Issue of 'Control' discussed by CCI in its recent order
Context
In its order dated 9th August, 2012, Competition Commission of India ("Commission") approved the proposed acquisition of equity shares of Multi Screen Media Private Limited ("MSM India") by SPE Mauritius Holdings Limited and SPE Mauritius Investments Limited (together "Acquirers") from Grandway Global Holdings Limited and Atlas Equifin Private Limited (together "Sellers").
Prior to the acquisition, while the Acquirers collectively held 62 percent of the equity share in MSM India, the Sellers held 32.39 percent and the remaining equity is held by FIIs. The Acquirers have the right to nominate three directors on the Board, the Sellers two directors and the FIIs have no such right.
Issue of Control
While discussing the issue of control and joint control the Commission has observed that:
(a) Joint control over an enterprise implies control over the strategic commercial operations of the enterprise by two or more persons. In such a case, each of the persons in joint control would have the right to veto/block the strategic commercial decision(s) of the enterprise which could result in a dead lock situation.
(b) Joint control over an enterprise may arise as a result of shareholding or through contractual arrangement between the shareholders and the assessment of control over an enterprise would depend on the facts and circumstances of each case with due consideration of such relevant factors.
(c) Sellers' collective shareholding of 32.39 percent is sufficient to block/veto any action that requires special resolution under the provisions of the Companies Act, 1956.
(d) The following have been held to be strategic commercial decisions:
(i) MSM India engaging in any new business or opening locations in new areas; and
(ii) The hiring or termination of CEO, CFO and other Senior Managers.
The assessment of control depends upon shareholding and rights pursuant to such shareholding, rights pursuant to the Shareholders Agreement and rights pursuant to any other agreement which can influence strategic commercial decisions. The aforesaid analysis is in sync with the European Commission's Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, issued in 2008.
Conclusion
In view of the above-mentioned facts –
1. some guidance on the parameters for minority 'negative' control has now been provided, and
2. an acquisition leading to a change from joint control to sole control is not eligible for the exemption from filing available to intra-group acquisitions. The Commission acknowledges that assessment has to be done on a case-tocase basis.
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