2015 (4) TMI 22 - Commission - Indian Laws

Proposed acquisition of share capital - Proposed combination of business of retail in India - No adverse affect on competition in India - Held that - As observed, the proposed combination relates to the business of retail in India. The size of the retail market in India was estimated to be around US 450-500 billion1 in the year 2012. The retail market in India comprises both organised and unorganised retailing. The organized retailing includes the hypermarkets, supermarkets, departmental stores etc. The retail market in India is dominated by a large number of unorganized retailers consisting of the local kirana shops, owner-manned or self-owned general stores and shops, hawkers, pavement vendors etc. As per the publically available information, in the year 2012, unorganised players controlled approximately 92 per cent share of the overall retail market in India. The organised retail market, which was approximately 8 per cent of the overall retail market in 2012, is expected to account for 20 per cent by 20202. Some of the large players who have been operating in the organised retail market in India are Reliance Retail, Future Retail, Spencer's Retail, Bharti Retail, Aditya Birla's 'More', Shoppers Stop etc. Additionally, due to increased internet penetration and changing lifestyles, the Indian retail market has also witnessed a surge in online retailers which has widened the choice for the consumers. THL currently operates only 16 retail stores across various locations in India and its total revenue, as per the annual report of Trent, during the financial year 2012-13 was only around INR 785 crores, which is insignificant as compared to the size of the overall retail market as well as the organised retail market in India. It is observed that while THL is engaged in the business of multi-format retail trading in India including hypermarkets, supermarkets and smaller convenience stores, TOIL is not present in the retail market in India and therefore, there is no horizontal overlap between the business activities of THL and TOIL in the retail market in India. Considering the facts on record and the details provided in the notice given under sub-section (2) of Section 6 of the Act and the assessment of the combination after considering the relevant factors mentioned in sub-section (4) of Section 20 of the Act, the Commission is of the opinion that the proposed combination is not likely to have appreciable adverse effect on competition in India and therefore, the Commission hereby approves the proposed combination under sub-section (1) of Section 31 of the Act. This order is, however, issued without prejudice to the proceedings under Section 43A of the Act. - Acquisition approved.

Summary

Issues:
1. Proposed acquisition of 50% equity share capital of Trent Hypermarket Limited by Tesco Overseas Investments Limited under Section 5(a) of the Competition Act, 2002.
2. Assessment of the impact on competition in the retail market in India.
3. Compliance with regulations and submission of required information by the Acquirer.
4. Horizontal overlap between the business activities of THL and TOIL in the Indian retail market.
5. Approval of the proposed combination under Section 31(1) of the Competition Act, 2002.

Analysis:
1. The case involved the proposed acquisition of 50% equity share capital of Trent Hypermarket Limited (THL) by Tesco Overseas Investments Limited (TOIL). The notice was received by the Competition Commission of India under Section 6 of the Competition Act, 2002. The proposed combination fell under Section 5(a) of the Act. TOIL, a subsidiary of Tesco Plc, is primarily engaged in retail trading of groceries and general merchandise in various countries, excluding India. On the other hand, Trent, through THL, operates retail stores in India across various formats. The agreements between the parties were executed in March 2014, leading to the notification to the Commission.

2. The Commission assessed the impact of the proposed combination on competition in the Indian retail market. It noted that the retail market in India is a mix of organized and unorganized players, with a significant share controlled by unorganized retailers. The organized retail segment, where THL operates, represented a small portion of the overall market. The Commission considered the presence of other major players in the organized retail sector like Reliance Retail, Future Retail, and others. It also highlighted the growth of online retailers in India due to increased internet penetration. Despite THL's limited presence with only 16 stores and modest revenue compared to the overall market size, the Commission evaluated the potential effects on competition.

3. The Acquirer, TOIL, was required to provide complete information and address identified defects within specified timelines as per Regulation 14 of the Combination Regulations. The Commission issued multiple letters directing the Acquirer to rectify the deficiencies in the submission of information. TOIL responded to the Commission's requests within the stipulated deadlines, ensuring compliance with the regulatory requirements during the assessment process.

4. The Commission examined the horizontal overlap between the business activities of THL and TOIL in the Indian retail market. While THL was engaged in multi-format retail trading in India, TOIL did not have a presence in the Indian retail sector. Additionally, THL had entered into agreements to transfer stores in states where FDI policies for multi-brand retailing were not implemented, further indicating no direct competition between THL and TOIL in the Indian retail market.

5. After considering the facts, details provided in the notice, and relevant factors under the Act, the Commission concluded that the proposed combination was not likely to have an appreciable adverse effect on competition in India. Therefore, the Commission approved the combination under Section 31(1) of the Competition Act, 2002. The approval was issued subject to any other legal or statutory obligations and could be revoked if the information provided by the parties was found to be incorrect. The Secretary was directed to communicate the approval to the Acquirer accordingly.