Thresholds for Combinations Regulation in India

Table: Thresholds for determining Combinations

Combination	India level combination		Global level combination (Indian as well as Overseas)
Parameters	Entity wise (acquiring + acquired)	Group level (Group + Acquired entity)	Entity wise (Acquiring + Acquired)	Group level (Group + Acquired entity)
Asset value	INR 15 billion Or 1500 crores	INR 60 billion  or 6000 crore	Global assets: USD 0.75 billion Including at least Indian assets: INR 7.5 billion or 750 crores	Global assets: USD 3 billion Including at least Indian assets: INR 7.5 billion or 750 crores
Turnover	INR 45 billion or 4500 crore	INR 180 billion or 18000 crore	Global turnover: USD 2.25 billion Including at least Indian turnover: INR 22.5 billion or 2250 crore	Global turnover: USD 9 billion Including at least Indian turnover: INR 22.5 billion or 2250 crore

Requirement of Notification & Schedule 1 (Combination Regulations) Exemptions.

De-minimis exemption

The Central Government has by a notification exempted the acquisition of small targets [with assets of less than INR 250 crore in India] or turnover of less than INR 750 crore in India from the provisions of section 5 of the Act and accordingly no filing needs to be made with the Commission for such acquisitions.[1]

Up to 25% exemption: An acquisition of shares or voting rights, referred to in Section 5, solely as an investment or in the ordinary course of business which neither result in total shares or voting rights held by the acquirer, directly or indirectly, to be twenty five per cent (25%) or more of the total shares or voting rights of the target (acquire) company;

Not leading to acquisition of control of the enterprise whose shares or voting rights are being acquired. 

Between 25% and 50% (creeping acquisition allowed) not resulting in gross acquisition of more than five per cent (5%) of the shares or voting rights of such enterprise in a financial year.(Schedule I, Entry 1A)

Acquirer already holding 50% or more shares or voting rights of the target: an acquisition of shares or voting rights, referred to in section 5, where the acquirer, prior to acquisition, has fifty percent (50%) or more shares or voting rights in the target enterprise, except in the cases where the transaction results in transfer from joint control to sole control. Schedule I, Entry 2

·         Acquisition of assets, where there is no change in control, and does not represent substantial business operations for a location, product or service, provided asset acquisition is: (Schedule I, Entry 3)

o   Not directly related to the business activity of acquirer (horizontally or vertically), or

o   Solely as an investment, or

o   In the ordinary course of business

·         Amended tender offer, where a notice has already been filed with Commission pre-amendment. (Schedule I, Entry 4)

·         An acquisition of stock –in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business. (Schedule I, Entry 5)

·         An acquisition of shares or voting rights pursuant to a bonus issue or stock splits or  consolidation of face value of shares or buy back of shares or subscription to rights issue of shares, not leading to acquisition of control. (Schedule I, Entry 6)

·         Acquisition by underwriters, or stock brokers on behalf of clients. (Schedule I, Entry 7)

·         Intra-group combinations – Intra-group transfers of control, shares, voting rights or assets would not be subject to Combination Regulations unless the acquired enterprise is jointly controlled by enterprises that are not part of the same group. (Schedule I, Entry 8)

·         A merger or amalgamation of two enterprises where one of the enterprises has more than fifty per cent (50%) shares or voting rights of the other enterprise, and/or merger or amalgamation of enterprises in which more than fifty per cent (50%) shares or voting rights in each of such enterprises are held by enterprise(s) within the same group; provided that the transaction does not result in transfer from joint control to sole control. (Schedule I, Entry 9)

---

[1] (Notification dated 4^th March, 2011, available at http://www.cci.gov.in/images/media/notifications/SO479(E),480(E),481(E),482(E)240611.pdf, last visited 02^nd September, 2014.

Combinations in Multiplex Film Markets: Big Cinemas (Reliance Media Division) and Carniwal Films Combination

Big Cinemas (Reliance Media Division) and Carniwal Films Combination

On 24^th March 2015, CCI gave its approval to the acquisition of Big Cinemas, a division of  Reliance MediaWorks Ltd, by Carnival Films Pvt. Ltd. On 15 December, Carnival Films, backed by a Kochi-based commodity trader, agreed to acquire a 100% stake in multiplex operator Big Cinemas for around Rs.700 crore.

It has been stated in the notice that 88 cinemas

(72 multiplexes and 16 single screen cinemas) operated by Reliance Media having 238 screens are proposed to be transferred by Reliance Media to CVPL (“Transferred Business”); and b) pursuant to the SPA, Carnival will acquire 98 percent of the share capital of CVPL whereas a director of Carnival will acquire the remaining 2 percent of its share capital.

Relevant Market

It is noted that pursuant to the proposed combination, there are overlaps between Carnival, Stargaze and Reliance Media with respect to the multiplexes in seven cities namely Indore, Mumbai, Dindigul, Ghaziabad, Dehradun, Raipur and Ajmer.

The Commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition in India and therefore, the Commission hereby approves the combination.

CCI noted that the acquisition would result in overlaps between Carnival and Reliance MediaWorks, with respect to the multiplexes in seven cities—Indore, Mumbai, Dindigul, Ghaziabad, Dehradun, Raipur and Ajmer.

In Indore, Mumbai, Ghaziabad, Dehradun, Raipur and Ajmer, competition concerns may not arise as there are other multiplexes in addition to cinemas operated by Carnival and Reliance MediaWorks in these cities, exerting competitive constraints on the acquirer.

The Carnival-Big Cinemas deal was the fourth transaction in the movie exhibition business last year, as multiplex operators went for consolidation, partly to increase their bargaining power with film producers and distributors, and to gain a bigger share of box office receipts in India’s Rs.9,200 crore movie industry.

Inox Leisure Ltd, India’s second largest multiplex operator, acquired Delhi-based Satyam Cineplexes Ltd for nearly Rs.240 crore, paying Rs.182 crore in cash and taking over its debt in a deal that expanded Inox’s presence to 50 cities, with 91 multiplexes and 358 screens.

Housing Development and Infrastructure Ltd (HDIL) sold its multiplex business Broadway Cinemas to Carnival Cinemas, and Mexican multiplex chain Cinepolis bought Fun Cinemas, the multiplex chain promoted by Essel Group through E-City Ventures. Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay High court over a 2 October 2014 front-page story that they have disputed.

HT Media is contesting the case.

Competition Issues in Credit Card, Debit Card Swipe Machines in India: Atos Worldline India Private Ltd v. Verifone India

Atos Worldline India Private Ltd v. Verifone India

Parties

1. Atos Worldline India Private Limited

Atos Worldline India Private Ltd provides end-to-end services for electronic transactions in India. It focuses on electronic payment services for banks, merchants, and government institutions. The company offers acquiring managed services including merchant signup and activation; point-of-sale (PoS) terminal procurement, supply, and installation; and merchant training. Additionally, it provides credit, debit, and prepaid cards application, issuance, and transaction processing; currency conversion, fraud and risk management, and Internet and mobile payment services. The company caters to banking, financial services, energy, utilities, retail, hospitality, transport, and healthcare sectors.

VeriFone India

2. VeriFone India is subsidiary of Verifone US. VeriFone is an American multinational corporation headquartered in San Jose, California that provides technology for electronic payment transactions and value-added services at the point-of-sale. VeriFone sells merchant-operated, consumer-facing and self-service payment systems to the financial, retail, hospitality, petroleum, government and healthcare industries. The company’s system solutions consist of POS electronic payment devices that run its own operating systems, security and encryption software, and certified payment software, and that are designed for both consumer-facing and unattended environments.

POS Machine

A point of sale (POS) terminal is credit card or debit card swipe machine. A merchant can use to perform transactions with a bank card.

Software Development Kits (SDKs) are used to enable the basic functionality of the POS Terminals.

For the provision of VAS, it is extremely important for the Atos Worldline to have access to the core POS Terminal applications and their crucial enhancements/updates along with SDKs.

Withholding of such enhancements/updates and SDKs by the POS Terminal manufacturers will negatively impact the growth of the TPP and VAS markets.

As per standard industry practice, core POS Terminal applications and SDKs are provided along with the POS Terminals and the costs of the same are built into the price paid for the POS Terminals.

Between September, 2010 and December 2011, the Verifone India continued to provide SDKs to the Atos Worldline along with the POS Terminals and core terminal applications without any restrictions on the use of SDKs.

The Verifone India also used to provide training to the Informant’s engineers to enable the Atos Worldline to render VAS to its customers.

Atos Worldline in September, 2010 alleging breach of Source Code License Agreement (SCLA) which was signed between them in July, 2009 for a particular model of a POS Terminal.

As per the Informant, despite issue of the said termination letter, the Verifone India continued to supply POS Terminals along with its core applications, SDKs and training to its engineers for the use of SDKs.

In January 2012, the Verifone India sent a proposed draft SDK agreement to the Atos Worldline stating that the same is not open to any negotiations, amendments or changes and that the Atos Worldline has to insert certain details in the said draft SDK agreement and to counter-sign it.

Citing Reserve Bank of India’s Payment System Vision Document, 2012-15, the Atos Worldline stated that in the POS Terminal manufacturing industry in India, Verifone and Ingenico are the two prominent players.

By virtue of being almost an exclusive supplier of POS Terminals in India, the Verifone India exercises significant control over the supply of hardware and software solutions.

The Atos Worldline has also stated that there appears to be no objective justification for imposing unreasonable and unfair terms in the draft SDK agreement.

These terms would effectively eliminate the Atos Worldline from the downstream market and would support the Verifone India‟s interests by eliminating competition in the market.

The Atos Worldline has alleged that Verifone India, by imposing restrictions in the draft SDK agreement, is aiming to strengthen its position in the VAS market.

Relevant Market

The market for POS Terminals as the relevant product market.

DG has found that the clauses of the SDK license agreements are unfair. The DG noted that the Purpose Clause‟ under which the licensee can develop VAS and use the same only on the licensor’s products and the restrictive clauses prohibiting TPP to assist or develop the applications were found to be in violation of section 4(2)(a)(i), 4(2)(b)(i), 4(2)(b)(ii) and 4(2)(e) of the Act.

Alternative Technologies

MPOS such as Ezetap and Mswipe achieve the same end result

CCI is of the view that DG has segregated the upstream market for POS Terminals which also includes core applications such as Kernel, Operating System, Source Code and SDK and the downstream market like TPP (terminal management services), VAS (application development services) and after sales services (repairs and maintenance), etc.

The Commission is of the same view as that of the DG in this regard that upstream market for POS Terminals as stated above is different from the downstream market of VAS and after sales services. It is so because POS Terminals require services such as terminal management, application development, repairs and maintenance, etc.

CCI found Verifone dominant abusing its dominance in the relevant market.

Having regard to the above, the Commission decides to impose a penalty on the Verifone India at the rate of 5% of its turnover based on the financial statements filed by the Verifone India.

Advent to lead acquisition of 34.37% of Crompton Greaves consumer products business

Advent to lead acquisition of 34.37% of Crompton Greaves consumer products business

Advent International (“Advent”)

Advent International is an American global private equity firm focused on buyouts of companies in Western and Central Europe, North America, Latin America and Asia.

Avantha Holdings Limited (“Avantha”)

Avantha Group is an Indian business conglomerate led by Gautam Thapar. The company is one of India’s largest business conglomerates. Its businesses include power generation and distribution, power transmission and distribution equipment and services, paper and pulp, food processing, farm forestry, chemicals, infrastructure, Information Technology and Information Technology Enabled Service (ITeS), BPO.

Avantha Group operates in 90 countries with over 25,000 employees worldwide. Business units include, Crompton Greaves, (CG) India’s largest power transmission and distribution equipment company, and Ballarpur Industries (BILT), India’s largest paper manufacturer, both listed on the Indian Stock exchanges.

Advent and Avantha, announced that they have signed a share purchase agreement whereby Advent will lead the acquisition of 34.37% of CG’s consumer products business, Crompton Greaves Consumer Electricals Limited (“CGCEL”). Temasek will be an independent co-investor alongside Advent in CGCEL.

CGCEL will be demerged from CG into a standalone company and will consequently be listed on NSE and BSE. Thereafter, Advent, a global private equity firm with a dedicated presence in India, and Temasek, an investment company based in Singapore, will make an open offer for additional shares of CGCEL in compliance with takeover regulations. The transaction values CGCEL at an enterprise value of INR 66 billion (US$1.07 billion). The transaction is subject to closing conditions and receipt of all statutory and other approvals, including the successful demerger of CGCEL from CG and approval from the Reserve Bank of India and Competition Commission of India.

CGCEL, one of CG's largest and fastest-growing businesses, manufactures and markets a wide spectrum of consumer products, ranging from fans, lamps and luminaries to pumps and household appliances such as water heaters, mixer grinders, toasters, irons and electric lanterns. The business is India’s market leader in fans, No. 1 player in residential pumps and has leading market positions in its other product categories. It employs approximately 3,500 people and has six manufacturing facilities.

After an extensive search and careful evaluation, Avantha signed a share purchase agreement for the sale of its stake in Crompton Greaves’ consumer business.

CGCEL has leading positions in several fast-growing product categories with strong brand names and extensive distribution capabilities. Post completion, it look forward to driving growth by investing in sales and marketing, distribution and enhanced product offerings.

Demerger and share purchase details

Advent and Temasek will acquire ownership in CGCEL by purchasing shares in CGCEL from Avantha Holdings following the demerger of the consumer products business from CG and the listing of CGCEL on the BSE and NSE. The transaction is expected to be completed in the first quarter of 2016.

CG had filed with the BSE on March 3, 2015, regarding the demerger of CG’s consumer business into CGCEL, whereby all of CG’s shareholders will receive shares of CGCEL such that the shareholding of CGCEL upon completion of the demerger will mirror the shareholding of CG.

CGCEL’s growth and consumer product market growth

CGCEL has grown at a compound rate of 16% per year over the past six years and generated revenue of INR 28.5 billion (US$459 million) for the fiscal year ended March 31, 2014. The business has benefited from robust long-term growth in the Indian consumer products market, where sales volume has increased approximately 1.5 to 1.9 times India’s real gross domestic product (GDP) from 2002 to 2014.