Combination: Meaning and Scope

Another aspect of business that can often have adverse impact on competition in the market is combination. You would have often heard of these incidents, though you may not have necessarily identified them as combinations. In a combination, in simple terms, two or more businesses or enterprises which were previously competitors in the market, now join forces to form one larger company. For example, when Facebook bought WhatsApp, it can be described as a combination.

In the face of it, combinations are not illegal and can often be necessary to ensure the continuation of a business. Thousands of combinations happen every year, both famous and non famous, and many business founders often start their businesses for those purposes. A number of start up enthusiasts aim to formulate an initial business with a great start up idea, which, they hope, will subsequently be bought over by a large company at a tremendous value. In this way, combinations ensure the survival of businesses and business ideas in such scenarios where, without such interventions, they would not have continued.

However, there is also a darker side of combinations, which is where the Competition Act, 2002, comes in. Often, combinations are formed in such a way that it distorts the market – as one giant company, formed after a number of combinations, begins to overshadow the market and drive the smaller businesses out of business. If all smaller businesses begin to get swallowed up by larger industries, there would be a significant lack of competition in the market. Ultimately, that would be detrimental for everyone – starting from the consumers, to the economy, and the businesses themselves. For these reasons, the government is extremely active in regulating combinations so that such a concentration of wealth and power is not seen among the large business owners of the country.

Same as the anti – competitive agreements we read before, combinations can also be of different types. These are:

• Horizontal Combinations: In horizontal combinations, businesses or firms that are on the same level of the production process, merge together to form one business. In horizontal combinations, it is seen that the firms that were competitors in the market previously, form a joint business, presumably for better facilitation of each one’s goods. In this kind of combination, the efficiency, performance, and profits of the combined company often improves, due to the increased resources. However, at the same time, combinations among multiple large companies in the market create dominance, paving the way to abuse of dominance. Additionally, such combinations are also categorized by higher unemployment rates, as a number of employees would be let go during the combinations process.
• Vertical Combinations: Vertical combinations happen when two or more businesses which are on different levels of the production chain, merge together in a whole. This can often lead to increased efficiency in the form of better production and quality control, better co-ordination, and reduced costs. However, competition in the market can be severely hampered if such combinations are done by a number of large enterprises.
• Conglomerate Combinations: As you saw before, both horizontal and vertical combinations happen within the same relevant market. However, what happens when two businesses which operate in completely separate relevant markets, form a combination? That is called as conglomerate combination. This kind of combination is often done to ensure a larger market share and a stronger stance of the combined company in both the markets, and can lead to a great deal of profit for the shareholders. However, in this kind of combination, due to the widely differing needs and situations of each market, there can often be reduced efficiency, resulting in a failure of the combination and the company.

Threshold of Combinations

As we read before, combinations are not per se illegal or detrimental to competition, and can often be necessary to improve business efficiency and to preserve competition, in fact. So, how would we know when a combination becomes too large, and it needs overlooking as to whether it is hampering business in the market? In the rapidly growing and changing business world, thousands of combinations happen every year, and it is not feasible for any authority to scrutinize each one of these combinations. Luckily, the Competition Act, 2002, provides a remedy for this problem.

It is usually presumed that only when the size of the combined company is too large, there is scope for trouble in terms of competition in the market. If, for example, two smaller entities in the market merge to form a relatively small combined entity, it is unlikely that there would be any detrimental effect on competition. For that reason, the Competition Act, 2002, provides for a threshold in terms of assets and turnover. Combinations which have a total value of assets and turnover under that threshold, would be considered as not having an adverse effect on competition. For companies breaching that threshold, notification to the CCI and possible investigation may be required.

.

It is also important that to adjust for inflation and various market changes, these thresholds are often modified to keep pace with the changing times. For example, if the same threshold from 2002 was still effective, in 2020, it would seem that many smaller combinations would need to comply with the notification and investigation requirements. Thus, as per the Act, these threshold limits are revised every two years, after consulting with the CCI, based on the changes in the Wholesale Price Index, and changes in exchange rates of INR. These revisions of thresholds are done via a  notification by the government. For example, under the 2011 notification, the value of assets and turnovers which would constitute this threshold, was increased by the government by about fifty percent. As per the 2016 notification which is currently in place, the threshold for filing notice to CCI stands as below:

• For enterprises within India, assets of over 2000 INR crore or turnover of over 6000 INR crore;
• For global enterprises with an Indian leg, assets of over USD 1 billion with at least 1000 INR crore in India, or turnover of over USD 3 billion with at least 3000 INR crore in India;
• For groups within India, assets of over 8000 INR crore or turnover of over 24000 INR crore;
• For global groups with an Indian leg, assets of over USD 4 billion with at least 1000 INR crore in India, or turnover of over USD 12 billion with at least 3000 INR crore in India;

Mergers and Amalgamations

Now, as we read, combination simply means the joining of two or more businesses to form one business. However, combinations may be formed in different ways and kinds. Even though the term combination is often used interchangeably with mergers and amalgamations, they have distinctive features.

Merger or amalgamation is a special type of corporate restructuring or combination where, in a consolidation of two or more business units, a single company remains and the other company loses its existence and simply merges with the other company, or alternatively, a completely new company is formed. Which way this will proceed, depends upon the mode of the merger. However, it is essential for a merger that ultimately, the overall number of businesses is reduced, and only one business survives. Merger can be done in two ways:

• Merger through absorption: In this kind of merger, the company that is continued, absorbs everything of the other company, starting from assets, finances, resources, debts, liabilities, etc. In general, if you hear that one company is ‘buying out’ another company, the company that is doing the buying will continue with its corporate existence, while the other company is extinguished. In this way, a merger is still a fusion between the two or more businesses, but in such a way that only one of those businesses survive.
• Merger through consolidation: This is the second type of merger, where two or more business units come together to form a completely new business, one that was not in existence previously. All the companies that were parties to the merger lose their existence, and a new company is legally established, under this process. All the assets, liabilities, etc. of the existing companies are now transferred to this new business.

The concept of amalgamation, under the Indian law, has the same meaning as merger. Amalgamation, same as combination, simply means that two or more business undertakings are blended into one entity. Usually, the term amalgamation is used when the parties involved in the process are companies of the same size. However, amalgamation is also used in a slightly different context of amalgamation in the nature of purchase. In cases of merger, the businesses that come together to form a new business, but the initial shareholders of the businesses still continue to be shareholders of this new company that has been established. But in cases of amalgamation in the nature of purchase, one company usually buys out the other company or companies, and acquires full rights to the same. The shareholders of those companies do not have any further share or involvement in the new business, and it is simply considered a part of the business that did the purchasing. This kind of amalgamation is also described byother terms, like acquisition and takeover.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on Facebook, Twitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at adv.aishwaryasandeep@gmail.com

We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

We are also running a series Inspirational Women from January 2021 to March 31,2021, featuring around 1000 stories about Indian Women, who changed the world. #choosetochallenge