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Exclusive I Competition regulator launches probe into Zomato-Uber Eats deal

CCI examining if Zomato’s acquisition of Uber Eats India is anti-competitive and whether the two companies should have notified it about the transaction. Probe could impact similar deals between leading players.

May 22, 2020 / 05:32 PM IST

The Competition Commission of India (CCI) is examining the acquisition of a unit of Uber Eats by online food delivery company Zomato, potentially impacting the manner in which such mergers between leading market players are concluded.

India’s competition regulator is looking at two salient aspects of the deal — one, whether the deal is anti-competitive, thereby hurting consumers, and two, whether the two companies should have notified it about the transaction, according to two persons familiar with the matter. Both spoke to Moneycontrol on the condition of anonymity.

The examination by CCI is significant because a draft Competition (Amendment) Bill, which is due to be cleared by parliament, emphasises the review of transactions similar to that of Zomato and Uber Eats India.

A spokesman for Zomato confirmed that CCI reached out to the company, adding that the competition regulator’s enquiries were about “certain basic information and clarifications about the transaction”. “We believe this is customary to any M&A transaction in India; we have received similar information requests in the past on other transactions we have undertaken. We have responded to CCI accordingly."

Zomato bought the Indian food delivery business of ride-hailing app Uber Technologies in exchange for a 9.99 percent stake in January 2020 and the deal was valued at around $206 million.

The transaction resulted in a net gain of $154 million for Uber, which it has reported as other income, according to filings with the US Securities and Exchange Commission (SEC).

Zomato possibly did not get the deal cleared by the CCI because of the way it interpreted the competition law. If enterprises that are being acquired have assets of not more than Rs 350 crore in India or turnover of not more than Rs 1, 000 crore in India, they need not file with CCI. This so-called De Minimis exemption earlier applied only to acquisitions and excluded mergers, but now covers both acquisitions and mergers.

Uber Eats India made revenue of $20 million, or Rs 133 crore, and reported a loss of $61 million, or Rs 405 crore, for the three months to September 30, Uber said in a filing with SEC, according to news agency Reuters.

The acquisition of Uber Eats India is not a straight acquisition because the transaction also had Uber buying a stake in Zomato, according to one of the persons quoted above. “It is a very complex deal,” said this person, who is intimately aware of competition laws and the CCI probe.

Zomato reported revenues of Rs 1,397 crore and losses of Rs 1,000 crore in FY2019. The company was last valued at $3 billion when China’s Ant Financial pumped in $150 million.

Zomato competes primarily with Swiggy in India. The online food delivery market is fiercely competitive and has been knocked hard by the coronavirus-triggered lockdown.

If the CCI concludes that a person or enterprise should have given notice about a merger, it can impose a penalty that may extend to 1 percent of the total turnover or the assets, whichever is higher, of such a combination, according to India’s competition law.

The draft amendment of Competition Law has called for additional criteria for control of mergers, one of its most significant changes. In other words, if a CCI investigation finds that a transaction has not met jurisdictional thresholds, it will deem that these are combinations and would require them to be notified.

This action by CCI is in line with global trends. Many international jurisdictions, both in Europe and Asia, are looking to introduce additional criteria in order to examine closely data-driven or R&D-heavy mergers and acquisitions, which have the potential to lead to anti-competitive market concentration.
Binoy Prabhakar
Pratik Bhakta
first published: May 22, 2020 02:15 pm