Do
M&As need to pass the competition test?
Published:Business Standard, February 08, 2006
By Pradeep S. Mehta
 PRADEEP
S MEHTA,
Secretary General, CUTS International
A pre-merger notice is required in most countries since
using demergers to stop collusive
behaviour is akin to unscrambling an omlettte
The recently announced acquisition of Air Sahara by
Jet Airways, and the acquisition of Gujarat Ambuja by Holcim have heated
the M&A scene in the country. Considering the resulting dominant status
of these companies, concerns have been expressed over possible abuses.
Significantly, these events have brought to fore the urgent need to operationalise
the Competition Commission of India (CCI), which continues to be in a
limbo. Hopefully, the much-awaited amendments to Competition Act would
be tabled in the forthcoming budget session and pave the way for kick-starting
the CCI.
While concerns have been expressed over Jet’s dominance in controlling
a significant share of parking bays and prime landing slots, Holcim, given
the regional nature of cement market, is expected to have greater control
over pricing of cement in certain regions. In any case cement companies
anywhere are notorious for cartelising, and M&A provides them with
an opportunity to legitimise their collusive behaviour.
Firms often resort to M&As to realise economies of scale, improve
operating performance and so on. Economies of scale may even result in
lower prices, better quality and so on. Not surprisingly, expressions
in favour of big becoming bigger are heard in policy circles. Thus, some
have questioned the very need for a merger control regulation in the Competition
Act. They feel that the existing provisions on anti-competitive practices
are a sufficient safeguard, and if required, a demerger can be ordered.
But, a demerger is like unscrambling an omelette, which can be very arduous.
This is precisely the reason that merger regulations exist in competition
laws to pre-empt the potential abuse of dominance, as subsequent demerger
is both difficult and costly. In the US, though, demergers have been carried
out successfully, when AT&T, the giant telecom company, was broken
up into seven companies (baby-Bells) in 1984, in response to a federal
anti-trust suit. Now, with the competitive heat in communications, these
baby-Bells are coming together via M&As. In the US the current paradigm
is that big becoming bigger is fine but a no-no to any competition restrictive
practice.
Most competition jurisdictions in the world have a pre-merger notification
requirement. Few, like in the Indian Competition Act, 2002, have a voluntary
notification procedure. Nevertheless, the CCI can take suo motu action
and investigate a merger for possible anti-competitive effects. However,
this would put a huge strain on it, given the political clout commanded
by big-ticket mergers.
It is important that CCI develop a database to keep a watch on the behaviour
of the merged firm and blow the whistle when called for. For this, the
Commission needs capacity building and financial and human resources to
bite when required.
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