The Competition Commission of India (CCI) is an authority established under the Competition Act 2002 as amended thereof (Act) to promote competition, to protect interests of consumers, to prevent practices having adverse effect on competition, etc. Recently, Wal-Mart International Holdings, Inc (Walmart) had issued a notice around 18.05.2018 to CCI seeking its approval for acquisition between 51% and 77% of the outstanding shares of Flipkart Private Limited (Flipkart) by Walmart. As per the Act prior to any merger or amalgamation, acquisition, etc between two or more companies, they have to seek approval of CCI for entering into such process and/or execution of agreement giving effect to such combination.
Recently, the CCI passed an order dated 08.08.2018 (Order) approving the proposed combination of Walmart-Flipkart (Proposed Combination).
The CCI noted that Flipkart is engaged in business to business (B2B) sales such as goods bought from various manufacturers and sellers are sold by Flipkart to third party resellers, etc. Further, Flipkart also facilitates e-commerce transactions between sellers and consumers (i.e. business to consumer or B2C transactions), provides payment gateway services, advertising services, technology based services, etc. Whereas Walmart is engaged in B2B sales.
In accordance with the provisions of the Act, in order to check whether a proposed combination has an appreciable adverse effect on competition in the relevant market, the CCI has to consider the extent of barriers to entry into the market, extent to which substitutes are available, market share, extent of competition likely to remain after the combination, etc.
The CCI further noted that Walmart’s market share in B2B sales in India is less than half a percent and that Walmart and Flipkart are not close competitors. The major focus of operations of Walmart was on groceries and that of Flipkart was on mobile and electronics products. Whereas, the combined value of sales of Walmart and Flipkart in the common segment of skincare, baby and feminine hygiene, apparel and accessories, etc is low. Therefore, the CCI held that the Proposed Combination does not alter the current market structure.
In the B2B market, there are larger players such as Reliance Retail, Metro Cash and Carry, Amazon wholesale etc. Thus, the CCI held that although Walmart and Flipkart are present in the B2B market, the Proposed Combination is not likely to have any adverse affect on competition.
Walmart is not engaged in B2C transactions, neither in offline mode nor in online platform. Whereas, Flipkart operates in B2C market through various ecommerce platforms such as Flipkart.com, Myntra.com, Jabong.com, etc.
Thus, the CCI held that the Proposed Combination would not result in elimination of any major player in the relevant market. Moreover, the Proposed Combination would enhance the quality of their operations, their financial strength and would help them compete effectively in this dynamic e-commerce market.
The CCI also received a few representations from trade associations, traders/retailers, etc., apprehending the impact of the Proposed Combination on small and medium enterprises, retailers, etc and the alleged deep discounting and preferential treatments to specific sellers by e-commerce giants like Flipkart, etc. But the CCI held that the revenue earned from the few sellers availing discounts from Flipkart was relatively less. Whereas, the issues of deep discounting, etc were prevalent in the market even without the proposed acquisition by Walmart. Therefore, such issues did not relate the Proposed Combination.
Based on the aforesaid findings, the CCI held that the Proposed Combination is not likely to have an appreciable adverse effect on competition in India. There have been lots of criticisms against the CCI Order and the Confederation of All India Traders has reportedly stated that it would approach the court against CCI’s approval of the Proposed Combination.
Senior Legal Associate
The Indian Lawyer