabling it to identify potential issues early on and remedy the concerns at a preliminary stage. This approach of the Commission is not only laudable but equally effective and pragmatic as it balances the interests of both, the Commission and the transacting parties. On one hand, such an approach expedites approval timelines resulting in optimum utilization of resources, and on the other, competition concerns are effectively addressed to render the transaction compatible with the market and promote investments.
However, it remains to be seen whether the Commission would be able to tackle and treat similar complex transactions in other unexamined industries with equivalent efficacy and alacrity. Would a complex transaction in a previously unexamined market be dealt with this efficiently as well? One may also query as to whether the Commission would be leaving itself with compressed timelines for a comprehensive Phase II investigation in a scenario where at the end of an extensive Phase I review, it concludes that a detailed investigation is still warranted.
In light of the above and considering that the Commission constantly endeavours to adopt practical and novel methods in assessment of merger cases, it is possible that going forward, it may employ a further developed approach towards assessment of transactions and effective merger remedies, on a case to case basis.
* The article was co-authored by Anisha Chand, Senior Associate