Amazon-Flipkart: The Apprehended Combination

While discussing “e-commerce platforms” or looking for options to “click and buy”, the two most accessed websites are Amazon and Flipkart. Both, Amazon and Flipkart are leading players in the online retail market place. Over the years, Amazon has become a household name for online ordering and Flipkart has acquired other big online retail players such as Myntra, Jabong, LetsBuy, etc. What has being doing rounds in the news is the possible coming together of the two giants, Amazon and Flipkart. Where the possible unison of the two online retailers may prove to be more beneficial to the consumers in terms of their ability of offering better discounts and services, the effect that the same will have on other online retailers as well the offline market is the concern that needs to be addressed. In simpler words, if the proposal of Amazon holding considerable stake in Flipkart goes through, the same may adversely affect its competitors. The question that arises that is there any regulatory procedure to check on these deals which may result into monopolistic combination.

Scrutiny by the Competition Commission:

The Competition Act, 2002 (“Act”) has been enacted and the Competition Commission of India (“CCI”) has been established to check on and regulate activities of larger players in the market and to prevent malpractices that have an adverse effect on competition. By virtue of Section 5 of the Act, every acquisition of control, shares, voting rights or assets of an enterprise or merger or amalgamation of enterprises, where the parties to such acquisition or merger or amalgamation cross certain financial thresholds, deemed to be a combination (“Combination”), are required to obtain mandatory approval from the CCI. The threshold limits are triggered when the worth of the assets of the entities or their turnover exceeds the limits as set forth by CCI. In the current scenario, the Combination of Amazon and Flipkart will trigger the set financial threshold and hence will come under the scrutiny of the CCI.

Under the Act, the responsibility of seeking approval is on the acquirer in this case, Amazon. Earlier, such an approval for the proposed combination was to be sought within 30 days of the approval of the board of the acquirer or signing of any document related to the Combination. However, from June 2017, the time limit of 30 days has been done away with. The parties to the Combination need only ensure that the Combination is not effected before the approval of the CCI or 210 days post the notice to seek permission if filed with the CCI.

The Predicted Stance of CCI:

CCI is more popularly known as the anti-monopoly watchdog. When an application is filed with the CCI for approval of a Combination, what the CCI scrutinizes is mainly that whether the Combination will cause an appreciable adverse effect on the competition in the “relevant market”. In deciding whether a Combination will have an adverse effect, the term “relevant market” is considered by the CCI as the backbone of the decision. The term is of paramount importance since it decides the geographical boundaries within which the CCI does the merger analysis. In the current case, considering the nature of online retail activities, the relevant market would mean the entire online market space. Furthermore, it is not only that the online merchants that will be affected by the Combination but also the offline market retailers. Given that online market is already a threat to the old school retail shops, the Combination of two online giants may prove to be the final nail to their coffin. Given that the two parties in question are leading online brands and number of reports and surveys suggest that 80% of the online ordering is through the Amazon, Flipkart and their subsidiaries, the decision to be taken by the CCI is going to determine the fate of online/offline market space.

However, the CCI has earlier decided on similar mergers. The PVR-DLF merger, Sun Pharma Industries Limited- Ranbaxy Laboratories merger, Holcim-Lafarge deal, etc, were all mergers of two major players which went through the scrutiny of CCI. The CCI gave a green signal to these deals, however, the same were subject to a number or terms and conditions. The solution that CCI adopts is giving a green signal but subject to the acquirer disinvesting in certain assets of the other entity to ensure that Combination doesn’t result in the creation of a dominant player in the relevant market. The big ticket deals generally go though CCI but the parties are made to re-work and re-negotiate on their terms and service providing abilities. However, what makes the Amazon-Flipkart a sensitive deal is that their relevant market areas are not geographically restricted.

The Third Wheel:

The third wheel in the deal is “Walmart”. Walmart and Amazon are both competing to gain stake in Flipkart. Needless to say, Walmart is not prominently present in the Indian online retail market. However, if the Walmart-Flipkart deal goes through, the Combination may prove to be a competition to Amazon.

Conclusion:

It will be interesting to see the stance of CCI in the Amazon-Walmart-Flipkart triangle. Furthermore, more clarity on the mechanism that the two entities will be adopting in furtherance of the deal or the conditions related to the control that Amazon may exercise in Flipkart is still unclear. CCI may impose conditions on the Combination which may or may not be acceptable to both parties. The parties can also approach the CCI before formally applying to seek approval. Informal guidance on the nature of the transaction can be sought from the CCI which will give the parties a non-binding/advisory view of the CCI.