Mergers and Acquisitions Laws
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Business firms opt for mergers and acquisitions mostly for consolidating a fragmented market and also for increasing their operational efficiency, which give them a competitive edge. Nations across the globe have promulgated Mergers and Acquisitions Laws to monitor the functioning of the business units therein. An estimate made in 2007 put the number of global competition laws at 106. They possess merger control provisions.
Business firms opt for mergers and acquisitions mostly for consolidating a fragmented market and also for increasing their operational efficiency, which give them a competitive edge. Nations across the globe have promulgated Mergers and Acquisitions Laws to monitor the functioning of the business units therein. An estimate made in 2007 put the number of global competition laws at 106. They possess merger control provisions.
While most mergers and acquisitions increase the operational efficiency of business firms some can also lead to a building up of monopoly power. The anti-competitive effects are achieved either through coordinated effects or unilateral effects. Sometimes mergers and acquisitions tend to create a collusive market structure.
However, free and fair competition is seen to maximize the consumers’ interests both in terms of quantity and price.
Mergers and Acquisitions Laws: the Global Perspective
As per global experience around 85% of acquisitions and mergers are devoid of any competitive concerns. They get approval within a period of 30 to 60 days.
The remaining percentage of firms usually have a substantially long gestation period for getting the legal approval. These cases are relatively complex and need a close examination of the various aspects by the regulatory bodies.
As per the guidelines from “The International Competition Network” simple merger and acquisitions cases should receive approval within a period of 6 weeks. The comparable time frame for complex cases is 6 months.
It may be noted that the ‘Competition Network’ mentioned above is actually an association of international competition authorities.
Mergers and Acquisitions Laws: the Indian Perspective
Indian competition law grants a maximum time period of 210 days for the determination of the combination, which comprises acquisitions, mergers, amalgamations and the like. One needs to take note of the fact that this stated time frame is clearly distinct from the minimum compulsory wait period for applicants.
As per the law, the compulsory period of waiting for applicants can either be 210 days starting from the day of notice filing or receipt of the Commission’s order, whichever occurs earlier.
The threshold limits for firms entering business combinations are substantially high under the Indian law. The threshold limits are set either in terms of the asset value or or in terms the firm’s turnover. Indian threshold limits are greater than those for the EU. They are twice as high when compared with UK.
The Indian law also provides for the modern day phenomenon of merger and acquisitions, which are cross border in nature. As per the law domestic nexus is a pre-requisite for notification on this type of combinations.
It can be noted that Competition Act, 2002 has undergone a recent amendment. This has replaced the the voluntary notification regime with a mandatory regime. Of the total number of 106 countries, which possess competition laws only 9 are thought to be credited with a voluntary notification regime. Voluntary notification regimes are generally associated with business uncertainties.
Post-combination, if firms are seen to be involved in anti-competitive practices de-merger shows the way out.
More on Indian Mergers and Acquisitions Laws
Indian Income Tax Act has provision for tax concessions for mergers/demergers between two Indian companies. These mergers/demergers need to satisfy the conditions pertaining to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the applicable situation.
In case of an Indian merger when transfer of shares occur for a company they are entitled to a specific exemption from the capital gains tax under the “Indian I-T tax Act”. These companies can either be of Indian origin or foreign ones.
A different set of rules is however applicable for the ‘foreign company mergers’. It is a situation where an Indian company owns the new company formed out of the merger of two foreign companies.
It can be noted that for foreign company mergers the share allotment in the merged foreign company in place of shares surrendered by the amalgamating foreign company would be termed as a transfer, which would be taxable under the Indian tax law.
Also as per conditions set under section 5(1), the ‘Indian I-T Act’ states that, global income accruing to an Indian company would also be included under the head of ‘scope of income’ for the Indian company.
