Proposed digital antitrust law likely to cover 'killer acquisitions'

Killer acquisitions are deals where a dominant company acquires a smaller innovative firm to prevent competition

The Ministry of Corporate Affairs may consider bringing “killer acquisitions” – deals where a dominant company acquires a smaller innovative firm to prevent competition – within the ambit of the proposed digital competition Bill, a senior official said. 

The suggestion was made during the public consultation process for the draft Bill, the official said.

The Bill has brought in ex-ante (preventive) regulations, which require digital companies to notify the Competition Commission of India (CCI) that they fulfil certain qualitative and quantitative criteria to qualify as Systemically Significant Digital Enterprises (SSDEs). 

SSDEs are large digital enterprises with a significant market presence, which have the potential to impact the overall economy and financial stability.

The expert committee that drafted the digital competition Bill felt that it would be prudent to leave out mergers and acquisitions (M&As) from ex-ante obligations. This is because the Competition Act has been amended to cover “killer acquisitions”, with deal value threshold being made an additional criterion for notifying M&As. 

Any combination whose transaction value exceeds Rs 2,000 crore requires ex-ante approval by the CCI.

This has been done to capture deals in digital markets, which were so far falling below the notification criteria because of their asset- and revenue-light business models. 

While it is not clear yet how the digital competition Bill could cover such acquisitions, “deal value threshold” on the lines of the principal Act could be added as criteria to determine SSDEs. 

The MCA, however, is yet to notify the rules and regulations concerning the deal value threshold provisions of the main Competition Amendment Act 2023. The Act received the President’s assent on April 11, 2023. 

“The provision will be notified soon along with some other rules concerning combinations in the Competition Act,” the official quoted above said. 

According to Section 5 of the Competition Act, the acquisition of one or more enterprises or merger or amalgamation of enterprises, which exceeds the threshold prescribed therein, shall be a ‘Combination’ for the purposes of the Act.

In scenarios where a portion of an enterprise, division, or business is undergoing acquisition, taking control, merging, or amalgamating with another enterprise, the determination of relevant assets and turnover for calculating thresholds under Section 5 of the Act depends on the value of the said portion or division or business. 

Currently, the CCI looks into a deal when an acquired company has a turnover of at least Rs 1,000 crore and assets worth Rs 350 crore or more. However, with data becoming a valuable commodity, the CCI is also amending its laws to cover this aspect of the new-age economy. It will look into the deal size of any acquisition beyond a certain threshold.