Not all mergers in India go through the scrutiny of the fair trade regulator Competition Commission of India (CCI). Only a few cross the prescribed threshold, of which a very small number are viewed to cause an appreciable adverse effect on competition (AAEC). The CCI has thus far not rejected any such combination but has approved with a remedy so as to defend competition and consumers interests in the market. Swiss group Holcim and French group Lafarge merged on 10th July, 2015 to create LafargeHolcim, thus becoming the largest cement company in the world. Holcim and Lafarge together have significant market share in several regions with Lafarge having a very strong position in eastern India and Holcim, through its subsidiaries ACC and Ambuja Cement, having presence in almost all the key markets in India. The aforesaid merger raised the CCI’s eyebrows in eastern India region where Holcim, through ACC and Ambuja Cement, has cement capacity of around 6.1 MT and 4.6. MT, respectively and Lafarge has around 7.8 MT of cement capacity in the states of Chhattisgarh, Jharkhand and West Bengal out of its total capacity of 11 MT at all India level.
The CCI delineated the eastern region comprising states of Chhattisgarh, Odisha, West Bengal, Bihar and Jharkhand as the relevant market. In terms of the current installed capacity of grey cement, the market share of Holcim and Lafarge post combination was assessed at around 41 percent. Considering that pre combination concentration ratio (CR) of the top four players in the relevant market was 65 percent, which increased to 72 percent post combination, the CCI viewed the market as oligopolistic and considered the market share of the combining parties as likely to cause an AAEC.
However, the CCI assessed and decided that the AAEC in the relevant market could be eliminated by way of providing a suitable remedy to the combination. Accordingly, the CCI approved the proposed combination, vide its order dated 30th March, 2015 (‘Order’) with modification which aimed to maintain the existing level of competition by divestiture of cement capacity of 5.1 MT of the parties involving assets of Lafarge’s Jojobera plant (Jharkhand) with cement grinding capacity of 4.6 MT and Lafarge’s integrated unit at Sonadih (Chhattisgarh) with cement grinding capacity of 0.55 MT and clinker capacity of 3.10 MT. The CCI also imposed the condition that the purchaser should not have operational cement capacity exceeding five percent of the total installed capacity in the relevant market. The CCI also directed that if closing (transfer of legal title of divestment business) did not take place within the first divestiture period, then the alternative package was to be divested in the second divestiture period.
As per the international norms, the CCI also directed the parties to ensure that the divestment business is managed as a hold separate entity separate from the retained business of the parties, till closing with a view to maintain the economic viability, marketability and competitiveness of the divestment business and minimise loss of its competitive potential. The CCI has also appointed an independent agency to monitor the divestment process of Lafarge’s assets in India to ensure transparency.
The CCI through its Order provided complete details regarding all tangible and intangible assets which constituted part of the divestment business. However, when in August last year, the merging parties submitted the proposal to sell the divestment business to Birla Corporation, CCI considered it necessary to seek clarification regarding transfer of mining lease and rights of limestone mines which formed part of the condition precedent for sale of divestment business to the buyer. This was necessitated due to the prevailing regulatory uncertainty on the issue of transfer of mines pursuant to a change in the law on development and regulation of mines and minerals which disallowed transfer of lease of allotted mines. Subsequent to this, the parties submitted an alternative proposal to the CCI in the form of a share sale option envisaging sale of entire hundred percent share capital of Lafarge India. The CCI approved this alternative proposal vide its order dated 2nd February, 2016 (Supplementary Order) subject to the purchaser(s) meeting the purchaser requirement as given in the CCI’s earlier Order. It may be pertinent to state that recently both the houses of the Parliament have also passed an amendment to the Mines and Minerals (Development and Regulation) law, thus paving the way for transfer of captive mines.
The CCI’s approval of the alternative proposal of sale of hundred percent share capital of Lafarge India hit a roadblock in the wake of an appeal filed in the COMPAT, on the grounds that the CCI while approving the alternative proposal had not followed the due process of law since it had already approved a divestiture plan which the merging parties had accepted but failed to implement. The appeal filed by Dalmia Cement (Bharat) Ltd was, however, later on withdrawn, thus clearing the roadblock in the sale of divestment business by the parties.
The implementation of Lafarge Holcim merger in India became an atypical case wherein the parties, having failed to carry out the divestiture remedy which the CCI had initially directed, proposed sale of the entire hundred percent share capital of Lafarge India. In light of the factual matrix of the case, it seems that approval by the CCI of the alternative divestiture proposal envisaging sale of entire hundred percent share capital of Lafarge India was a fait accompli under a deadlock situation which was created due to change in the government policy regarding transfer of lease and rights of the allotted mines. Lafarge India has now to go ahead with the divestiture process. It has to shortlist bidders for sale of its entire hundred percent share capital, and then execute the sale and purchase agreement with the prospective purchaser once it is approved by the CCI.
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