FROM A CONSUMER RIGHT PROTECTION POINT OF VIEW, MARKETS WORK BEST WHEN THERE IS A HEALTHY COMPETITION AMONG BUSINESSES, THE WAY MERGER AND ACQUISITION IS HAPPENING, QUESTION MAY ARISE ABOUT THE POTENTIAL FEAR THAT IN MANY INDUSTRIES THE COMPETITION MIGHT NOT EXIST ANYMORE
INTRODUCTION
Who are consumers? Consumers are those people for who markets, companies, industries create goods and services for their welfare. But all the consumers are not of same level. Some are higher consumers and some are consumers who consume lower goods and services according to price condition. So there is varieties of goods and services according to the taste and temperament of the consumers. But recently this right is being infringed by the introduction of Merger and Acquisition. Though the process is an old one and is used in many countries but in our country for the lack of proper legal framework the process aforesaid is not working properly. M&A process is that way by which two or more companies become one. So it is quite obvious that the competition between those companies are narrowed hence the consumers lose the chance of choosing goods and services according to their ability.
Thus, the loopholes in our laws regulating the consumers’ right, merger, acquisition, competition have to be more aligned otherwise question may arise about the potential fear that in many industries the competition might not exist anymore.
Therefore, there is a brief discussion in the following to explain and illustrate the fact given.
Definitions
Merger Definition:
A merger is a procedure by which two companies become one. There are many types of mergers which are followed to merge companies. Generally all of these are done to rise up the shareholder value. It is a process maintained for the voluntary fusion of companies on broadly same terms into a legal phenomenon.[1]
Acquisition Definition:
An Acquisition is when any company buys most or all of another company’s shares to achieve governance of that company. If the acquisition is above 50% of that another company then the acquirer company can make decisions over the acquired company’s shareholders. Object of Acquisition is to gain economies of scale, diversification, greater market share, increased synergy, cost reductions, or niche offerings.[2]
Competition Definition:
Competition is the strife among the existing companies selling same products, goods and services with the aim to gaining revenue, profit and market share growth. Market competition depends on four P’s. Four P’s stand for product, place, promotion and price. [3]
As per as these three Definitions, it is quite obvious that, M&A process causes adverse effect to the market competition. And effects are divided into two parts, one is non-coordinated effects and another is coordinated effects.[4]
M&A And Competition Law:
The Law of M&A and Competition Law are interconnected with one another as any combination including merger and acquisition has to go through the regulatory stratagem as enumerated under the competition act, 2012.[5]
Regulate Combination:
One of the most significant requirements of regulatory combination is to determine the effect on the level of competition with a relevant market. The said concern assumes importance particularly where M&A would give the new company the ability to alter or fix prices in a particular sector. There is a fear that the new company which emerges pursuant to merger or acquisition will eliminate competition and would utilize its market power to set prices in the relevant market.[6]
Primary Concern:
The prime concern of the Competition Commission Of Bangladesh is to examine a combination is that the proposed combination does not affect the anti-competitive effects in the relevant market.[7]
Object of Merger and Acquisition Control:
The object of merger and acquisition control is to avail competition authorities to maintain changes in market formation by choosing whether two or more companies may merge, combine or consolidate their business into one. Acquisition and merger leads to a “bad” outcome only if it creates a dominant enterprise that subsequently abuses its dominance. Concern with mergers is ultimately a concern with market power and possible abuse of the market power by the merged entity. Thus, the general principle, in keeping with the overall goal, is that mergers and acquisitions should be challenged only if they reduce or harm competition and adversely affect welfare.[8]
Mergers are classified into the following types:
- Horizontal Mergers
- Vertical Mergers
Impact of Horizontal Merger on Competition:
As per as Competition Policy, it is horizontal mergers that are generally the main focus of attention. For instance, the Commission assessed that the horizontal overlap in the proposed combination could result in portfolio effects in the form of exclusion of competitors.[9]
Impact of Vertical Mergers on Competition:
Jeffrey Robert Church in his paper on Vertical Mergers acknowledged that, vertical mergers can be anticompetitive if they result in either foreclosure or enhanced coordination.[10]
Competition Assessment and Analysis of Combination:
From the above discussion it is absolutely clear that restructuring in the form of M&A may lead to anti competitive issues and so a regulatory mechanism to control this regime is instrumental in this age of intensive competition.[11]
Regulatory Framework for Merger and Acquisition control:
The regulatory framework for merger and acquisition control is provided under The Competition Act,2012.[12]
Merger And Acquisition:
Mergers and Acquisition are regarded as one of the most common form of corporate restructuring and has emerged as one of the most sought after methods of company consolidation process. The term “merger” and “acquisition” are often used interchangeably. However, merger and acquisition demonstrate two diverse modes of corporate restructuring and the main difference lies in the manner in which the combination of two companies in these two processes are brought about. On one hand, merger refers to the process of amalgamation or merging of two accompanies to form a new company whereas on the other hand acquisition takes place when one company is taken over by another company. Acquisition can be either friendly or hostile.
But unfortunately both M&A process affects the Market competition which is adverse to consumer rights protection.
Challenges to enforcement of Competition Act to solve the issues between Merger, Acquisition and Market Competition:[13]
The Bangladesh Parliament on the 21st June 2012, passed the Competition Act, 2012, aimed at regulating monopolistic, restrictive and unfair trade practices within Bangladesh, was never fully implemented. With the introduction of the Act, anti-competition agreements and abuse of dominant positions have been recognized and defined, and combinations (i.e. mergers or acquisitions, etc.) which cause an adverse effect on competition in the market of goods and services has been prohibited. The objective of the Act is to make provisions to promote, ensure and sustain congenial atmosphere for the competition in trade, and to prevent, control and eradicate collusion, monopoly and oligopoly, combination or abuse of dominant position or activities adverse to the competition.[14]The introduction of the Act came as a much awaited and welcome news in Bangladesh, but six years since its enactment, implementation of the provisions still remain a challenge. First, the Act is unclear and ambiguous as to what constitutes effective ‘competition’ and how adverse impact on competition is to be measured. As a result, in the absence of set standards, there is a lack of clarity as to when an act is to be considered to have an anti-competitive effect. Second, the independence of the BCC, as a competition regulator may also be brought into question due to the institutional framework within which it functions and operates under the Act. Furthermore, with the provisions of the Act being in addition to any other relevant laws currently in force, the question of co-ordination between the BCC and other government agencies, which directly or indirectly monitor competition in specific sectors, and the role of the BCC in such sectors, remains elusive.
Measuring effective competition:
According to the Act, it is the duty of the BCC to eliminate practices having an adverse effect on competition in the market, but the question remains when do we say that a market is competitive, or there is effective competition in the market or lack thereof? How do we measure the competitiveness of a relevant market? When we think of competition, our first assumption may be that it means low prices for goods and services due to many players in the market competing against each other, but competition is more than that. It is naive to assume that customers only care about low prices, and not innovation, quality and freedom to choose. In order for the effective implementation of the Act, we need to first understand what effective competition is, which the Act fails to address. Although the Act sets out when an agreement would be said to have an adverse effect on competition, and when an enterprise will be deemed to abuse its dominant position in the market, however things become vague when it comes to the effect of acquisitions, mergers, take-over, or amalgamation, which together have been defined as ‘combination’ in the Act. Therefore, as is clear, in order to make the Act operational and increase the capacity of the BCC, we need to first determine what is effective competition for any relevant market, and how to measure and assess such competitiveness. This can be done by enacting relevant rules and/or regulations, the power for which has been given to the government and the BCC, respectively, under the Act. For Bangladesh it continues to remain unclear and ambiguous as to how the BCC would measure competition and what standards and thresholds it would use, since each method would entail different policy implications, in the absence of which the BCC enjoys wide discretionary powers.
Independence of competition commission:
There is an extensive consensus among the ‘competition community’ that competition authorities should not only be independent of the business community but also from the executive branch of the government. If we compare the BCC with other government agencies such as the Bangladesh Securities and Exchange Commission (“BSEC”), we see that the power to formulate respective rules, the appointment of necessary officers and employees lies with the BSEC under the relevant laws and not with the government. BSEC has the freedom to make rules for the purpose of implementing the respective law, by notification in the official gazette, prior to which BSEC has the obligation to take the opinion of all people concerned by publishing the same in a daily newspaper. The government does not have any role in the process, except when the rules are regarding the terms of service, for which prior approval of the government will be necessary.[15]
Co-ordination between the Competition Commission and other laws and regulatory bodies:
First, the provisions of the Act are complementary to other special laws relating to trade practices currently in force, such as the Essential Articles (Price Control and Anti-Hoarding) Act, 1953, Special Powers Act, 1974, etc. under which anti-competitive agreements are punishable as well. There is inadequate research regarding the compatibility of the Act and such other laws. Second, in relation to controlled sectors that have regulators of their own, the role of the BCC is unclear. Whether the function of the BCC is complementary to such sectoral regulators is yet to be answered. Sectoral regulators, such as the Bangladesh Telecommunication Regulatory Commission (BTRC), Bangladesh Energy Regulatory Commission (BERC), and even the BSEC, have predetermined function of approving mergers or amalgamations in their respective sectors. It is interesting to note that in the recent High Court Division case of Robi Axiata Limited v. Registrar of Joint Stock Company (Company Matter No. 231 of 2015) for sanction of the scheme of amalgamation under the Companies Act 1994, although the BTRC played a major role in the case, including answering issues regarding competition and consumer protection raised by Consumers Association of Bangladesh, the BCC did not play any part in the decision making since it was not yet fully operational when the judgment was handed down.[16]
CONCLUSION
At the end, as we said in the introduction and in all the contents explained. All those explanations lead to one way. For a developed country Merger and Acquisition is an essential process as it helps a small or medium sized company to merger with another large company. But it cannot happen properly if the consumers are not satisfied and if their rights are infringed. So this does not mean Merger or Acquisition has to stop or the consumers have to live with the situation. The Legal Framework of our country has to be more active to satisfy the situation which we have discussed above in many ways. Laws that regulate these processes have to be more accurate, adequate and up to date otherwise the competition among the companies or industries or markets will be ceased to exist.
BIBLIOGRAPHY
- https://www.investopedia.com REVIEWED BY MARSHALL HARGRAVE, Updated May 3, 2019
- https://www.investopedia.com REVIEWED BY WILL KENTONUpdated Jun 25, 2019
- https://study.com
- https://www.business-standard.com/article/companies/how-mergers-affect-competition M Sharma New Delhi
- https://www.vakilno1.com/legal-news/impact-of-merger-acquisition-on-competition-an-analysis
- Professor Alexander Roberts, Dr. William Wallace and Dr. Peter Moles, “Mergers and Acquisition”, Edinburgh Business School, Heriot-Watt University
- High Level Committee of Competition Law, SVS Raghavan Committee
- Jeffrey Robert Church teaches at University of Calgary, Department of Economics
- Section 15 of the Competition Act,2012
- The Competition act,2012
- http://today.thefinancialexpress.com.bd/26th-anniversary-issue-3/challenges-to-enforcement-of-competition-act Nauriin Ahmed is an Associate of The Legal Circle, Bangladesh.
- Bangladesh Security Exchange and Commission
- Essential Articles (Price Control and Anti-Hoarding) Act, 1953
- Special Powers Act, 1974
- The Companies Act 1994
[1] https://www.investopedia.com/terms/m/merger.asp
REVIEWED BY MARSHALL HARGRAVE
[2] https://www.investopedia.com/terms/a/acquisition.asp REVIEWED BY WILL KENTON
[3] https://study.com/academy/lesson/what-is-competition-in-marketing-definition-types-quiz.html
[4] https://www.business-standard.com/article/companies/how-mergers-affect-competition-110051300096_1.html
M M Sharma | New Delhi
[5] https://www.vakilno1.com/legal-news/impact-of-merger-acquisition-on-competition-an-analysis.html
[6] Professor Alexander Roberts, Dr. William Wallace and Dr. Peter Moles, “Mergers and Acquisition”, Edinburgh Business School, Heriot-Watt University
[7] https://www.vakilno1.com/legal-news/impact-of-merger-acquisition-on-competition-an-analysis.html#_ftn1
[8] High Level Committee of Competition Law, SVS Raghavan Committee
[9] High Level Committee of Competition Law, SVS Raghavan Committee
[10] Jeffrey Robert Church teaches at University of Calgary, Department of Economics
[11] Section 15 of the Competition Act,2012
[12] The Competition act,2012
[13] http://today.thefinancialexpress.com.bd/26th-anniversary-issue-3/challenges-to-enforcement-of-competition-act-1544435592
Ms. Nauriin Ahmed is an Associate of The Legal Circle, Bangladesh
[14] The Competition Act,2012
[15] Bangladesh Security Exchange and Commission
[16] Essential Articles (Price Control and Anti-Hoarding) Act, 1953
Special Powers Act, 1974
The Companies Act 1994
SUBMITTTED BY: MIRZA MD. NASIF RAHIT