In a recent order, the Competition Commission of India (CCI) gave conditional approval to the $4-billion merger of Ranbaxy Laboratories Limited (Ranbaxy) into Sun Pharmaceutical Industries Limited (Sun). The proposed merger pursuant to a scheme of arrangement will create India’s largest and world’s fifth largest drug maker. This approval is a historic breakthrough in more ways than one for the CCI.
The Law:
The Competition Commission of India (Procedure in regard to the Transaction of Business relating to Combinations), 2011 (Combination Regulation) read with the Competition Act, 2002 (the Act) talk about the existing merger-control regulations in India. The objective of exercising merger-control is to ensure that any combination (including merger & amalgamation, acquisition or acquiring control) should not cause or be likely to cause appreciable adverse effect on competition (AAEC) in India.
The Order:
CCI received notice as per Section 6 of the Act, from Sun and Ranbaxy pursuant to a proposed merger of Ranbaxy into Sun. The Commission accordingly sought information about the same from the parties as per Regulation 14 and Regulation 5(4) read with Regulation 19(2) of the Combination Regulation.
After considering the facts on record, the CCI formed a prima facie opinion that the merger is likely to cause AAEC in the relevant market in India and accordingly as per Section 29(1) of the Act, it issued show-cause notice (SCN) to the parties for them to explain why a detailed investigation should not be carried out. The response from the parties lead CCI to again form a prima facie opinion about the likely cause of AAEC in India.
To address the issue, the CCI opted to seek public scrutiny of the proposed merger. This is the first time the ‘Phase II’ investigation was carried out for a proposed merger. Accordingly, as per Section 29(2) of the Act read with Regulation 22 of the Combination Regulation, the parties were directed to publish (publication in the format: Form IV: as provided in Schedule II, Combination Regulation) the details of the proposed combination. The publication of the details was relied on by the CCI to seek objections/ comments in writing from any person/ stakeholder who will be adversely affected by the combination. Relying on the comments from various stakeholders (including other competitors), CCI sought for clarification from the parties.
Considering the response from the parties, along with expert reports on the probable impact on competition, the CCI analysed the AAEC in the relevant market. For identification of the relevant market, CCI relied on the classification of pharmaceutical products given by the All India Organization of Chemist and Druggist.
The analysis lead the CCI to grant approval for the proposed merger subject to certain conditions. These conditions will ensure that the merger entity is not in a position of monopolistic control over the pharmaceutical industry. It requires the parties to divest their stake in certain products before the merger can be given effect to. For example, Sun is directed to “divest all products containing Tamsulosin + Tolterodine which are currently marketed and supplied under the Tamlet brand name”; while Ranbaxy has been directed to divest other products. This is the first time that CCI has not only proposed structural changes to a deal to make it compliant with competition standards, but also laid down the guidelines for how the changes are to be effected.
For example, to give effect to the divesture, the CCI has laid down detailed structural regulations like: products to be divested, the time frame for divesting their stake; purchaser requirements etc. Further to ensure compliance, the CCI will appointment an independent monitoring agency as per Regulation 27, Combination Regulations to oversee the proposed divesture. There are provisions for due diligence and reporting to the Monitoring Agency to make it an effective supervisory authority.
Conclusion
This approval is a breakthrough in the field of competition law in India. It witnessed a lot of ‘firsts’ for the Commission. Firstly, this is a pioneer attempt where a transaction was examined by the CCI in the detailed ‘Phase-II’ level. Secondly, it is also the first time that a public scrutiny was carried out by the CCI before giving its approval. Thirdly, the conditions which are attached to the approval are a pioneer attempt of the CCI in proposing structural changes to eliminate adverse effect on competition. From the point of view of similarly placed market participants, this opens the window into CCI’s mind; to understand what to expect in future from the Regulator’s desk.
This news update has been authored by Debkanya Naskar, a student at the West Bengal National University of Juridical Sciences.
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