In one of the most significant amendments to the merger control regime in India, the Government of India, by way of a notification published on March 29, 2017 (Notification), has enhanced the scope of the de minimis or the small target exemption to include transactions structured as mergers or amalgamations. Further, in transactions involving the acquisition/merger of only a business, division or portion of an enterprise, the Notification stipulates that only the asset and turnover value of such business/division will need to be considered.
We examine these sweeping changes introduced by the Notification and their ramifications in detail below:
A. Applicability of Target Exemption
An important exemption granted to acquisitions was the small-target or the de minimis exemption, which excluded a transaction from the mandatory requirement to obtain the Competition Commission of India’s (CCI) prior approval (Target Exemption), if structured as an ‘acquisition’ of shares, control, voting rights and assets of an enterprise that has assets of not more than INR 350 crores (approximately USD 54 million) in India or turnover of not more than INR 1,000 crores (approximately USD 154 million) in India.
The language of the Target Exemption notified by the Government of India, first in 2011 and then in a revised form in 2016, meant that it only applied to acquisitions. The Notification now increases the scope of the Target Exemption to include mergers and amalgamations.
The effects of this inclusion are far ranging. In the previous iteration, the structure of transactions gained significance, i.e., while an acquisition of majority stake or even 100% shareholding of an enterprise with assets or turnover less than the Target Exemption thresholds was exempt, a merger of such an enterprise (likely to have the same effect on the market) was unable to avail itself of this benefit. However, with this revision, the legislative intention behind the ‘small-target’ exemption may be realised to its fullest.
There is no increase in the Target Exemption thresholds which were revised last in 2016 and the applicability of the Notification is for a period of five years, i.e. until 28 March 2022.