For Rs 3,800 crore Ultratech is set to acquire the Gujarat plant of JP Associates. Now the parties will have to get a green signal from the Competition Commission of India or CCI since the deal crosses the asset and turnover thresholds laid down in the Competition Act. CNBC-TV18's Payaswini Upadhyay reports on what parameters is CCI likely to vet the deal.
It is not known at what stage regulatory approvals are, or whether the parties have even approached the regulator so far. But competition lawyers feel the CCI is likely to examine the deal to see if there is any appreciable adverse effect on competition. The regulator may look at two effects - one, unilateral effect and two, co-ordinated effect.
Unilateral effect means, after Ultratech acquires JP's unit, is the combined entity capable of abuse of dominance? To test this, CCI would want to look at atleast three data points:
- Increase in market share in Gujarat
- Capacity increase after Ultratech acquires JP's unit
- And market share of next competitor
The numbers on each of these are as follows:
- Ultratech's market share is likely to go up from the current 22-25% to 35-40%
- Ultratech capacity will increase from current 7 million metric tonne to almost 12 million metric tonne
- The combined Ultratech-JP entity will have Ambuja as its closet competitor with a market share of 16-20% and capacity of 5.5 million metric tonne.
These numbers are for the Gujarat market. For the western region, that is Gujarat and Maharashtra, the statistics look something like this- Increase in market share from 29-37% to 38-46%; capacity to increase from 12.8 metric tonne to 17.6 metreic tonne. The closest competitor – Ambuja- will have 24% market share and 10.8 million metric tonne capacity.
Two lawyers say that the statistics do raise competition concerns.
Next comes co-ordinated effect, which means once Ultratech acquires Jaypee’s Gujarat unit, is there a greater chance of cartelization among market players? Experts say chances of cartelization increase because of ensuing market consolidation.
It's interesting to view this deal against the background of cement cartelization order passed by the Commission last year. The CCI had found 12 companies guilty of cartelization based on regional market data. The Director General had divided the relevant geographic market as per zones. The Western Zone included Gujarat and Maharashtra where Ultratech and Jaypee are among the key players.
Some competition lawyers suggest that since cement is a low value, high bulk item, the regulator may want to look at Gujarat as the relevant geographic market to assess competition concerns; while the parties would like to argue pan India as the relevant geographic market.