Since the enactment of the Competition Act, 2002, the Competition Commission of India (CCI) has continuously endeavoured to align the Indian competition law regime with its more mature counterparts in other jurisdictions. A recent step in this direction has been CCI's request for internal documents from the parties in its merger review.
Internal documents provide an insight into the business of the parties, which helps to ascertain the rationale and strategic intent of a transaction. Competition authorities around the world also use these documents to confirm the factual narrative provided in the merger filings. At times, there may be a conflict between the pro-competitive effects of the transaction posited in the filing against the narrative in the company's own internal records. These documents could amount to 'digging one's own grave' in a merger review!
It is never too early to remind the business team that internal correspondence (including e-mails, board papers, reports, due-diligence studies and presentations) in relation to a transaction may be requested and scrutinized by the CCI. Reviewing the content of these documents in the M&A process is critical and, therefore, business teams need to be careful in their preparation. In this article, we discuss the scope of these internal documents under merger review from the Indian competition law perspective in the light of international trends, as well as propose certain recommendations and best practices for businesses.
Scope and meaning of internal documents
Based on the current practice, internal documents are documents which the parties to the transaction have generated internally to consider, discuss and green-light a transaction (for example, documents/ reports considered in the course of assessing a transaction, and presentations before the board or the investors outlining the transaction, information memorandum, studies, reports etc. aimed at the board of directors or shareholders, and analyses, etc.). The requirement to provide such internal documents to the CCI is prescribed in the notification form (through which a filing is made to the CCI) and the guidance notes to the notification form. In case the parties have not provided this information, the CCI does not hesitate from requesting such internal documents to aid its review process.
International jurisprudence and practice
United Kingdom
In January 2019, the Competition & Markets Authority (CMA) in the United Kingdom published the "Guidance on requests for internal documents in merger investigations"1 (CMA Guidance). The CMA Guidance lays down the practice and procedure to be followed by the parties while submitting the documents and, by the CMA, when requesting and assessing internal documents for a merger review. For the purpose of the CMA Guidance, all types of documents in the merging parties' possession, which have been prepared, sent or received by an officer or employee of the merging parties, are referred to as 'internal documents'.
Internal documents have played a key role in merger review by the CMA. In the Experian/ ClearScore investigation, the CMA stated that internal documents play an important role in dynamic digital markets where past data may not be a good guide for present and future competition. Such documents provide insight into how companies view current and upcoming changes in the industry. 2 The CMA, based on the review of the parties' internal documents in the Experian/ ClearScore investigation, observed that absent the merger, the parties may become even closer competitors in the future, as ClearScore would have continued to innovate and develop new features. 3
In the case of PayPal/ iZettle, one of the concerns raised was that iZettle would be better placed to enter into one of PayPal's core markets post the transaction. However, the review of the internal strategy documents revealed that iZettle's likely expansion into such a market (if at all) would be slow, and it would not be a strong competitor to PayPal. Accordingly, the CMA approved the transaction. 4
Continuing this trend, the CMA placed immense reliance on internal documents to conclude that the Amazon/ Deliveroo5 transaction would not have any anti-competitive impact on the relevant market.
Hence, certain UK practitioners predict that the merging parties "should expect the CMA to rigorously assess internal documents to identify future growth plans"6. If such plans imply that there is a likelihood of future competition between the merging parties, such overlaps will be scrutinised more closely by the CMA.
European Union
Contrary to its UK counterpart, the European Commission (EC) has not laid down any guidelines in relation to internal documents. The EC can collect internal documents by two means; either through the submissions made under the form CO or through a formal request for information.
Over a period, the EC has steadily requested internal documents over and above the submissions made by the parties as part of the filing. For instance, in Dow/ DuPont7, the EC relied upon internal documents to conclude that the transaction would reduce the merged entities' incentive to innovate. The EC in its decision observed that internal documents often allows it to verify factual claims made by the parties and verify the data submitted. It was further observed that internal documents are crucial to understand the factors, which affect the incentives of the parties before and after the proposed merger.
Further, in a speech in 2018, Commissioner Margrethe Vestager had stated that the EC was in the process of drafting best practices in relation to requests for internal documents. However, no such guidance has been published yet. Such guidance could help streamline the process and help businesses handle these requests more efficiently. 8
United States of America
The more developed anti-trust jurisdiction, the US merger control regime (Hart-Scott-Rodino Antitrust Improvement Act, 1976) has a standard practice to rely upon internal documents, commonly known as the "4(c) and 4(d) documents" (which include studies, reports, banker books and third party consultants' materials, etc.).
In 2016, the Federal Trade Commission (FTC) published a tip sheet to serve as a guidance for the identification of internal documents. Further, the tip sheet also clarified the FTC's position on draft documents: if there is no final version of a document, the latest draft should be submitted. If there is a final version, no drafts need to be additionally supplied unless the draft went to the board of directors.
Implications of such data requests
As stated above, internal documents are being progressively requested and analysed by various competition authorities. Hence, parties should be mindful that the content of such internal documents may either have a positive or a negative impact on the transaction analysis and its outcome.
In India, in the case of Canada Pension Plan Investment Board and ReNew Power Limited, the CCI extensively reviewed various internal documents that helped establish a case of gun jumping and led to imposition of penalties. The CCI unequivocally held that it will not restrict its analysis to transaction documents, and will also review and examine other available evidence/ documents. 11
Although internal documents can tip the scale in favour of either a conditional or unconditional approval of a transaction, there is a likelihood that the authority may interpret these documents literally or place too much emphasis on them. This may lead to preconceived and incorrect conclusions.
Another peril is that the internal documents may not provide the complete picture to the regulator as they are for internal consumption of the company, at a particular time. They may provide a snapshot or an overview without much context and, often times, may even be outdated. Very often, companies tend to overemphasise or optimistically project their achievements and their position in the market (for example, for marketing purposes or making the transaction look lucrative to the investors). If this is relied upon without business context, it may lead to a skewed conclusion. Accordingly, certain European practitioners are of the view that, "the case team should seek the parties' views on the provenance and reliability of a document before attaching importance to it"12.
Therefore, whilst it is appreciated that several internal documents (like presentations for the board and the investors) are prepared to outline the attractiveness and profitability of a transaction, business teams should be mindful of their implications.
Further, in some cases, the internal documents may be voluminous and this may potentially lengthen the review timelines and process. Therefore, while competition authorities champion the importance of internal documents, it is equally imperative to analyse them in their business context and objectively view their implications on the analysis.
Recommendations and conclusion
While the competition authorities should exercise caution when interpreting such internal documents, laying down a clear guidance is crucial to ensure the efficacy of requesting for and analysing the internal documents.
Further, there are certain best practices which could be adopted by the businesses.
- Protocol on presentation and content: In light of the increasing reliance being placed on internal documents, businesses should pre-empt such requests and streamline their practices and information flow. The business should work on the assumption that every internal document could become public. Thus, businesses should consider establishing an in-house protocol in relation to the preparation and content of such documents.
- Training: Once the protocol is in place, it is advised that a company conducts a management training session for ensuring comprehension and compliance with the protocols. The management could in-turn conduct team-wide training sessions for the relevant business teams for all potential transactions.
- Review by anti-trust counsel: Prior to announcing the transaction, the anti-trust counsel and the business team may consider reviewing relevant documents, or, at a minimum, reviewing potential internal documents (such as board minutes, business presentations, and information memorandums) which may be relied upon while undertaking a potential transaction.
- Collating documentation: Devising a system of collating such internal communication and documentation. Business teams could consider creating a database (for each transaction) or designate a custodian of all internal communications to be marked on all exchanges. This would help reduce the time spent by parties in collecting the information when requested by the competition authority and help the parties to effectively address such data requests. It would also help in the review process, as it would reduce the risk of documents being missed.
We believe that since merger control is a forward-looking analysis, businesses should also adopt a forward-looking approach while contemplating potential transactions. Through increasing awareness and preparedness, businesses would be able to better anticipate data requests and efficiently address queries of the competition authority.
Footnotes
2 Available at: https://competitionandmarkets.blog.gov.uk/2019/04/11/merger-controls-in-the-digital-age/.
3 Available at: https://assets.publishing.service.gov.uk/media/5b854651e5274a6b86def2d7/experian-clearscore_decision.pdf
4 Available at: https://www.gov.uk/government/news/cma-clears-paypal-izettle-deal.
5 Available at: https://www.gov.uk/government/news/cma-clears-amazons-16-investment-in-deliveroo.
6 Available at: https://www.osborneclarke.com/insights/fintech-mergers-cmas-spotlight-lessons-can-learned/.
7 Available at: https://ec.europa.eu/competition/mergers/cases/decisions/m7932_13668_3.pdf
9 Available at: https://www.ftc.gov/system/files/attachments/hsr-resources/4ctipsheet.pdf.
10 Canada Pension Plan Investment Board/ ReNew Power Limited. (Combination Registration No. C-2017/11/536, available at: https://www.cci.gov.in/sites/default/files/Notice_order_document/OrderPublicVersion.pdf).
11 More recently, in the case of Adani Ports and Special Economic Zones Limited (Adani Ports) /Krishanapatnam Port Company Limited (Combination Registration No. C-2020/02/726, available at: https://www.cci.gov.in/sites/default/files/Notice_order_document/726O.pdf), the CCI reviewed the internal documents and the investor presentation of Adani Ports, while approving the proposed transaction.
12 Available at: https://www.sidley.com/-/media/publications/cpi--dewispelaere.pdf?la=en.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
"Further, the views in this article are the personal views of the authors. They do not purport to reflect the opinions or views of Shardul Amarchand Mangaldas & Co. or its members."
