Mergers and Acquisitions

– Group assignment
Group Assignment
Brief about the case:
MobiSteel UK Ltd, a company incorporated and listed in UK, has its presence in India
through its subsidiary – MobiFerro India Ltd. Zeal Steel (UK) Ltd is a company
incorporated and listed in UK has its presence in India and it supplies raw material to
Mobi-India Ltd. MobiSteel UK Ltd and Zeal Steel (UK) Ltd contemplates a merger post
which MobiSteel UK Ltd would cease to exist and Zeal Steel (UK) Ltd will be the
surviving company.

Q. 1. Advise note to the Chairman of MobiFerro Ltd, regarding threshold of

combination as prescribed under Competition Act, 2002:

As per Competition Act 2002, it is mandatory to notify the Commission if the

thresholds in terms of assets and turnover set by the Commission are breached.
These thresholds, according to the Commission, are set sufficiently high that small
combinations would not have to notify the Commission.
There are two threshold limits are set:
1. Turnover: The turnover is the total value of sales of good or services.
2. Assets: The book value of the assets as recorded in the audited books of account of
the enterprise, in the financial year immediately preceding the financial year in which
the date of proposed merger falls (considering reduction by depreciation). Value of
assets include the brand value, goodwill, IPRs.
Threshold Limits:
1. Individual: The Commission is to be notified about the merger if the combined
assets (by book value) of the companies’ value more than Rs. 1,500 crores in India or
the combined sales of the company is more than Rs.4,500 crores in India. Also, if
either or both of the companies have assets or turnover outside India, then the
combined assets of the companies’ value more than US$ 750 Mn, of which the Indian
component at least Rs.750 crores in India, or turnover is more than US$ 2250 Mn, of
which the Indian component at least Rs.2,250 crores.
2. Group: The group to which the company or firm which is being acquired would
belong after the acquisition or the group to which the company remaining the
merger would belong has asset value at least Rs.6000 crores in India or sale of goods
or services more than Rs.18000 crores in India. Where the group has presence in
India as well as outside India then the group has asset value more than US$ 3 billion
of which the Indian component least Rs. 750 crores or turnover more than US$ 9
billion of which the Indian component at least Rs.2250 crores.

  Applicable To Assets Turnover

Individual Rs. 1500 Cr Rs. 4500 Cr
In India
Group Rs. 6000 Cr Rs. 18000 Cr
Assets Turnover
  Min Indian Min Indian
Total Total
In India and Component Component
Outside Individual
$ 750 m Rs. 750 Cr $2250 m Rs. 2250 Cr
Parties
Group $ 3 bn Rs. 750 Cr $ 9 bn Rs. 2250 Cr

Advise note to the Chairman, Mobiferro Ltd:

1. Since our parent organisation - MobiSteel UK Ltd and Zeal Steel (UK) Ltd are
contemplating a merger, we should take into consideration the thresholds limits set
by the Competition Commission of India through Competition Act, 2002. To comply
with the rules set by the Commission, we will have to notify about the proposed
merger to the Commission, if the limits are breached.
2. As MobiSteel UK Ltd operates in India through our company, MobiFerro Ltd, we
need to look at the limits set for the companies having business in India and abroad.
The threshold limits are mentioned in the above table.
3. We will have to notify the Commission if:
I.

Q. 2. The factors which will be considered while determining the above

combination whether such merger is likely or not likely to have an appreciable
adverse effect on competition in India:
In Sub section 4 of section 20 of the Competition Act 2002, the factors are listed.
(a) actual and potential level of competition through imports in the market;
(b) extent of barriers to entry into the market;
(c) level of concentration in the market;
(d) degree of countervailing power in the market;
(e) likelihood that the combination would result in the parties to the combination
being able to significantly and sustainably increase prices or profit margins;
(f) extent of effective competition likely to sustain in a market;
(g) extent to which substitutes are available or are likely to be available in the
market;
(h) market share, in the relevant market, of the persons or enterprise in a
combination, individually and as a combination;
(i) likelihood that the combination would result in the removal of a vigorous and
effective competitor or competitors in the market;
(j) nature and extent of vertical integration in the market;
(k) possibility of a failing business;
(l) nature and extent of innovation;
(m) relative advantage, by way of the contribution to the economic development, by
any combination having or likely to have appreciable adverse effect on competition;
(n) whether the benefits of the combination outweigh the adverse impact of the
combination, if any.