MERGERS AND ACQUISITIONS - Chandra questions SEC about competitive safeguards

18 July 2014 06:18 am Views - 3019

ood governance activist Chandra Jayaratne in an open letter to the Securities and Exchange Commission (SEC) has inquired about the laws pertaining to anticompetitive practices originating from mergers and acquisitions in the country’s capital market.

The letter addressed to SEC’s Officer-in-Charge / Deputy Director General (OIC/DG)  read, “I am sure you will no doubt agree, that the concentration of economic and market control power in the hands of a few, is likely to injure the interests of consumers and businesses and negatively impact on the growth and prosperity of the nation and its people in the longer term, due to the inherent likelihood of such concentration leading to anticompetitive practices in an effort to obtain and maintain control.

“Such fears have resulted in appropriate Securities Regulations being enacted and enforced with effectiveness, to combat the likely anticompetitive practices, diminished free market opportunities and limits placed thereby on individual initiative.”

Jayaratne averred that a duly empowered regulatory should effectively control such concentrations arising from “mergers of two or more previously independent undertakings, the acquisition of direct or indirect control of the whole or parts of one or more other undertakings or the establishment of joint venture involving the acquisition of joint control of a full function joint venture undertaking.”

In this backdrop, Jayaratne requested the OIC/DG to by way of a public media announcement to inform all market stakeholders of the securities rules and regulations applicable and the effective enforcement processes in within the SEC in dealing mergers and acquisitions that “give rise to the concentration of economic power and market control opportunities.”

However, capital markets in developed countries have stringent laws against anti competitive practices

If no such regulations are in place, Jayaratne inquired about the rationale for such lacunae to be allowed to remain with the regulatory regime and the strategic steps that are being planned to remedy such unacceptable situation.

Sri Lanka’s capital market does not have any laws against anti-competitive practices and this has led to concentration of economic power through mergers and acquisitions. However, capital markets in developed countries have stringent laws against anti competitive practices.

For example, the proposed merger between the cement giants, Holcim and Lafarge requires the clearance from 22 European regulatory bodies and both the companies are required to shed some of their assets worldwide to address any anti-trust concerns that could emerge due to the merger.

However, in Sri Lanka, a number of such mergers and acquisitions have taken place, the most recent one being the acquisition of the tile companies belonging to CT Holdings PLC by Royal Ceramics PLC. The acquisition carved a virtual monopoly for Royal Ceramics in the Sri Lankan tile market which is now estimated to be controlling about 85 percent of the market.