The CCI is likely to examine whether the initial acquisition of 15.7% was purely a financial investment or a strategic decision made with the goal of reaching 24.5% ownership.
11 May 2023 | 5583 Views | By Shahkar Abidi
Coimbatore-headquartered Pricol Ltd (Pricol) has reiterated its use of all possible legal and financial means to maintain control over the company and prevent what it believes is a ‘hostile takeover attempt’ by Minda Corporation.
The Indian automotive industry was in for a surprise, with Minda Corporation's recent decision to ...
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Coimbatore-headquartered Pricol Ltd (Pricol) has reiterated its use of all possible legal and financial means to maintain control over the company and prevent what it believes is a ‘hostile takeover attempt’ by Minda Corporation.
The Indian automotive industry was in for a surprise, with Minda Corporation's recent decision to acquire a 15.7% stake worth Rs 400 crore in rival Pricol Ltd in February. While Minda initially brushed off the move as putting extra money to good use, the market speculated it as a hostile takeover.
Pricol's top management promptly responded by reiterating that they had no plans of undertaking any secondary sale or raising equity capital. However, things took another unexpected turn when Minda Corporation announced its intention to approach the Competition Commission of India (CCI) for taking its stake up to 24.5%, in early May.
Under the Indian Competition Act, if a specified threshold based on the value of assets and turnover is crossed, it is mandatory for the acquirer to obtain approval from the Competition Commission of India, before the actual acquisition (for instance a transfer of shares) takes place.
"We will take all legal measures that are required to oppose that petition for the simple reason that they are competitors and have not sought prior permission from CCI", a top company executive said during a post-result conference call, before retreating that the current management stands absolutely committed to running and growing this business in the coming years. "We have no intention of ceding control of our business not just now but at any point of time in the near future" he continued. Pricol reported a 75.3% jump in net profit at Rs 29.80 crore, for Q4FY23.
As per Deeksha Manchanda, Partner (competition practice) at legal firm Chandhiok & Mahajan, the primary issue that the CCI would consider is the impact of the acquisition on the market. For this, the CCI considers the market share of both parties in the deal and tries to determine whether the combined market share would lead to adverse effects for other competitors, buyers, and suppliers. Publicly available data suggests that Pricol currently holds over 50% market share in cluster parts, making this a crucial factor in the CCI's decision-making process.
Also, as per Manchanda, the CCI is likely to examine whether the initial acquisition of 15.7% was purely a financial investment or a strategic decision made with the goal of reaching 24.5% ownership. If the CCI finds that the acquisition was indeed a strategic decision, and Minda did not seek approvals FROM WHOM, it may impose a penalty on Minda. In the past, CCI has imposed penalties on applicants for not notifying similar market purchases of shares, but never has it stopped an acquirer from going ahead with the acquisition.
Also read: Understanding the legalities of Minda Corporation's attempt to acquire additional stake in Pricol