Business Standard, February 08, 2006

By Pradeep S Mehta

The recently announced acquisition of Air Sahara by Jet Airways, and the acquisition of Gujarat Ambuja by Holcim have heated the M&A scene in the country. Considering the resulting dominant status of these companies, concerns have been expressed over possible abuses. Significantly, these events have brought to fore the urgent need to operationalise the Competition Commission of India (CCI), which continues to be in a limbo. Hopefully, the much-awaited amendments to Competition Act would be tabled in the forthcoming budget session and pave the way for kick-starting the CCI.

While concerns have been expressed over Jet’s dominance in controlling a significant share of parking bays and prime landing slots, Holcim, given the regional nature of cement market, is expected to have greater control over pricing of cement in certain regions. In any case cement companies anywhere are notorious for cartelising, and M&A provides them with an opportunity to legitimise their collusive behaviour.

Firms often resort to M&As to realise economies of scale, improve operating performance and so on. Economies of scale may even result in lower prices, better quality and so on. Not surprisingly, expressions in favour of big becoming bigger are heard in policy circles. Thus, some have questioned the very need for a merger control regulation in the Competition Act. They feel that the existing provisions on anti-competitive practices are a sufficient safeguard, and if required, a demerger can be ordered. But, a demerger is like unscrambling an omelette, which can be very arduous.

This is precisely the reason that merger regulations exist in competition laws to pre-empt the potential abuse of dominance, as subsequent demerger is both difficult and costly. In the US, though, demergers have been carried out successfully, when AT&T, the giant telecom company, was broken up into seven companies (baby-Bells) in 1984, in response to a federal anti-trust suit. Now, with the competitive heat in communications, these baby-Bells are coming together via M&As. In the US the current paradigm is that big becoming bigger is fine but a no-no to any competition restrictive practice.

Most competition jurisdictions in the world have a pre-merger notification requirement. Few, like in the Indian Competition Act, 2002, have a voluntary notification procedure. Nevertheless, the CCI can take suo motu action and investigate a merger for possible anti-competitive effects. However, this would put a huge strain on it, given the political clout commanded by big-ticket mergers.

It is important that CCI develop a database to keep a watch on the behaviour of the merged firm and blow the whistle when called for. For this, the Commission needs capacity building and financial and human resources to bite when required.

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