1. 1 Appreciation of relevant Competition Law Issues M &A and Competition Law Jyoti Sagar, Founder Partner J SAGAR ASSOCIATES 14 August 2008, New Delhi CUTS International Seminar on Enhancing Development Through a Competition Culture

2. 2 Let us start from the start “ Of course, these two departments later became known as M & A and Finance”

3. 3 Economics of Business Business rationale of M&A –Economies of scale –Efficiencies Synergies Complimentary strengths Cost reductions –Expanding the market Geography Products Size matters!

4. Consumer Welfare And what matters for the consumer! Value for money Quality Choice Innovation and better products

5. The Balance Competition law seeks to build a balance between what appear to be two conflicting interests Total Welfare is the goal – an amalgamation of Producer Welfare and Consumer Welfare Producer welfare measure is the producer surplus – producers’ gains from sales versus no sales Competition law thus looks at total surplus* and consumer choice and innovation * Total surplus is the sum of consumer and producer surplus

6. 6 Types of Mergers Horizontal Combinations Vertical Combinations Conglomerate Combinations Joint Ventures And these could be: - Domestic - Cross-border

7. Standard Features of Combination Review Thresholds : Assets and Turnover Prior Notification : Compulsory or Voluntary Relevant Market : Product and Geography Tests: –“appreciable adverse effect on competition (AAEC) – “substantial lessening of competition” (SLC) Transactions Covered –Mergers, Acquisition of shares or control covered –L ocal-to-local; Foreign-to-foreign; Foreign-to- local Review Period Filing Fees 7

8. 8 Special Features of Review of Overseas Combinations Usually a different threshold than local combination –local nexus –de minimis Economic and commercial impact on the relevant market where the “target” is located –determines whether or not to investigate in detail if the local nexus threshold met may notLocal nexus threshold may not always trigger full- fledged investigation – unless an adverse impact in the relevant market is unambiguously visible Harmonization with other economic legislations

9. 9 Some Local Conditions Pivotal to the Outcome Level of economic development Levels of competitiveness of the industries Political and Social conditions of the country Professional capacities in the Departments of Government/Judiciary Domain knowledge and skill amongst the stakeholders including the Regulator to implement the legislation

10. 10 Investigation – Two Phases Phase I – Tools Phase I : Examination of pre-existing documentary evidence such as –Corporate strategy documents –Merger negotiation documents Phase I : Evidence from market participants –Consumers –Customers –Suppliers –Competitors –Employees of merging parties Written responses to inquires and compulsory requests for information

11. Investigation Phase II - Tools Measuring market shares Demand Estimation Estimation of Demand and Supply Elasticities Actual Loss vs. Critical Loss Price Correlation/Variation Analysis Measuring excess capacity Analysis of the possibility of relocation and new product introduction Analyzing industry data Analyzing competitor production reactions to price changes 11

12. Assessing a Notification Conglomerate – Low risk matter –relevant market impact –substitutable goods; and –consumer harm/welfare Vertical combination – normally low risk unless unambiguous evidence is available against it Phase I analysis usually adequate and determinative for most combinations other than “horizontal” Horizontal – usually perceived as potentially high risk and candidate for Phase II analysis Empirical statistics suggest 90% combinations get approval in Phase I; 10 % go to Phase II and 5% get rejected 12

13. 13 Investigation View from the Corporate Trenches Data requests never seem to end – often viewed as harassment Length of time for the reviews and the uncertainty in their duration Direct and the loss-of-productivity costs [the cost of document production alone in a significant merger transaction can easily cost $4 – 5 million – International Competition Network (ICN)] Multi-jurisdictional reviews – burdens the tax payers and end consumers

14. Parting Comments M&A is inevitable in a growing economy – a true consequence of restructuring and reengineering of businesses Neither Size nor Dominance per se is bad Regulate “abuse” of size and dominance Regulation and regulators to be sensitive to maintaining balance Absent harmful effects “combination” notifications should be approved - an ex ante regulatory role 14

15. 15 And After All This … ‘ Initially, the merger will earn us next to nothing - but over time, that could double or even triple the Accountants Spoil the Fun!

16. Thanks for your attention jyoti@jsalaw.com