CCI rule tweaks make M&A space more hospitable for hostile takeovers: Report

CCI's revised rules aim to streamline the M&A process in India.

Fair trade regulator Competition Commission of India (CCI) has relaxed its rules for mergers and acquisitions, making hostile takeovers easier. Companies can now acquire up to 25 percent of a target firm's shares in the secondary market without prior approval, according to a report by Mint.

The CCI Criteria for Exemption of Combinations Rules, 2024 outlines specific scenarios that do not require prior approval from the CCI. These include the acquisition of shares through bonus issues, stock splits, consolidation of face value, and group restructuring, provided these transactions do not result in a change of control, the report said.

“Seeking CCI permission for incremental stock market transactions, which are dynamic by nature, was not feasible," a source told Mint. “The government has corrected this anomaly, and it is a move in the direction of improving ease of doing business."

While this move provides flexibility for hostile takeovers, there are still certain conditions and limitations. Investors must notify the CCI within 30 days of their initial on-market acquisition, and they may not be able to exercise voting rights with respect to management until they obtain the green light from the regulator, reported Mint.

Rahul Rai, partner and co-founder of Axiom 5 Law Chambers, emphasised the importance of notifying the Competition Commission of India within 30 days for secondary transactions, such as unsolicited investments in listed companies or hostile takeovers. He noted that this requirement helps maintain the strategic nature of these transactions and addresses a regulatory gap in the law.

Shweta Shroff Chopra, Partner at Shardul Amarchand Mangaldas & Co, clarified that many exemptions under the Competition Amendment Act are tied to the lack of a shift in control, which is defined as the ability to exert material influence over management, affairs, or strategic commercial decisions. This threshold is lower than the decisive influence standard applied in other laws and jurisdictions. Therefore, if the nature of control changes, these exemptions may no longer be applicable, Chopra explained.

Another significant change introduced by the CCI is the requirement for CCI approval for global transactions involving businesses with substantial business operations in India. This could potentially impact the funding cycle of startups, as many venture capital fundings may exceed the threshold of Rs 2,000 crore, it added.

The new merger review norm based on deal value does not have a grandfathering clause, which means it applies to deals signed before September 10 but not closed yet. This could disrupt the timeline for closing such transactions, the report said.

A grandfathering clause in legislative changes provides protection for individuals and businesses adhering to an old regulatory framework, shielding them from potential hardships caused by new regulations.

Overall, the CCI's revised rules aim to streamline the M&A process in India. However, businesses need to carefully consider the specific requirements and limitations of these new guidelines to ensure compliance.