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The deal value threshold (DVT) is now the primary threshold for assessing whether a transaction requires notification to the Competition Commission of India (CCI). A DVT is triggered when the transaction value is INR20 billion (USD228 million) and the target enterprise has substantial business operations in India. Section 5(d) of the Competition Act, 2002, the Competition Commission of India (Combinations) Regulations, 2024 and the FAQs set out how to compute the transaction value.

Despite this, ambiguity persists when trying to compute the deal value for acquisition financing structures. This can be explained by way of the following examples:

Kirthi Srinivas
Partner
AZB & Partners

In Scenario 1, company A infuses INR10 billion into its subsidiary B, which then uses a portion of the funding, INR3 billion, to acquire shares of another company C. Regulation 4(1) treats consideration for acquisitions, mergers, or amalgamations including interconnected steps as part of a single transaction. Furthermore, the CCI, in its Ostro Energy/Renew Power order, emphasises substance over form, requiring a single filing for commercially linked steps.

Despite guidance on interconnected transactions, there is no clarity about calculating consideration when infused funds are used to acquire a downstream target.

This may lead to multiple interpretations of “value of the transaction”.

1. This may be the value of the infusion of funds from company A into company B, that is INR10 billion;
2. Alternatively, it may be the aggregation of, (a) the value of the infusion of funds from company A into company B, and (b) the consideration value for the acquisition of shares of company C by company B, which would be equivalent to INR13 billion. This interpretation may lead to double-counting of the INR3 billion, or
3. Finally, it could be the value of the ultimate purchase price paid to C’s sellers, that is INR3 billion.

For scenario 2, company A infuses INR10 billion into its subsidiary B. B uses a portion of the INR10 billion infusion to acquire three different targets: (a) INR3 billion for target C, (b) INR1 billion for target D and (c) INR2 billion for target E.

Similarly, the following questions arise:

Shivangi Pradhan
Associate
AZB & Partners

1. Whether the relevant deal value for the acquisitions of the target companies should include the consideration value of the infusion only (see interpretation 1 of scenario 1), that is INR10 billion, or
2. Whether the acquisitions of the targets are interconnected:

(a) In case the acquisition of target C is not dependent on the acquisition of target D and E (and the other way round), the consideration value for acquisition of C could either be (i) the value of funds infused into company B along with the funds infused into target C, that is INR10 billion + INR3 billion = INR13 billion (see interpretation 2 of scenario 1) or (ii) only the ultimate purchase price paid to C’s sellers, i.e., INR3 billion (see interpretation 3 of scenario 1);

(b) In case the acquisition of target C would not take place but for the acquisition of shares of target D and E, then arguably the three acquisitions are interconnected, and the consideration value could either be (i) the value of the funds infused into company B along with the funds infused into the three targets C, D and E, that is INR10 billion + INR3 billion + INR1 billion + INR2 billion = INR16 billion, or (ii) only the ultimate purchase price paid to C, D and E’s sellers, that is INR3 billion + INR1 billion + INR2 billion = INR6 billion.

Practical implications

Given the lack of clarity, the situation may be analysed as follows.

1. One must aggregate consideration if there is a clear commercial intent. That is where A funds B with the specific intent for B to acquire C. However, even in this scenario, adding the entire amount of funding to the acquisition consideration can lead to double-counting and may artificially inflate the deal value.
2. Conversely, where B acquires C without any demonstrable linkage to A’s funding of B, the benefit of the doubt should lie with the acquirer without a presumption of interconnection. Although this is a pragmatic view, it is not entirely clear how the CCI will interpret such situations.

Clarification on the computation of deal value for such transactions will bring certainty and avoid inconsistent approaches.

Kirthi Srinivas is a partner and associate Shivangi Pradhan at AZB & Partners. Varun Thakur, a senior associate, also contributed to the article

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