Category Archives: Competition and Anti-Trust

Significant Changes to Canadian Takeover Bid Regime Implemented


On May 9, 2016, the Canadian Securities Administrators (the “CSA”) implemented new harmonized takeover bid rules. These new rules represent the most significant changes to the securities regulatory regime for takeovers of public companies in Canada since the original adoption of the takeover bid regime in 1966.

Background to the New Rules

The takeover bid landscape in Canada is shaped by the principle that shareholders should be the ultimate decision makers in determining whether to accept a takeover bid or not.  That principle underpins the key regulatory guidance on defensive tactics by target companies, National Policy 62-202 Take-Over Bids – Defensive Tactics (“NP 62-202”). This policy reflects the principle that shareholder rights plans (poison pills) and other defensive tactics cannot be used to prevent shareholders from ultimately having the opportunity to tender to a takeover bid, and is primarily focused on protecting the bona fide interests of target shareholders.

This shareholder-centric approach has informed numerous decisions of Canadian securities commissions over the past decades that have, with few exceptions, cease traded (i.e. rendered ineffective) shareholder rights plans after a certain time period (generally 45 to 70 days) to allow a hostile bid to proceed. Prior to the new rules, the regulatory regime clearly favoured bidders and significantly limited a target’s ability to defend against hostile bids. In most cases, once a hostile bid was launched, some form of change of control transaction would become almost inevitable.

Following a number of court decisions confirming that the fiduciary duty of directors of Canadian companies is to act in the best interest of the company (and not any one stakeholder group, including shareholders), capital markets participants began to question whether the shareholder-centric approach to takeover bids unduly restricted the ability of boards to defend against hostile bids. In addition, there ongoing concerns have been expressed in recent years that the bidder-friendly nature of Canadian securities and corporate laws may be contributing to the “hollowing out” out of corporate Canada.

In response, the CSA embarked upon a detailed review of the takeover bid regime, which formed the foundation for the new rules.

Overview of the New Rules

The new rules are intended to enhance the quality and integrity of the takeover bid regime and rebalance the dynamic among bidders, target boards and target shareholders by (i) facilitating target shareholders’ ability to make voluntary, informed and coordinated tender decisions, and (ii) providing target boards with additional time and discretion when responding to a takeover bid.

To achieve these objectives the new rules require all takeover bids to:

  • receive tenders of more than 50% of the outstanding securities of the class that are subject to the bid, excluding securities beneficially owned, or over which control or direction is exercised, by the bidder or by any person acting jointly or in concert with the bidder (the “Minimum Tender Condition”);
  • be extended by the bidder for an additional 10 days after the Minimum Tender Condition has been achieved and all other terms and conditions of the bid have been complied with or waived (the “10 Day Extension Requirement”); and
  • remain open for a minimum deposit period of 105 days unless the target board (a) states in a news release a shorter deposit period for any proposed or outstanding bid of not less than 35 days that is acceptable, in which case all contemporaneous takeover bids must remain open for at least the stated shorter deposit period, or (b) issues a news release that it has agreed to enter into, or determined to effect, an “alternative transaction” (being a transaction that is not a takeover bid, such as an arrangement), in which case all contemporaneous takeover bids must remain open for a deposit period of at least 35 days (the “105 Day Requirement”).

The following table compares the key features of the new rules with the previous regime:

Provision Previous Rules New Rules
Minimum tender requirement No minimum tender requirement. Any minimum tender condition stated in the bid could be waived by the bidder prior to the expiration of the bid.

“Any and all” bids permitted.

Bidders are prohibited from taking up securities under a bid unless the bid receives tenders of more than 50% of the securities of the class subject to the bid, excluding those beneficially owned by the bidder.

“Any and all” bids prohibited.

Extension of successful bid following the expiration of the bid No requirement to extend a successful bid, except to satisfy customary “permitted bid” requirements under a shareholder rights plan Following the initial deposit period, all successful bids must be extended for an additional 10 days to enable any shareholder that had previously not tendered to tender its securities
Minimum deposit period Minimum deposit period of 35 days, with extensions given where variations are made to the bid Minimum deposit period of 105 days, which may be reduced at the option of the target, upon the acceptance by the target of a shorter deposit period for any other takeover bid or upon acceptance by the target of an “alternative transaction”

Implications and Issues

Through the new rules, the CSA has accomplished its goal of rebalancing the dynamics among bidders, target boards and target shareholders, and the new rules have a number of important implications.

Hostile Bids Are Now More Challenging

The new rules significantly shift leverage from hostile bidders toward target directors and shareholders. This will make hostile bids more difficult to complete and could, as a result, reduce hostile bid activity in Canada.

Time is generally the enemy of a hostile bidder. The longer a hostile bid remains outstanding, the greater the chance that a competing buyer will emerge, the target company’s circumstances will improve, market conditions will change or some other unexpected development will derail the transaction. The 105 Day Requirement should generally give target boards ample time to respond to an unsolicited offer and, if appropriate, run a thorough sales process to locate potential “white knight” bidders or make a more compelling case that target shareholders reject the hostile bid.

In addition, a longer bid period may mean that third party financing could become harder for bidders to obtain, or at least may be more expensive, as the lender’s commitment will need to be in place for a longer period. Bidders may also find it more challenging to convince key target shareholders to “lock up” to their offer for a minimum of 105 days.

The Minimum Tender Condition and 10 Day Extension Requirement remove what has been one of the most effective tactics available to a hostile bidder – the ability to waive its minimum tender condition and acquire “any and all” tendered shares. That ability permitted a hostile bidder to acquire an effective control position in the target, allowing it to block a competing transaction even if it was unable to gain majority control of the target. This, together with the fact that target shareholders may not know before the tender deadline what the outcome of the bid would be, led to persistent concerns under the previous rules that shareholders could be coerced into tendering to a hostile bid due to the possibility that they may be “left behind” in a potentially illiquid investment with no prospect of another liquidity transaction. Under the new rules, more shareholders may wait to see how the bid plays out before tendering, which could make it even harder for hostile bids to succeed.

Partial bids – offers to acquire less than all of the target company’s outstanding shares – are expected to be much more difficult to execute. Because the Minimum Tender Condition applies to all bids, a bidder that launches a bid for even a relatively small percentage of the target’s shares must still convince the holders of more than 50% of the outstanding shares not owned by it to endorse the offer by tendering to it. However, since partial bids have been quite rare in Canada, the impact of the new rules on partial bids may be of limited practical consequence.

Hostile Bid Tactics Will Evolve

The new rules are expected to cause both bidders and target companies to adjust their hostile bid tactics and commit significant resources to waging hostile bid campaigns. Since a bid’s success or failure will turn on collective, and not individual, decision making by the target shareholders, we expect that bidders will devote more resources to aggressive public relations and solicitation campaigns (e.g., social media, white papers, websites, etc.) to convince shareholders to tender. Proxy solicitors, public relations consultants and social media experts will play an important role on both sides of a hostile bid transaction.

Rights Plans Will Have Limited Utility

Although the need for targets to adopt “tactical” rights plans in the face of a hostile bid is expected to decrease significantly, many issuers may maintain rights plans to prevent “creeping” takeover bids.  The latter are still possible through takeover bid exemptions which permit, for example, the acquisition of shares under a private agreement or through limited market purchases, and which are not affected by the new rules.


The new rules are expected to have a significant effect on the manner in which takeover bids are conducted in Canada and the securities regulators’ role in takeover bid transactions.  In particular, these rules will eliminate some of the most coercive elements of hostile bids available under the previous rules and significantly increase the time available to target boards to explore  potential alternatives to a hostile bid. Yet although the new rules change the playing field, they do not abandon the Canadian principle that a target board cannot indefinitely “just say no.” If there is an offer on the table, shareholders will generally continue to have the final say.


Recent Changes in the Competition Regulatory Framework in Latvia

Recent changes in the competition regulatory framework in Latvia by adopting a new Unfair Retail Trade Practices Prohibition Law[1] have raised many concerns of market participants. The new law came into force on 1 January 2016 and since then (and also before) the Latvian Competition Council has issued guidelines, organized seminars and meetings for the affected parties, but nonetheless it seems that the new regulatory framework raises more questions and uncertainty in the business environment than one could have expected and wanted.

Briefly, the Unfair Retail Trade Practices Prohibition Law lists particular activities that may not be carried out by (1) retailer of food products with respect to the supplier and by (2) retailer of non-food products having significant effect in retail with respect to the supplier.

Activities are regarded as prohibited if they are in contradiction with a fair practice of economic activity and by which operational risk of a retailer is imposed on suppliers, additional duties are imposed or the possibility of free operation in the market is restricted.

In both situations the retailer is prohibited from obliging the supplier with the following:

  1. paying directly or indirectly or otherwise reimbursing for entering into a contract;
  2. paying directly or indirectly for the goods being present at a retail selling point, including for placing of goods in store shelves, except the case when the retailer and the supplier have entered into a written agreement that it will be paid for additional arrangement of the goods in special places;
  3. compensating the costs of the retailer related to arranging new stores or restoring the old stores, including performing unfair and unjustified payment for the delivery of goods to a retail selling point to be newly opened;
  4. taking back the unsold products, except goods of poor quality and new goods unknown to consumers, the initiator of the supply or increase in the amount of which is the supplier;
  5. determining unfair and unjustified sanctions for the violation of contractual provisions.

In case of retail of food products, in addition to the above, the food retailer is prohibited from obliging the supplier with the following:

  1. compensating the profit not obtained by the retailer from selling the goods supplied by the supplier;
  2. purchasing goods, services or property from the third person indicated by the retailer, except the case when it has an objective justification and entered into a separate written agreement regarding purchase of such goods or services;
  3. ensuring the lowest price by restricting the freedom of the supplier to agree on a lower price with another retailer;
  4. changing the specifications of goods, including assortment if the supplier has not been notified thereof within the time period specified in the contract, which may be not less than 10 days;
  5. paying directly or indirectly to a retailer for sales promotion measures or to otherwise reimbursing all costs of such measures or part of them, except the case when the retailer has entered into a written agreement with the supplier regarding sales promotion measures;
  6. compensating the costs related to examining complaints of consumers, except the case when justified complaints of consumers arise from circumstances, for which the supplier is responsible;
  7. determining unfair and unjustified sanctions for the violation of contractual provisions;
  8. performing unfair, unjustified payments (discounts) or payments (discounts) not provided for in the contract, except the case when the retailer has agreed with the supplier regarding bulk discount (discount applied depending on the amount of the goods ordered) or campaign discount (discount applied for a limited and indicated period of time for promoting the sale of goods);
  9. compensating the costs of a retailer, which are related to the costs of logistics services of the retailer, except the case when the retailer has entered into a written agreement with the supplier regarding distribution of goods;
  10. compensating the costs of a retailer, which are related to its administration costs.


Furthermore, the new law prohibits determination of unfair and unjustifiably long time period for settlement of accounts for the goods supplied. In case of food products, the new law presumes that the settlement period for the delivered food products is unfair and unjustifiably long if it exceeds 30 days from the day of delivery of such products whose term of validity is no longer than 25 days. In case of fresh vegetables and berries the new law provides additional specific regulations.

One might question why there is a need to have such a sector specific and casuistic regulatory framework. In search of answer for this perhaps rhetorical question, it is worthwhile to highlight briefly the historical and political aspects related to the adoption of this law.

Around the year 2007, two major retail (supermarket) chains in Latvia (selling under brands RIMI and Maxima) were expanding their businesses and there were concerns that they were using their significant and increasing bargaining power with respect to producers and suppliers dependant on them and thus negatively affecting competition in Latvia, for example, by imposing unfair and unjustified terms on returning of goods, for placing the goods on supermarket shelves, for requesting payment for concluding an agreement, for providing lengthy terms of payment for delivered goods, for providing unfair and unjustified sanctions (penalty clauses) for breaching the agreement, etc.

It was not possible to tackle such activities by the Latvian Competition Law[2] effective at that time (as these market participants were not in a dominant position legally and thus were not abusing it), therefore the legislator decided to change the existing regulatory framework and supplement the Latvian Competition Law with a new concept “dominant position in retail trade”.

In accordance with these Amendments 2008 to the Competition Law, a market participant was considered in a dominant position in retail trade if taking into account its buying power for a sufficient period of time and the suppliers’ dependency in the relevant market, it had the capacity to apply or impose directly or indirectly unfair and unjustified provisions, conditions or payments upon suppliers and thereby could hinder, restrict or distort competition in any relevant market in the territory of Latvia.

As it was explained in the annotation[3] of the Amendments 2008 to the Competition Law, it was not preferable to change the definition of “dominant position” known in EU competition law by merging it with a term “significant influence” as these terms differs. In case of “dominant position” a market participant is acting independently of its competitors or consumers, but in case of “significant influence” the market participant has a power to impose unfair contract terms, but it cannot act independently of its competitors or consumers.

Thus, the Latvian legislator back in 2008 supplemented the Latvian Competition Law with a new concept “dominant position in retail trade” targeting it at the market participants having “significant influence” in retail business, however, without mentioning the term “significant influence”.

These amendments 2008 to the Latvian Competition Law came into force on 1 October 2008 and had been effective until 1 January 2016 when the new Unfair Retail Trade Practices Prohibition Law came into force and took over this regulation, along with introduction of new regulation specifically and more casuistically directed to food retail business.

From 2009 until 2016, the Latvian Competition Council had adopted 6 decisions related to abuse of dominant position in retail trade, but only in 3 decisions the Latvian Competition Council had fined the market participants.

For example, in the end of 2010, the RIMI supermarket chain was fined EUR 88,609.34 for imposing such terms on suppliers, which provided payments (as promotion discount) for placement of goods in shelfs of supermarkets selling under Supernetto brand. In early 2011, the Maxima supermarket chain was fined EUR 64,029.23 for imposing too lengthy settlement terms for payment of delivered goods. In the end of 2012, a retailer selling cosmetics and household goods under the Drogas brand was fined EUR 14,034.11 (after the Latvian Competition Council reduced the initial fine of EUR 26,988.68). The fine was imposed because Drogas had applied unfair and ungrounded (i) terms on (a) return of goods, (b) discounts (rebates), (c) payments for delivery of goods to a new shop to be opened and (ii) sanctions for violation of such terms. It is worthwhile to mention that all of these decisions of the Latvian Competition Council have been appealed in courts by the market participants, however, unsuccessfully, showing that courts are reluctant to adopt a different approach from the one already taken by the Latvian Competition Council and thus making the fight of the market participants fined very difficult and non-effective.

Around the year 2013, it became clear that the new regulatory framework limiting the bargaining power of supermarket chains was not sufficient, as there were other market participants that although did not even qualify under the term “dominant position in retail trade” were able to impose unfair and unjustified provisions on suppliers. Strangely enough, there was also a political will to promote the use of food products produced in Latvia (you can read this from the annotation[4] to the Unfair Retail Trade Practices Prohibition Law).

But, taking into account recommendations already received from the Directorate-General for Competition in the course of adoption of the amendments to the Competition Law back in 2008, that additional amendments to the Latvian Competition Law, providing a casuistic regulatory framework for one particular micro sector in the general macro regulation, were not advisable, the legislator consequently decided to adopt a sector specific law listing certain retail trade practices which are regarded as unfair.

If previously we mentioned that the annotation of the amendments 2008 to the Latvian Competition Law stated that it is not advisable to introduce a new concept “significant influence”, but at the same time the legislator introduced another new concept “dominant position in retail trade”, now the new Unfair Retail Trade Practices Prohibition Law takes over all the previous provisions related with the “dominant position in retail trade”, only not naming it any more “dominant position in retail trade” but introducing a new concept “retailer with a significant influence on the trade of non-food products”[5].

This clearly shows that the adoption of the amendments to the Latvian Competition Law back in 2008 and replacing this regime in 2016 with a new Unfair Retail Trade Practices Prohibition Law have not demonstrated a well-considered and convincing attitude from the legislator both in 2008 and now in 2016 and most probably in future we might expect further changes in this field again.

For businesses it is important to be aware that the Latvian Competition Council may fine for violations of the new Law Prohibiting Unfair Retail Trade Practices a retailer of up to 0.2 per cent of its net turnover for the previous reporting year each, but no less than EUR 70. Furthermore, the Latvian Competition Council may impose a fine on a retailer for non-fulfilment of legal obligation of the new Unfair Retail Trade Practices Prohibition Law in the amount of up to 2 per cent of the average daily net turnover in the last reporting year, but no less than EUR 70 for each calendar day, until the retailer fulfils its legal obligation.

In the end, please note that on 15 June 2016, the another amendments to the Latvian Competition Law came into force and these amendments abolish the existing market share threshold (of 40%) and reduce turnover thresholds in case of mergers, regulate in more depth the rights of the Latvian Competition Council in investigating the violations of competition rules, receiving courts permit for investigation activities, applying leniency regime, etc. This, however, could be a topic of another article and critical analysis.

[1] See the Unfair Retail Trade Practices Prohibition Law in Latvian here ( and in English here (

[2] See the Latvian Competition Law in Latvian here ( and in English here (

[3] Annotation of the Amendments 2008 to the Competition Law is available in Latvian only. See:

[4] Annotation to the Unfair Retail Trade Practices Prohibition Law is available in Latvian only. See:

[5] A performer of economic activity or several performers of economic activity who, considering their buying power for a sufficient period of time and the dependency of suppliers in the relevant market, have the capacity of directly or indirectly applying or imposing unfair and unjustified provisions, conditions or payments upon suppliers and may hinder, restrict or distort competition in retail trade in any relevant market of non-food products in the territory of Latvia.

Pakistan’s Competition Regime- Out of The Shadows, And in Lockstep with Best Global Practices

Anti-Trust Laws, more commonly referred to as Competition laws or Anti-Monopoly Laws, are imperative for an economy to promote a competitive business environment that safeguards investors’ confidence and creates conditions which are conducive to innovation and growth. Although the effects of anti-competitive practices are not easily quantifiable and therefore may not be obvious, the most common results of such practices are price increases in markets involving output-restricting or price-fixing cartels and dominant firms abusing their market power. In such cases, consumers are the ones who suffer directly from restricted competition.

Nevertheless, there is rising awareness among developing countries of the adverse effects of anti-competitive practices on their economies and in this regard, many developing countries have adopted or are in the process of enacting competition laws. In Pakistan, a regime regulating Competition was introduced in the 1970’s through the Monopolies and Restrictive Trade Practices Ordinance (MRTPO) of 1970 with the Monopoly Control Authority acting under its authority. However the scope of the MRTPO was severely constrained by the Economic Reform Order of 1972 which resulted in a broad nationalization process that affected the major part of the economy.

Among other limitations, the MRTPO was not applicable to state owned enterprises under §25 and in the fast changing global and national economic environment after the 1980s, the MRTPO was found inadequate to address competition issues effectively because of the incompleteness of the legal framework and the lack of professional expertise in the Monopoly Control Authority (MCA), the agency established for its implementation. Those deficits and Pakistan’s increased exposure to the challenges of global trade made it imperative to update the competition law and thus the Government of Pakistan completely overhauled its competition regime in 2007 by enacting a new legislation, namely, the Competition Ordinance of 2007, which became an Act of Parliament in 2010 – a modern competition law essentially grounded on European Legal principles.

The Competition Act 2010 seeks to ensure free competition for commercial and economic activities and aims at protecting consumers from monopolization, cartelization and other harmful practices. The Act applies to all undertakings in Pakistan regardless of their public or private ownership and to all actions or matters that can affect competition. Although essentially an enabling law, it sets out procedures relating to the review of mergers and acquisitions, enquiries, imposition of penalties, grants of leniency and other important aspects of law enforcement. Briefly, the competition law of Pakistan is based on the doctrine of ‘restraint of trade’ and therefore prohibits situations that tend to diminish, distort, or eliminate competition such as actions constituting an abuse of market dominance, competition restricting agreements, and deceptive marketing practices.

The Competition Commission of Pakistan (Commission) is an independent, quasi-regulatory, quasi-judicial body that is exclusively mandated under the Competition Act 2010 to ensure that competitive forces are unhindered in all spheres of commercial and economic activity to enhance economic efficiency and to protect consumers from anti-competitive behavior across Pakistan. Commission can take action against unjustified raises in prices, sale of products at prices below their cost, conditional sale of products or services, agreements or cartelization that affected the competitive environment, dissemination of false information to consumers, or false use of another firm’s trademark or packaging. Furthermore, the Commission has been given the powers to take suo motu action against businesses violating the competition laws and can impose fines up to Rs75 million or an amount not exceeding 10 percent of the annual turnover of the undertaking.

Moreover, since the drive to establish legal and institutional frameworks in order to fight anti-competitive practices has intensified in recent decades, the Commission has prepared a Voluntary Competition Compliance Code (Code) to serve as a guide for competition laws’ compliance. The Code stipulates a formal internal framework for undertakings and their employees to ensure compliance with the provisions of the Act and its associated rules and regulations. The Code also helps detect any violations at an early stage thus enabling appropriate and timely remedial action.

Despite playing such a crucial role towards anti-trust activities in Pakistan, the Institution encounters various difficulties in terms of financial autonomy and through the Courts of Law which inevitably affect its operations adversely. Since its inception the Commission has imposed over Rs.26.5 billion penalties however only except in a couple of cases, all parties have brought forth challenges against the Orders and obtained interim injunctions.  In such cases where fines and penalties are imposed by the Commission, the delay in verdicts helps businesses to continue with their unfair practices and therefore it is imperative for the Judiciary to uphold and recognize the decisions of the Commission and subsequently dismiss such frivolous cases at an interim stage.

Moreover, some capitalists who could be penalized for flouting the anti-monopoly rules, have challenged the Competition Act 2010 in court on the plea that the central government could not apply the law as it is a provincial subject after the passage of 18th Amendment. Surprisingly, the court has also consented to hear a petition about whether certain federal institutions have become redundant after the 18th Amendment and will determine the future of the Competition Commission of Pakistan and the penalties.

It is worth mentioning that if Commission is regularly challenged in courts for applying their constitutional authority, the consequences will be disastrous for businesses as well as the functioning of the state. Moreover, the merit in the argument that a province can have its own competition law is untenable for such a regime would leave a national cartel beyond the reach of Law, thereby complicating matters unnecessarily and may create many loopholes which could be abused by cartels and those willing to exploit the State. It could give rise to a situation where four businesses, in four separate provinces, fix prices while lowering the quality of their similar product through an understanding. Such a cartel would be impacting the entire national market, but since each of the cartel members would be operating from a separate province, it would be impossible to break the grouping if there is no central anti-monopoly institution. For this reason, the anti-competitive practices should be recognized as a national interest and hence the regulation of Competition Law shall be a subject matter of the Federal government, as is the case in many developed countries.

Nonetheless, even despite the challenges being faced, the Competition Commission of Pakistan has demonstrated its independence by adopting an aggressive approach and taking stringent action across all sectors. The Commission has taken notice of alleged cartels in Pakistan‚ especially in the cement industry and has also issued various show cause notices to business entities questioning the adoption of practices that tend to distort the principles of fair competition. The Commission when taken notice of an alleged collusion in the banking industry was faced with the preposition that the State Bank Act ousts the jurisdiction of the Commission in matters pertaining to the banking sector and established that the agreements or concerted practices relating to interest rates, charges and similar parameters of competition fall within the purview of the competition agency. Some of the most prominent achievements of the Commission, include the action against 18 companies involved in the cartel of power-distribution-equipment supplied involved in price-fixing and quota distribution on Rs.45billion worth of public sector contracts. Upon receiving show-cause notices alleging bid-rigging and collusion on public procurement tenders, Siemens Pakistan sought for leniency in exchange for a 100% disclosure. Suffice it to say for the present purposes that Siemen’s decision to comply and co-operate with the Commission has exposed the other 17 companies in the cartel to penalties and punishments, including Pak Elektron which has a 28.7% market share. Another ground breaking decision by the Commission has been to impose a fine of Rs20 million on a company that had copied the brand of another company. Currently, the Commission in investigating in the alleged ‘exorbitant increase’ in air fares by private airlines following the cancellation of a large number of flights by the Pakistan International Airline (PIA) recently.

Such decisions will go a long way in improving international trade practices in the country. The international market and investors keenly observe such fundamental issues that provide support and sustainable growth of their businesses and promote a culture of respecting fair competition in the country. Therefore it is about time that the Government and the judiciary recognize the need to prioritize matters of economic importance and harmonize governmental policies with the competition law. Primarily, competition assessment shall be made mandatory at the policy design stage. This would benefit enforcement by all economic regulators and contribute towards effective enforcement by regulatory bodies with less harm to competition.

As a major initiative to bring Pakistan at par with the global agencies, Ms. Rahat Kaunain, the former Chairperson of the Competition Commission of Pakistan requested the United Nations Conference on Trade and Development (UNCTAD) to undertake a peer review of Pakistan’s competition law and policy. The Peer review team assessed the state of competition law in Pakistan, the regulatory framework along with the achievements and challenges faced by the Commission and prepared a Peer Review Report under the supervision of many international competition experts. The Report concluded that the achievements of the Competition commission of Pakistan are internationally recognized by the world competition community as performing a crucial leadership role in taking the Pakistani economy forward to a greater level of confidence on a competition-based and a consumer-welfare oriented market system. Moreover the Report acknowledged that the Commission has country-wide recognition with an excellent reputation based on integrity, technical competence and governance and it is to be considered one of the best performing newly established agencies in the developing world. The report strongly recommended, amongst others, that the provision in the Act which stipulates that 3% of the revenue of the regulatory agencies of Pakistan should form part of the Commission Fund should be finally implemented thereby permitting the Commission to focus on implementing advocacy policy more effectively by expanding its outreach and establishing its regional offices.

In light of the above it is established that the Competition Commission of Pakistan has been an essential example for institution building in Pakistan, favoring not only the consistency and stability of institutions themselves, but also the legal certainty able to attract the inflow of investments. Therefore one can safely conclude that Pakistan’s competition regime is out of the shadows, and in lockstep with best global practices.

The Future of Third Party Ownership and Influence in Football Following the FC Seraing Case

Third Party Ownership and Third Party Influence in football have long been topics of much mystique.  What exactly are they?  How do they work? Why are they so controversial?  And most importantly, are they legal?  This article attempts to answer these questions and examines the possible effects of a recent case involving these issues
What is the difference between Third Party Ownership and Third Party Influence?
Third Party Ownership (“TPO”) refers to the circumstances in which a physical or legal person (who is not a football club) invests in the economic rights of a professional football player, with the likely intention of receiving a share of the value of any future transfer of that player.

Third Party Influence (“TPI”) is wider and relates not just to ownership of players but outside parties who are not involved in the ownership of the club (e.g. sponsors, intermediaries or some other external third party) having an influence on the way a football club operates.

FIFA Regulations

There is inevitably some overlap between TPO and TPI.  As recently as 2014, FIFA were content to allow some forms of TPO and TPI to exist in football.  Up until that point, the only FIFA rules on these issues were contained at Article 18bis of the FIFA Regulations on the Status and Transfer of Players (“FIFA Regulations”):
“No club shall enter into a contract which enables any party to that contract or any third party to acquire the ability to influence in employment and transfer related matters, its independence, its policies or performance of its teams.”  

However, effective from May 2015, FIFA introduced a new Article 18ter which deals with TPO. The relevant rule reads:
“No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation.”

For these purposes, a Third Party is defined as:
“A party other than the two clubs transferring a player from one to the other, or any previous club with which the player has been registered.”

How does TPO work in practice?

TPO has long since been an accepted and prevalent practice in a number of countries on the South American continent as well as other European countries such as Portugal.  A classic example of TPO in operation is as follows.  A third party sports agency pay a promising Brazilian teenager’s club a certain sum of money for 50% of the player’s economic rights.  The club believes that the player may well be worth more than that but is in dire need of finance and accepts the offer.  That player turns into a star and earns a “big money” move to a European club.  At the point of transfer to the European club the third party sports agency is entitled to 50% of the transfer fee, as well as 50% of any future transfer fee whilst they own 50% of the player’s economic rights.

Pros and Cons of TPO

Many commentators believe that TPO undermines the integrity of football. The theory being that the transfer of players should be driven solely by the sporting/commercial considerations of the selling club, the purchasing club and the player.  TPO by its very nature could involve a third party having (at the very least) an indirect involvement/influence in the consideration of whether or not the player should be sold.
Added complications could arrive when the sports agency that owns a percentage of the player’s economic rights also has some (direct or indirect) involvement in the purchasing club calling into the question the integrity of the transfer and indeed the competitions that both the selling and purchasing club participate in.  There are also potential policy issues with money from these transfers flowing out of the game, rather than being reinvested in football.

The plethora of difficult issues that arise from TPO resulted in many countries choosing to outlaw the practice before Article 18ter of the FIFA Regulations came into effect.  For example TPO was banned in England following the infamous “Carlos Tevez affair”, where a third party owner of Tevez had a right in contract to force Tevez’s club, West Ham United FC, to sell the player in the event of a suitable bid being received.  Although West Ham were ultimately found to be in breach of other domestic rules (i.e. “material influence” rules – as the third party owner could force West Ham to sell the player, the third party had a material influence over the decision making of the club) at the time these events occurred in 2006, there were no rules preventing TPO in England.  Following the Tevez case, the English football authorities brought in a complete ban on TPO.
Notwithstanding all of the above, proponents of TPO would argue that it has significant financial advantages to clubs that participate in the practice.   The inequality of arms prevalent in European football means that clubs from less wealthy leagues such as Scotland, Portugal and Holland struggle to compete with the European elite.  They would argue that TPO allows them to attract a better quality of player than they could otherwise afford.

Scotland is an interesting example in the sense that prior to the 2015/16 season, the Scottish FA did not prevent TPO (but had of course implemented Article 18bis of the FIFA Regulations concerning TPI).  Scottish clubs were vehemently opposed to a banning of TPO in Scotland on the basis that they were operating in a similar market for players as those clubs from countries that did allow TPO.  If the Scottish FA had banned TPO, Scottish clubs argued it would be more difficult for them to attract the desired players. If a player subject to a TPO arrangement had a choice between a club in Portugal, (who permitted TPO) and Scotland (who did not), then the player could only move to Portugal.  Such arguments became academic following the introduction of Article 18ter of the FIFA Regulations.  All national football associations are now required to implement those rules into their own national regulations.

How has the ban on TPO been implemented?

It has now been almost a year since the implementation of the TPO rules and we are now starting to see some cases and decisions emanating from Article 18ter of the FIFA Regulations.

A number of cases involving TPO involve the controversial Doyen Sports Group (“Doyen”).  Doyen has built up a reputation in football for being a key source of funding for football clubs facing financial difficulties.  Doyen acquire economic rights from certain players, on the basis that they believe those players’ transfer value will increase.  If that increase is realised, Doyen earn profits when the player transferred.

Doyen have been involved in two recent cases which both pre-date Article 18ter of the FIFA Regulations, one involved the transfer of Argentinean defender Marcus Rojo from Sporting Lisbon to Manchester United, and the other involved investment in Dutch club, FC Twente.  Article 18ter of the FIFA Regulations does not apply retrospectively and as such Doyen could not be found to be in breach of any existing rules.

However, the most recent case involving Doyen and Belgian club FC Seraing did involve Article 18ter of the FIFA Regulations and provides a useful insight into the operation of the new rules.

FC Seraing/Doyen Case

A case was brought before FIFA as a result of allegations that Doyen had added €300,000 to FC Seraing’s budget in exchange for 30% of some players’ economics rights.
The act of investment by Doyen into FC Seraing was clearly permitted but the fact that it was offered in exchange for a percentage of economic rights of certain players caused FIFA to investigate the matter.  Following that investigation and a hearing before the FIFA Disciplinary Committee, FC Seraing was found to be in breach of Articles 18bis (TPI) and 18ter (TPO).  The club were sanctioned with a two year transfer ban and a fine of CHF 150,000 (c.£106,000).  The transfer ban prevented the club from registered any new players for four complete and consecutive registration periods.

FC Seraing appealed FIFA’s decision and also sought, together with Doyen, to challenge the FIFA Regulations on TPO in Belgian court.  The scope of FC Seraing and Doyen’s appeal to the Belgian court is worthy of an article in its own right and outwith the scope of the present one.  However, in short, FC Seraing and Doyen argued that Article 18ter of the FIFA Regulations in respect of TPO were disproportionate and did not protect a legitimate interest and as such sought provisory measures which included an interim ruling that 18ter of the FIFA Regulations was not lawful, pending a full reference being made to the European Court of Justice.

In considering this application, the Belgian court took account of Article 18bis of the FIFA Regulations and ruled that it had proved ineffective in seeking to regulate TPO and TPI in football.  As such, they indicated that a complete ban on TPO as introduced by Article 18ter of the FIFA Regulations might well be necessary.  Accordingly, they denied the provisory measures sought.

Following the failure of the FC Seraing and Doyen’s provisory Belgian court challenge, their appeal to FIFA’s Appeal Committee was unsuccessful.  The Appeal Committee upheld the decision of FIFA’s Disciplinary Committee in its entirety.

Where now for TPO?

FIFA have not released the reasons for either the Disciplinary Committee or Appeal Committee so providing extensive commentary on these decisions is not possible.
However, it seems entirely possible that TPO challenges are likely to continue. FC Seraing and Doyen appear be prepared to continue with the action in Belgium.  Now that FIFA have taken their first action in relation to the TPO rules, it is likely that more will follow. As such, further challenges in courts all over Europe are likely.

The courts have long since acknowledged the so-called “specificity of sport” and acknowledged that the EU free movement rights are not absolute.  If deemed necessary and proportionate, exceptions to free movement rights can and will be permitted.
The battle between FIFA and clubs involved in TPO has just began, and whilst FIFA have survived the first challenge successfully, only time will tell if their ban on TPO is here to stay and what effect it will have.

Doing Business in New Zealand: Compliance and Regulation


New Zealand is predominately a dual island state located in the South Pacific. During the 1980s, New Zealand underwent changes within its economic market structure. The result is a deregulated and decentralised economy engaging in international partnerships and most favoured nation agreements. Diminished import controls and subsidies establish New Zealand as a competitive international trading partner.

As a result, international trade rules, overseas investment rules, and domestic governance over commercial activities have changed.

New Zealand’s International Links

New Zealand is a member of the British Commonwealth system as well as an independent sovereign state. New Zealand’s governmental and economic policies are influenced by both its location within the South Pacific as well as its Commonwealth counterparts. Operating under a triennially, democratically elected, Westminster model political system strengthens its relationships through trade, security, and investment. New Zealand has the following international agreements in force:[1]

  • New Zealand-Australia Closer Economic Relations;
  • Australia-New Zealand Closer Economic Relationship;
  • ASEAN-Australia-New Zealand Free Trade Agreement;
  • New Zealand-Hong Kong, China Closer Economic Partnership;
  • New Zealand-China Free Trade Agreement;
  • New Zealand-Malaysia Free Trade Agreement;
  • Trans-Pacific Strategic Economic Partnership (P4);
  • New Zealand-Thailand Closer Economic Partnership; and
  • New Zealand-Singapore Closer Economic Partnership

New Zealand has also concluded the following agreements which are yet to be enforced:[2]

  • Trans-Pacific Partnership;
  • New Zealand-Korea Free Trade Agreement;
  • Anti-Counterfeiting Trade Agreement (concluded and signed, but not yet ratified);
  • New Zealand-Gulf Cooperation Council Free Trade Agreement (concluded but not yet signed);
  • New Zealand-Russia-Belarus-Kazakhstan Free Trade Agreement (under negotiation);
  • New Zealand-India Free Trade Agreement (under negotiation); and
  • Regional Comprehensive Economic Partnership (RCEP) (under negotiation)

Agreements on Economic cooperation are also in place with Taiwan, Penghu, Kinmen, and Matsu.[3]

Overseas Investments

Investments within New Zealand typically adopt either a local subsidiary model or a registry branch, and are dependent upon foreign business requirements. Other options include purchasing local businesses or the establishment of a sole trade business, or engaging within joint ventures, partnerships, or franchises.

There are no restrictions on transfer of capital, dividends, profits, royalties, or interest into or out of New Zealand. Fair competition and strict legal guidelines establish transparent frameworks in order to attain consistency and confidence-building when undertaking business in New Zealand. Operating a business in New Zealand as an overseas investor is predominately regulated by the Overseas Investment Act 2005, as well as the Overseas Investment Regulation Amendment Act 2005.

Other domestic legislation which further controls corporate activity in New Zealand includes:

  • Companies Act 1993;
  • Partnership Act 1998;
  • Limited Partnerships Act 2008;
  • Commerce Act 1986; and
  • Reserve Bank of New Zealand 1989

The Overseas Investment Office (OIO) is responsible for approving applications for overseas persons who wish to invest in New Zealand. An overseas person is defined by the Overseas Investment Act as, ‘a person who is not a citizen or ordinarily resident in New Zealand.’ This definition includes a Company that may be incorporated outside of New Zealand, or a partnership or other corporate body which is 25% (or possibly more) controlled by an overseas person or persons. The assessment is based on a number of factors, including the amount of the investment, the type of investment, and the proposed sector in which the investment is to be made.

Fair Competition

Business acquisition falls under the regulatory framework of the Commerce Act 1986. This Act aims to promote competition which establishes a long term benefit for New Zealand in a fair and equitable way. New Zealand sees more and more extraterritorial ventures, and as a result, the Commerce Act extends to business activities conducted outside of New Zealand by New Zealand Corporates. The Commerce Act is strict in its prohibition of business acquisitions which substantially lessen competition in the market, create safe harbours, and promote restrictive trade practices. It covers cartel behaviours, collective boycotts, and price fixing.

New Zealand also has a very well established consumer protection legal framework, which includes:

  • Fair Trading Act 1986;
  • Consumer Guarantee Act 1993; and
  • Sale of Goods and Services Act 1908

The above legislation oversees trade between businesses and to general consumers through regulation of business activities. If business activities are deemed to be unfair, then subject to the situation, one of the above legislative measures comes into force. Unfair business practice extends to conduct which is deemed to be misleading or deceptive, or that causes consumers or other businesses to form a mistaken belief or impression as to the product or service on offer.


The Reserve Bank of New Zealand Act 1999 empowers the Reserve Bank of New Zealand to regulate monetary policy in order to promote stability in pricing, as well as overseeing the maintenance of the financial system. It also supervises banks operating within New Zealand, including those which may be owned by overseas entities.

Most financial services are regulated within New Zealand. For example, insurance providers (domestic or overseas providers) are governed by the principles of the Insurance (Prudential Supervision) Act 2010. Domestic and overseas financial service providers fall under the ambit of the Financial Services Providers (Registration and Dispute Resolution) Act 2008. Regulatory frameworks and compliance will generally depend upon the type of investment venture.

Capital Markets

New Zealand operates three securities markets:

  • New Zealand stock market (NZSX);
  • New Zealand alternative market (NZAX); and
  • New Zealand Data Market (NZDX).

NZSX is the principal market for equity securities for larger Corporations; the NZAX offers securities for small or medium-sized businesses. Fixed income businesses are generally listed on the NZDX. Any offer of securities to the New Zealand public must comply with the New Zealand Securities Act 1978 and the Securities Regulations 2009. This includes primary, dual, or overseas listings.


The Income Tax Act 2007 governs income and overseas tax for individual and corporate tax payers. Taxes are normally levied on annual gross income from all sources less annual total deductions, as well as any losses carried forward. Gross income is defined as income which includes all gains on financial instruments, and short-term or planned profits on land or shared transactions.

Deductions might be defined as expenses incurred in gaining income or in carrying out business for the purpose of gaining income. Tax is payable in New Zealand if a person is a resident in New Zealand, or if the person is non-resident but derives an income from a source within New Zealand. Worldwide income will be dependent on in which country and how that income is derived.

New Zealand resident companies are taxable on their worldwide income at a rate of 28%, unless that company has made an election with the IRD to be a look-through company (‘LTC’). This means that the shareholders themselves are liable for income tax on the LTC’s profits, rather than the company itself. They can offset the LTC’s losses against their own personal income in New Zealand. Non-resident shareholders of an LTC are not liable to pay income tax in New Zealand on any overseas sourced income, only on income sourced in New Zealand. An overseas company is taxable at the same rate if its income has a New Zealand source.

The New Zealand dividend imputation system under which tax is paid by New Zealand resident companies allocates an imputation credit to dividends paid to shareholders. New Zealand resident shareholders may offset this imputation credit against tax liabilities in respect of other dividends; however, this will be dependent upon a range of factors, i.e. the rate of non-resident withholding tax, or if a New Zealand resident company receives dividends from a foreign tax company.

In order to ensure overseas owned companies pay the appropriate level of tax on their New Zealand sourced profits, a transfer pricing regime exists. Maintenance of the appropriate pricing records and compliance with other New Zealand regulatory regimes such as PAYE, Goods and Services Tax, and Kiwi Saver (Superannuation Schemes) also apply.


The above is an overview of useful information for overseas investment within New Zealand, but does not constitute legal advice. Specific legal requirements and compliance must be assessed on a case-by-case basis, and are dependent upon business needs or plans. Doing business in New Zealand needs careful guidance through the legislative frameworks and processes in order to ensure proper compliance. Before taking steps to invest in New Zealand, we strongly suggest that you consult with legal experts.

[1] Information supplied by the Ministry of Foreign Affairs and Trade of New Zealand.

[2] Information supplied by the Ministry of Foreign Affairs and Trade of New Zealand.

[3] Information supplied by the Ministry of Foreign Affairs and Trade of New Zealand.

Securities and Exchange Commission’s Approval: Is it a Sine Qua Non for every Asset(s) Acquisition Transaction?

The Securities and Exchange Commission (“SEC”), established under the Investments and Securities Act, 2007 (“ISA”) is the body charged with the overall regulation of capital market activities in Nigeria. The SEC has also unwittingly become a competition regulator. Accordingly, the SEC has the responsibility of reviewing, approving and regulating mergers, acquisitions, takeovers and all forms of business combinations. (ISA, s. 13.) Thus, every merger, acquisition or business combination between or among companies is subject to the prior review and approval of the SEC.

There are two topical issues among practitioners relating to the requirement for SEC’s approval for asset acquisitions: (A) whether the SEC’s approval is required for an asset acquisition; and (B) if the SEC’s approval is required, whether there is or there should be a monetary threshold or asset value that would trigger the SEC approval requirement? The ISA is not altogether clear on these and the lack of clarity is due largely to the language used in the SEC Rules and Regulations, 2013[1] (the “SEC Rules”).


 Rule 421(1) of the SEC Rules defines “acquisition” as “the take-over by one company of sufficient shares in another company to give the acquiring company control over that other company” (emphasis supplied). Further, Rule 433 of the SEC Rules also defines “acquisition” as “where a person or group of persons buys most (if not all) of a company’s ownership stake in order to assume control of a target company” (emphasis supplied). Rule 421(1) is limited to shares acquisitions.   Rule 433 suggests that for there to be an “acquisition” the acquirer must assume control of the acquiree after the acquisition. The assumption of control of the acquiree does not necessarily occur in asset acquisition transactions. It is fair to say that both Rule 421(1) and Rule 433 do not contemplate SEC approval for asset acquisitions.

It is however arguable that the SEC’s approval is required for asset acquisitions for at least three reasons.   First, there are copious references to “asset(s)” under Part I of the SEC Rules that deals with “take-overs”, “mergers” and “acquisition”. Rule 422 of the SEC Rules sets out the scope of SEC’s regulation under Part I of the SEC Rules to include “every merger, acquisition or combination between or among companies, involving acquisition of shares or assets of another company” (emphasis supplied). Further, Rule 423(2) of the SEC Rules states that the SEC shall approve a merger, acquisition or external restructuring if SEC finds that “such acquisition, whether directly or indirectly, of the whole or any part of the equity or other share capital or of the assets of another company, is not likely to cause substantial restraint of competition to create monopoly in any line of business” (emphasis supplied).

One of the documents that is required to accompany a letter of intent to be submitted by an applicant seeking approval from the SEC under Rule 434 of the SEC Rules is a report of valuation of shares/assets to be acquired. (SEC Rules rule 434(xvii).) Again, Rule 436 of the SEC Rules sets out the contents of Information Memorandum for an acquisition. Part of the background information to be contained in an Information Memorandum is the “list of assets to be acquired and their value (where applicable)”. (SEC Rules rule 436(1)(d). Moreover, Rule 437 of the SEC Rules requires that an executed share/asset purchase agreement should be forwarded to the SEC post-acquisition.

The definitions of “acquisition” under the SEC Rules suggest that the scope of acquisition under the SEC Rules is limited to shares and does not cover asset acquisitions, notwithstanding, numerous references to “asset” under Part I (on take-overs, mergers and acquisition) of the SEC Rules which clearly show that the term “acquisition” as used in the SEC Rules also involves asset acquisition and therefore subject to the SEC’s prior review and approval. It is settled law that in the interpretation of statutes, every clause of a statute must be construed with reference to other clauses/provisions of that statute in order to have a consistent enactment. Nigerian Ports Plc v Okoh (2006) All FWLR 1145 at 1157H and Canada Sugar Refining Co. Ltd. v R (1898) AC 735.

Second, assuming that the term “acquisition” as defined in Rule 421(1) is limited to share acquisitions, asset acquisitions will still be subject to the SEC’s prior review and approval. This is because asset(s) acquisition is unarguably a form of business combination which falls within the SEC’s scope of regulation. By section 13(p) of ISA, one of the functions/powers of the SEC is to “review, approve, regulate mergers, acquisitions, take-overs and all forms of business combination and affected transactions of all companies” (emphasis supplied). Also, Rule 422(2) of the SEC Rules states specifically that the provisions of Part I (on take-overs, mergers and acquisition) of the SEC Rules shall apply to “every merger, acquisition or combination between or among companies, involving acquisition of shares or assets of another company” (emphasis supplied). Thus, all take-overs, mergers, acquisitions, business combinations undertaken by companies, partnerships or agencies of the federal government are subject to the SEC’s approval.

Third, SEC’s competition regulator status makes it incumbent for the SEC to review and approve every asset acquisition between companies in order to ensure that such asset acquisition will not cause substantial restraint of competition or tend to create monopoly in that line of business enterprise. (SEC Rules, rule 423(2)(a).) Even where the SEC’s prior approval is not obtained for an asset acquisition, the SEC has the power to break up such a company where it considers that such an acquisition constitutes a restraint to competition or creates a monopoly in a particular industry. (SEC Rules, rule 432.) A ground for the SEC to order a break-up of a company is where the company enters into an agreement or business undertaking which has the effect of preventing, restricting or distorting competition in any part of the Nigerian market. (SEC Rules, rule 432(3)(a).) It is, therefore, prudent (assuming it is not mandatorily required) to seek the SEC’s approval before entering into any agreement for asset acquisition which may have the effect of preventing, restricting or distorting competition in any part of the Nigerian market. If the SEC reviews the transaction documentation and comes to the determination that its approval is not required, it [the SEC] would issue a “No Objection” to the transaction.


The writer is of the strong view that it is not every asset acquisition transaction that requires the SEC’s approval. Otherwise, the SEC will be inundated with applications/requests for approval and the SEC will be unable to perform its other functions as the sale of a company’s asset, irrespective of the value, would require the SEC’s prior review and approval. There are at least three tests that could be adopted for determining when the SEC’s prior review and approval will be required for an asset(s) acquisition transaction. These tests are: (1) the asset value test; (2) the operating asset test; and (3) the competition test.

Asset Value Test.   This test involves setting a threshold in terms of the value of the assets to be sold/transferred. The SEC’s prior review and approval will be required where the value of such asset is above the set threshold.

Operating Asset(s) Test.   The SEC’s prior review and approval should be required in an asset(s) acquisition transaction where all or substantial part of the operating asset(s) (that is, asset(s) constituting the business of a company) of a company are to be sold or transferred to another entity. For example, the sale/transfer of all or substantial number of telecommunications masts/towers by a telecommunications company will require the SEC’s prior review and approval under this test as telecommunications masts/towers are the operating assets of telecommunication companies.

Competition Test. As stated above, the SEC in reviewing approving acquisitions or any business combinations has the obligation to ensure that such transaction would not cause substantial restraint of competition or create a monopoly in a particular line of business enterprise.   Thus, where the asset(s) to be sold/transferred does not constitute the substantial part of the operating asset(s) of a company but one with competitive significance, the SEC’s prior review and approval of such transaction should be required. For instance, the SEC Rules could provide that an asset or set of assets would be of competitive significance where the acquisition of such an asset or set of assets will likely result in the acquirer having ten per cent of the market share in that line of business in addition to the acquirer’s current market share.


The current state of the law is not altogether clear as to whether asset(s) acquisition transactions are subject to the SEC’s prior review and approval. It is, therefore, imperative to amend the SEC Rules to clearly cover asset(s) acquisition and provide clear parameters or thresholds for determining what asset acquisition will be subject to SEC’s review and approval.

[1] The SEC is empowered under s. 313 of ISA to make rules and regulations for the purpose of giving effect to the provisions of ISA.

The European Commission and the e-Commerce sector: What to expect.

According to the European Commission (the “Commission”), statistical data indicate that only 15% of EU citizens purchase online from suppliers located in a Member State other than their own country of residence. This does not only apply to the acquisition of goods, but also to that of multimedia content (video, music, games, apps, etc.).

Language barriers, consumer preferences and legislative differences could in part account for this situation, but the findings of previous case investigations conducted by the Commission and national competition authorities suggest that certain companies may be restricting cross-border e-commerce.

All this has resulted in an e-commerce sector inquiry that was officially launched by the Commission on 6 May 2015. The inquiry focuses on identifying artificial barriers which may hinder cross-border e-commerce, contained for instance in vertical distribution agreements between manufacturers or content holders and online retailers. In particular, the Commission is looking into possible (i) limitations to cross-border and/or online sales of goods (e.g. passive sales restrictions or geo-blocking) and (ii) restraints on the commercialization of digital content (such as geo-blocking requirements or absolute territorial protection).

The Commission’s investigation will address geo-blocking, which restricts access to content based on the users’ geographical location using data such as their IP address or their credit-card details. Although geo-blocking practices may sometimes be explained by copyright-based licensing restrictions, they also might be due to pure commercial strategies with anticompetitive effects.

The sector inquiry on e-commerce will therefore be accompanied by other initiatives at the European level, such as legislative actions.

Stakeholders, procedure and timeline

It is expected that approximately 2,000 companies will be approached by the Commission. Industry participants and other stakeholders across the 28 EU Member States, including owners of content rights, broadcasters, online retailers and online suppliers of goods and services will be addressed by the Commission during the inquiry. As announced by the Commission, the focus is placed on electronics and electrical household appliances, clothing, shoes and accessories, books, healthcare products, digital content and travel services.

The investigation does not only cover hi-tech multinationals, such as Amazon (e-commerce leader in the EU), eBay, Google or Uber, but also considerably smaller online firms, as well as trade and consumer associations.

Although the Commission stated that the inquiry will be carried out mainly through information requests (including requests for documentation; e.g. copies of agreements) made to operators, it should be borne in mind that the Commission has also powers to conduct dawn raids at companies’ premises.

To date, the Commission has already sent two batches of questionnaires.

  • At the end of June, the Commission sent the first one which was addressed to movie, TV, music and sport content owners and it has been reported to have more than 100 pages.
  • The second one, sent in mid-July, was directed to online retailers mainly in Germany, France and the United Kingdom. The deadline to respond is of approximately six weeks. This second set of questionnaires required stakeholders to provide feedback on the obstacles they face when selling their products online within the European market. In this sense, retailers have been asked to detail restrictions linked to customer’s location, prices differences depending on the sale channel, prices margins etc.

If a company or association is active in the e-commerce sector, but has not received a questionnaire, it is possible to inform the Commission about its interest to participate. This is only recommended if the company in question is exposed to restrictions and would like to raise its voice to the Commission.

As regard the obligation to respond, it is worth reminding that the Commission may impose fines for failure to supply information within the required time limit or for supplying incorrect or misleading information. Therefore, answers to information requests in the framework of this inquiry must be carefully drafted.

The preliminary report on the findings of the investigation should be published by mid-2016, to which stakeholders will be given the opportunity to comment, and the final report is not likely to be ready until the first quarter of 2017.

Sector inquiries may trigger formal investigations of individual companies for infringements of competition law. Companies operating online are strongly advised to start reviewing their standard terms and conditions for cross-border purchasing.

Moreover, it is expected that the conclusions drawn from the investigation will be used in future legislative initiatives to boost e-commerce at the EU level. Although Commission officials confirmed that it is not the intention of the Commission to amend exiting rules on vertical restraints, at the end of the day such amendment may be necessary.

 Parallel action

This sector inquiry is intended to complement the Commission’s Digital Single Market Strategy, which aims at removing barriers to cross-border e-commerce.

In addition, this measure arrives along with the following parallel Commission:

  • investigation into possible location-based restrictions put in place as regards the sale of online video games for personal computers;
  • investigation into licensing terms between six major US film studios and Uk broadcaster Sky;
  • assessment of agreements between major music labels in relation to paid music-streaming services; and
  • statement of objections sent to Google in relation to its comparison shopping service. This SO follows the investigations on Google’s conduct with regard to other four concerns: (i) the alleged more favourable treatment of other specialized search services; (ii) copying of rivals’ web content or ‘scraping’, (iii) advertising exclusivity and (iv) undue restrictions on advertisers.

Although officials of the Commission have repeatedly stated that the sector inquiry should not lead to an amendment of the existing rules on vertical restraints (Regulation (EU) Nº330/2010 and Guidelines on Vertical Restraints), the fact is that, quite likely, some amendments will have to intervene. Regulation 330/2010 was somehow already too old when it was born.

China’s Antitrust Regulator Targets Price-related Violations in the Pharmaceutical Sector

In May, 2015, the National Development and Reform Commission (“NDRC”), the Chinese authority in charge of price-related antitrust violations published the Notice on Reinforcing Supervision over Drug Prices (“Notice”). The Notice includes a range of specific issues on the supervision over drug price, including immediately launching special inspections into illegal conducts under the Pricing law and the Anti-Monopoly Law (“AML”).

The Notice aims to implement the Opinions on Promoting the Drug Pricing Reform (“Opinion”), which was jointly published by the NDRC, also the major authority in charge of the State’s medical price reform and other relevant ministries. In China, the medical reform has been carried out for decades. As a major move in this lengthy and continuous reforming process, the NDRC issued the Opinion and the Notice on the same day, both of which cover the issue of reforming the drug pricing mechanism and reinforcing comprehensive supervision over medical expenses and prices.

This article introduces the Notice with a focus on the antitrust issues that may occur in such special inspections, in order to provide advice for antitrust compliance in the pharmaceutical sector.

  1. Current Drug Pricing Mechanism

Since 2000, under the Drug Administration Law and its relevant rules and regulations, the price of the following drugs shall be fixed or guided by the government: (i) drugs listed in the directory of drugs for national basic medical insurance (“Directory”), and (ii) drugs which are not listed in the directory but are manufactured and distributed by a single supplier. More specifically, within the scope of the abovementioned drugs, the government fixes the price of drugs relating to the immunization plans and family planning, while it sets maximum retail prices for the others.[1] By contrast, for drugs that are not listed in the directory, or drugs that are not manufactured and distributed by a single supplier, their prices are set by the pharmaceutical companies. Besides, according to the Notice on Issuing the Regulations on the Centralized Procurement of Drugs by Medical Institutions (2010), all non-profit medical institutions shall participate in the centralized drug procurement plan, and medical institutions and pharmaceutical companies shall carry out drug procurement through the centralized drug procurement platforms established by local governments.

Therefore, for drugs whose prices are guided by the government, their pricing shall be subject to the following restrictions in order to be sold to non-profit medical institutions. First, their prices shall not exceed the maximal resale price, or the so-called “Ceiling Price” issued by the NDRC. Second, the NHFPC organizes the provincial centralized procurement process to determine the bidding-winning price and the hospitals then set the retail price of such drugs within the price increase range in accordance with relevant laws and regulations[2].

Currently, the bid-winning price under the centralized drug bidding process is normally lower than the Ceiling Price set by the NDRC. It suggests that the NDRC’s regulation on the maximal resale price has very limited impact on the actual prices of drugs. Against such a background, it seems to be the right timing to repeal the regulations on the maximal resale price of drugs, and establish a new pricing mechanism for drugs.

  1. Key Points of the Drug Pricing Reform

Ever since 2012, the NDRC has being working on reforming the drug pricing mechanism. After seeking public opinions, the NDRC has now eventually finalized the Opinion. The Opinion has provided the following measures for reforming the drug pricing mechanism: (i) cancelling the maximal resale price restrictions set by the government, except for narcotic drugs and Class I psychotropic drugs; (ii) forming the procedures, bases, methods and other rules for formulating the reimbursement standards for drugs that are covered by medical insurance, and enhancing medical insurance’s function in price control; (iii) establishing a public and transparent negotiation mechanism participated by multiple parties, in order to set prices for patent drugs and drugs produced by a single supplier; (iv) setting the prices through bidding process or negotiation for blood products, which are not listed in the national drug reimbursement list, immunity and prevention drugs that are purchased by the State in a centralized manner, and AIDS antiviral drugs and contraceptives provided by the State for free; (v) for other drugs, the prices shall be set by the pharmaceutical companies.

  • Supervision over Price-Related Conducts in the Pharmaceutical Sector

In order to implement the Notice, the NDRC will launch a six-month campaign against price-related violations in the pharmaceutical sector. The inspection will focus on the prices of drugs for which competition is insufficient and which are particularly used by special patients. In particular, the NDRC will focus on the following conducts which violate the Price Law and the AML:

  1. Fabricating and spreading price increase information, pushing up the prices to an excessively high level, and disturbing the market order;
  2. Colluding with each other to manipulate market prices;
  3. Abusing market dominance by selling drugs at unfairly high price (“excessive pricing”);
  4. Price frauds such as making up cost price, marking false price, offering discount after increasing the price, misleading price marking, hiding additional pricing conditions; and
  5. Other illegal price-related conducts.

Besides, the NDRC will step up efforts to monitor drug prices, particularly on the ex-factory (port) prices and actual purchase prices of drugs over which market competition is insufficient. The Notice mentions that special inspections would be launched in cases where the price is frequently or significantly changed, or cases where the price is significantly different from international prices, price of the same product, or prices from other regions.

In addition, the NDRC encourages the public to report illegal price-related conducts via its national price violation report system.

  1. Suggestions for Compliance of Pharmaceutical Companies

Drug prices, especially the high prices of patent drugs have always been in the spotlight. Partly because of the implementation of mandatory Ceiling Price, the antitrust authorities rarely punish pharmaceutical companies for excessive pricing under the AML. After the reform, since the Ceiling Price for most of the drugs would be removed, pharmaceutical companies will be more susceptible to excessive pricing challenges, which is exactly the focus of the NDRC campaign.

  • Relevant Market

Under the AML, a business operator could be liable for excessive pricing only if it holds a dominant market position, the determination of which depends on the definition of the relevant market. According to the Guidelines on Defining Relevant Markets, the relevant market refers to “the product scope or geographical scope within which an operator participates in competition during a certain period of time with respect to a specific product or service”. The relevant market can be defined by methods such as the functionality test by analyzing the substitutability of products on demand/supply side, or SSNIP test.[3] In the human drug area, the antitrust authorities would take special approach to define the relevant market based on the specific characteristics of drugs. For example, MOFCOM, the Chinese antitrust merger review authority, has adopted the functionality test, and in particular the ATC 3 classification (Anatomical Therapeutic Chemical level 3, i.e. a classification based on targeted symptoms) to define the relevant market.[4] Besides, the SSNIP test generally also plays an important role in defining the relevant market. However, the influence of price change on customers’ choice of drugs is very complicated, because the pricing and purchase process of drugs are subject to governmental regulations, while the customers’ choice on drugs is influenced by various factors such as the doctors’ preference in prescriptions and the payment system under medical insurance. Therefore, various factors shall be taken into account if the SSNIP test is applied to define the market.

  • Dominant Market Position

Dominant market position refers to the position with which business operators would be capable of controlling the prices or quantities of commodities or other transaction terms in a relevant market, or preventing or imposing an influence on the access of other business operators to the market. According to the AML and relevant regulations, various factors, such as business operators’ market share and technical capabilities, shall be considered when assessing the market position. Among those factors, patent is a particularly important one. The pharmaceutical industry relies heavily on patent protection. According to industry study, but for patent protection, 60% of drugs would not have been developed in the first place, and 65% of drugs would not have been clinically applied. Because of patent protection, patent drugs may, to some extent, have certain advantage in the market. But in assessing the market position, it is still necessary to comprehensively analyze all relevant factors, such as the market share of the pharmaceutical company, its financial status, and its controlling power over the channels, etc.

  • Excessive Pricing

Once concluded that the business operator holds the dominant market position, it is necessary to determine whether the drugs are sold at “unfairly high price”. According to the Provisions on Anti-price Monopoly promulgated by the NDRC, factors to consider in determining “unfairly high price” include (1) the price offered by other business operators for the same kind of product, and (2) the cost change of such product, etc. However, the AML and relevant regulations do not provide further details on how to select the benchmark price for comparison. If one only compares the overseas price and the domestic price for the same drug, the result may not be convincing, because the market situation, the regulatory framework and the payment systems are different. Moreover, for patent drugs, the production cost would not be sufficient to demonstrate the actual investment of producers in light that the R&D expense is significant while the production cost is relatively small.

  1. Conclusion

The pharmaceutical sector has been under close scrutiny by antitrust enforcers globally, and pricing in this sector has long been one of the most sensitive issues. Because of the special regulatory provisions and the significant R&D investment, the pricing system of drugs differs from that of other products. In the context of the current State medical and health reform, we expect that more reforming policies would be published in the future, which call for the continuous attention of pharmaceutical companies on antitrust

[1] According to Article 6 of Opinions on Reforming the Pricing Mechanism of Drugs and Medical Service, in the scope of drugs whose prices are regulated by the government, the prices of drugs relating to immunization plans and family planning are fixed by the government, and the prices of other drugs are guided by the government.

[2] According to Article 12 of the Implementation Opinions on Establishing the National Basic Drugs System, in the county (city, or district) where the basic drugs system is implemented, the basic drugs used by basic-level medical institutions shall be sold with zero margins. All local government shall implement relevant governmental subsidy policy. According to Article 14 of the Opinions on Reforming the Pricing Mechanism of Drugs and Medical Service, during the transition period of reforms, the markup percentage of drugs used by medical institutions shall be gradually reduced. The policies regarding markup percentage can be varied depending on the price level but shall be under the maximal rate of 15%.

[3] In the SSNIP test, under the circumstance that a hypothetical monopolist continuously raise the price at a moderate rate during a certain period of time, if sufficient numbers of buyers are likely to switch to alternative products and the lost sales made such price increase unprofitable, then the alternative products and the hypothetical monopolist’s products shall be considered as in the same product market. Otherwise, those two products shall not be considered as in different product market.

[4] See MOFCOM Announcement [2009. No. 77] on its Decision on Conditionally Approve the Acquisition of Wyeth by Pfizer Following Anti-Monopoly Review. Nevertheless, ATC 3 is not the only basis to define the relevant market in the pharmaceutical industry. For example, apart from the ATC 3, the EU antitrust authorities used other methods, such as ATC 4 (i.e. a classification based on curative effects or pharmacodynamics) to define the relevant market.

In a competitive M&A market, trust is your secret weapon

Merrill DataSite provides due diligence platforms for financial transactions worldwide, and as such is a leading indicator of trends and future trends across global deal markets. However, no one needs us to tell them that M&A markets are currently bullish; there’s no doubt about it. There has been a flurry of activity over recent months, and dealmakers in private equity, corporate development teams and investment banks are poised to hit the ground running as soon as an opportunity presents itself.

From the latest Mergermarket M&A Insider reports sponsored by Merrill DataSite, we know global deal value was up 27% year on year from May 2014 to May 2015, whereas deal volume was down 30.9% – proving competition for assets is growing fierce.

One major issue related to this is that there is simply too much cash – both dry powder and on corporate balance sheets – chasing deals, which is raising competition to new heights, increasing some valuations to pre-financial crisis levels.

Numerous new funds have closed in recent months, surpassing their targets, including Silverfleet, Inflexion, Carlyle, Equistone and Bridgepoint. Added to that, debt is cheap, so when an acquisition situation comes along individuals want and need to be ready to move fast.

Law firms and M&A lawyers know better than anyone the demands this can place on every layer of their organisation – from Partner to Associate. Everyone understands that when serving the client, delivering what they want (and fast) is paramount, because delivery engenders trust and trust engenders repeat business. It is gaining trust, building long-term relationships, and establishing a successful team that really forms the basis of good M&A deal-making, ultimately making the difference in a competitive situation.

When relationships are established, generate success, and work for mutual benefit, why change them?

This philosophy has been a long standing tenet of Merrill DataSite’s. We support expediting due diligence processes for our clients – old and new. Yes, we do that through technology, but largely we achieve this through the human element in our part of the transaction. Our Project Managers work 24 hours a day, seven days a week in dedicated teams to ensure there is always someone available and ready to answer the phone, to open the project, or to load documentation onto the due diligence platform. This builds trust with our clients that we can deliver, and that’s the differentiator.

You have to deliver quality, of course, but you have to deliver it fast. It’s a universal truth when talking to professionals in M&A that there are time pressures. Time-squeeze is a fact of life, and processes that clients may previously have built a six month contingency for are now being demanded within two months or less.

Clients want to complete a transaction or make decisions quickly in order to capitalise on the opportunities they are being presented with and to gain the winning edge. If they can seal the deal quicker than anyone else, establish a relationship with the seller and gain their trust, then it is less likely that the process will drag on or go to auction. For example: one large, global sponsor recently completed an acquisition after they told the target company that they could finish the process in five days.

The law firms under the pressure of these ever compressed timelines advise buyers that due diligence processes have to be done as fast as possible, which means using a supporting cast of experts who can simplify the process. This is done by auto-enabling every document placed in a virtual data room so it becomes fully searchable within seconds, information can be found quickly and easily, smoothing the process, with project managers ready in the wings if needed.

If an M&A client can steer their deal towards a swift conclusion, saving time and money in the process, they will be happy. If they can keep out the competition and prevent their asset from going to auction, that is all to the good. If they can invest their capital and have that generating profit, rather than languishing, waiting to be put to good use, all the better. And, if trusted partners and advisors can help speed this process and expedite getting them what they want, then that means long-term relationships and future success.


Company profile:

Merrill DataSite is established as the market-leader for virtual data rooms (VDRs) in Europe and across the world. As first to market, we have many years of experience to bring to your transaction and have had time to develop and refine our technology, leading to a peerless Project Management and systems infrastructure that operates 24/7/365. This is why many thousands of companies trust Merrill DataSite to manage their online due diligence processes.

Indian Merger Control – More Than Just A Condition Precedent


June 2015 marks four years of enforcement of the Indian merger control regime. Over the last four years the decisions of the Competition Commission of India (“CCI”) have steadily shaped the merger control landscape in India. Rather than viewing the merger control regime as a mere mandatory filing obligation required before the closing of certain transactions, industry has been forced to sit up and take notice of the regime as a transforming force while doing business in India and notifying parties are required to assess the competition law implications arising out of a proposed transaction right since the inception of deal negotiation. This article highlights a few key decisions of the CCI that establish the increasingly important role played by it in the M&A space and cement the CCI’s stance as an efficient, effective and pro-active regulator.

Background: Indian Merger Control Framework

An acquisition of shares, control, voting rights or assets or merger or amalgamation of enterprises where certain jurisdictional thresholds are exceeded (“Combination”), needs to comply with the merger control provisions contained in Sections 5 and 6 of the Competition Act, 2002 (“Act”) and the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”).

In case of acquisitions, by way of a notification dated 4 March, 2011, a proposed transaction is exempt from notification to the CCI if the assets or turnover of the target do not exceed INR 2500 million or INR 7500 million, respectively. Further, Schedule I to the Combination Regulations lists certain categories of transactions which would ordinarily not require a merger notification as they are generally presumed not to cause an “appreciable adverse effect on competition” (“AAEC”) in India.

The Act prescribes a mandatory filing regime wherein a Combination must be notified to the CCI within 30 days of executing a binding definitive agreement or other document (in case of acquisitions) or within thirty days of the board approval (in case of mergers and amalgamations). In case of any failure to notify a Combination, the CCI can impose a penalty which may extend to 1% of the total turnover or assets, whichever is higher, of the Combination. The Act also contemplates a suspensory regime and parties are prohibited from consummating or giving effect to the Combination until receipt of the CCI’s approval.

Strategic Investment and Acquisition of Control

Notably, the ‘Item 1 Exemption’ continued to be the focal point of the CCI’s decision even in the fourth year of the merger control regime. Schedule I to the Combination Regulations lists certain categories of Combinations for which a notification “need not normally be filed”. Item 1 of Schedule I exempts the acquisition of shares or voting rights of less than 25 per cent., provided that:

  • the acquisition is not a strategic investment and has been made purely for investment purposes; and
  • the acquisition does not amount to an acquisition of control.

(“Item 1 Exemption”)

Based on the CCI’s precedents, an acquisition will be considered as a strategic investment if the acquirer has any interest in an entity which is in a similar line of business as the target enterprise. The CCI has clarified that the phrase ‘solely as an investment’ indicates mere ‘passive investment’ as against ‘strategic intent’ and would not include acquisitions made with an intention of participating in the formulation, determination or direction of the basic business decisions of the target (by way of voting rights, agreements, representation on the board of target or affiliates, affirmative/veto rights, etc.)[1].

The CCI determines the availability of the Item 1 Exemption for private equity investors, based on the business of their portfolio companies. The Item 1 Exemption will not be applicable to acquisitions where the portfolio companies are engaged in a similar line of business as the target enterprise or are vertically linked to the target enterprise. However, investments in other portfolio companies in the similar line of business as the target enterprise are likely to cause concerns only when the investor exercises control over such companies. Thus, while analyzing the acquisition of a 17.14% shares of Bandhan Finanical Services Limited (“BFSL”) by Caladium Investment Pte. Ltd. (“Caladium”), the CCI assessed the investments of Caladium (an affiliate of GIC, Singapore sovereign wealth fund) and an affiliate of GIC (“Affiliate”) in the same sector as BFSL. The CCI found no horizontal or vertical overlaps between Caladium and BFSL since Caladium and the Affiliate did not exercise any direct or indirect control over the portfolio companies operating in the same sector as BFSL[2].

The CCI has adopted an approach akin to mature antitrust jurisdictions and has interpreted control to include negative control. Accordingly, the Item 1 Exemption does not apply to transactions wherein negative control is acquired. The CCI, by way of its decisional practice, continues to expand the list of veto rights, the acquisition of which amounts to an acquisition of negative control. Such rights include those in relation to amendments to the constitutional documents, changes in the capital structure, significant changes to the incentive structure of the senior management, appointment or removal of any senior management personnel, reorganization or change in the nature of current business or launch of any new business, appointment or change of auditors etc.[3] In this regard, parties are required to assess the veto and affirmative rights being acquired in case of acquisition of a minority stake, while determining the notifiability of the acquisition.

Anti-circumvention Rule

The CCI introduced the anti-circumvention rule in 2014 to ensure that parties to a Combination do not avoid merger notification on account of innovative transaction structures. The CCI has applied the anti-circumvention rule in conjunction with the requirement of notifying inter-connected steps of a composite transaction[4]. The CCI requires parties to notify inter-connected and inter-dependent steps of a composite transaction, even though any of the individual steps can avail of any of the exemptions on a stand-alone basis[5].

The CCI recently invalidated a merger notification since the parties failed to notify an inter-connected step of a composite transaction[6]. In contrast with the Thomas Cook case[7], where the CCI opted to impose a penalty for non-notification of an inter-connected step to a composite transaction, the CCI asked the parties to file a fresh merger notification in this case. The Combination related to an: (a) acquisition of 24.75 per cent. of the equity share capital of Manipal Health Enterprises Private Limited (“MHEPL”) by TPG Asia VI SF Private Limited (“TPG SF”) (“TPG Acquisition”); and (b) acquisition of real estate assets of Manipal Health Systems Private Limited (“MHSPL”) by MHEPL by way of a demerger (“Demerger”). While the parties only notified the TPG Acquisition to the CCI (given that the Demerger was an intra-group acquisition which is a category of transaction exempt under Schedule I to the Combination Regulations), the CCI viewed the Demerger as inter-connected and inter-dependent to the TPG Acquisition and required the parties to file a fresh notice for the TPG Acquisition and the Demerger[8].

Phase II Scrutiny and Structural Commitments

The fourth year of the Indian merger control regime also witnessed two instances of a full-fledged Phase II investigation being conducted, wherein the CCI imposed structural commitments by requiring the parties to divest certain assets. The first Phase II investigation related to the pharmaceutical sector, i.e. the merger of Ranbaxy Laboratories Limited into Sun Pharmaceutical Industries Limited[9]. Based on its earlier decisions in the pharmaceutical sector, the CCI defined the relevant market at the molecular level and assessed competitive effects of the proposed transaction in 49 relevant markets for formulations and the market for active pharmaceutical ingredients. The CCI held that the proposed transaction was likely to cause an AAEC in 7 markets based on the post-merger combined market shares of the parties, the number of players in the market, the elimination of a significant competitor and the reduction in market shares of other competitors. The CCI imposed structural commitments, requiring the parties to divest 7 brands to a buyer approved by the CCI.[10] The CCI, for this first time, specified an upfront buyer requirement and crown jewels.

The second Phase II investigation pertained to the highly contested cement sector and involved an acquisition of shares which would result in Lafarge S.A. (“Lafarge”) becoming a subsidiary of Holcim Ltd. Based on factors such as an increase in the level of concentration, absence of countervailing buyer power, significant entry barriers, the oligopolistic nature of the cement industry and the likelihood of co-ordinated effects, the CCI concluded that the proposed transaction was likely to have an AAEC in the market for grey cement in the Eastern region of India and proposed divestitures to eliminate the competition concerns. While requiring the parties to divest certain cement plants, the CCI also held that the cement plants being divested should constitute a complete eco-system and the divestiture should result in reducing the overall level of concentration in the relevant market and address the adverse impact of structural changes in the market resulting from the proposed combination. In terms of the purchaser requirement, the CCI order stipulated that the proposed purchaser should not have operational capacity exceeding 5 per cent. of the total installed capacity in the relevant geographic market[11].

The abovementioned decisions clearly establish the CCI’s pro-business approach in facilitating the commercial interests envisaged by the parties to the Combination, thereby evidencing its increasing maturity in objectively considering remedies to mitigate the adverse effects arising out of a Combination. The CCI’s recent approach in assessing the Phase II cases provides significant encouragement to the business community that the Indian competition regulator will aim to strike a perfect balance and factor the interests of the various stakeholders.

Non-notification and Gun Jumping

The CCI continues to adopt a stringent stance against parties that fail to notify Combinations or consummate Combinations prior to the CCI’s approval. The CCI imposed a penalty of INR 20 million on SCM Soilfert Limited (“SCM”) and Deepak Fertilizers and Petrochemicals Corporation Limited (“DFPCL”) for not notifying the acquisition of 24.46% equity stake in Mangalore Chemicals and Fertilizers Limited (“MCFL”) and for consummating an acquisition of additional 0.8% stake in MFCL prior to the CCI’s approval. While SCM and DFPCL sought to rely on the Item 1 Exemption for non-notification of the 24.46% equity stake, the CCI relied on a press release made by SCM to the stock exchanges to establish the strategic nature of the acquisition. Further, SCM argued that the 0.8% shares (for which SCM required CCI’s approval) were held in an escrow account and SCM/DFPCL would not exercise legal and beneficial rights accruing upon the acquisition of shares. However, the CCI held that the Act did not exempt a situation wherein a buyer acquires shares, but decides not to exercise legal/beneficial rights in such shares[12].

Based on a similar trend, the CCI also imposed a penalty of INR 30 million on Zuari for non-notification of 16.43% equity stake in MCFL. The CCI denied the applicability of the Item 1 Exemption based on a televised statement by the promoter of Zuari, which established that the transaction was not made ‘solely as an investment’. Notably, the CCI held that the absence of written agreements, defining the rights of the parties, would not preclude the strategic intent of any acquisition[13].


The CCI has always been receptive to feedback from industry and has demonstrated its willingness to address concerns faced by industry. In order to further streamline the merger review process, the CCI has proposed a fourth round of amendments to the Combination Regulations, which seek to provide clarity on substantive issues and simplify the filing process. The implementation of some of the proposed amendments will undoubtedly create a more efficient and efficacious merger control regime. However, certain amendments, such as the CCI’s power to invalidate a merger notification, potentially raise concerns given the likelihood of increased costs of transaction and prolonged transaction timelines. This wide discretionary power can be used by the CCI if it is of the opinion that the merger notification is “not valid” or ‘complete’, without there being any further guidance on what would constitute an invalid or incomplete merger notification. If the CCI were to ensure a right of hearing before summarily rejecting the merger notification, this would allay concerns of industry.

For the merger control regime to continue to be the transforming force in the Indian M&A arena, the CCI will have to adopt a consistent approach. While the CCI is a pro-active regulator, given the increasing role played by the CCI in the economic development of the country, it is pertinent that the CCI bring about predictability and adopt international best practices for a synchronized and efficient merger control regime.

[1] SCM Soilfert/ Mangalore Fertilizers (Combination Registration No. C-2014/05/175).

[2] Combination Registration No. C-2015/01/243.

[3] Alpha TC Holdings Pte Limited/Tata Capital Growth Fund I (Combination Registration No. C-2014/07/192 and Caladium/Bandhan Finanical Services Limited (Combination Registration No. C-2015/01/243).

[4] Regulation 9(4) of the Combination Regulations.

[5] Thomas Cook/Sterling Resorts (Combination Registration No.C-2014/02/153).

[6] Combination Registration No.C-2014/12/234.

[7] Supra at 6.

[8] Combination Registration No. C-2014/12/234.

[9] By way of full disclosure, the author represented Daiichi Sankyo Company Limited and Ranbaxy before the CCI.

[10] Combination Registration No. C-2014/05/170.

[11] Combination Registration N0.C-2014/07/190.

[12] Combination Registration No. C-2014/05/175.

[13] Combination Registration No. C- 2014/06/181.