ISLAMABAD: The Competition Commission of Pakistan (CCP) has cleared the pre-merger application of Pakistan Stock Exchange Limited (PSX) for acquiring shares of Central Depository Company of Pakistan Limited (CDC).
In this connection, the CCP has issued an order on Friday.
“The current acquisition of shareholding taking the total shareholding in CDC does not raise any competition concern and would not lead to any material change in control in CDC or lessening of competition in the relevant markets,” CCP order concluded.
The CCP order revealed that the PSX’s existing shareholding in CDC and representation on the CDC BoD (3 out of 12 directors) means it already exercises influence over the CDC as defined in explanation I & 11 of the competition merger control regulations (CMR).
Therefore, an additional shareholding shall not necessarily be strengthening the PSX’s control over CDC. The CDC BoD comprises of twelve directors, of which seven are shareholders directors, four are independent directors and one is the chief executive officer.
The PSX would require additional voting shares in addition to the shares of the proposed transaction in case of election of BoD to garner one more director’s position on the CDC BoD by virtue of shareholding.
Moreover, the subject transaction also stems from a regulatory requirement imposed by the SECP, i.e., PSX is permitted to acquire at least and were instructed to act in pursuance thereof.
The CCP Bench upon due consideration is of the view that there is merit in the Applicant’s argument to the extent that an intention of any acquisition is based on two circumstances, i.e., where the parties have signed a share purchase agreement or have agreed in principle to proceed with the transaction deals with a situation where an undertaking intends to acquire and deals with a situation where the concerned undertakings agree in principle or sign a non-binding letter of intent.
Accordingly, regarding intent to acquire more shares in CDC, as disclosed in PSX’s financial statement the same would not attract pre-merger notification requirement until willingness of the seller(s) exists.
As for the request to allow clearance for the subject transaction and review the remaining potential acquisition as part of Phase-II review is not tenable.
The Bench is not empowered to treat the subject transaction piecemeal. It also appears to be a contradictory stance on part of PSX. Where it has it-self stated that “Such a transaction is not at all certain and will require a number of steps to be consummated before PSX will be in a position (if at all) to submit a pre-merger application. Therefore, considering such an eventuality at this stage, in our view, is premature”.
The CCP bench agreed that the Bench cannot assume or approve the transaction hypothetically. We also note that in the regulatory scheme the timeline envisaged have not been followed; therefore, notwithstanding the regulatory intent the Commission cannot proceed on mere assumption in the absence of the willing seller(s) in the present case.
“We have; therefore, restricted our Phase-II review to the extent of PSX acquiring specific percentage of holding in CDC.”
Considering the above in view, the Bench finds that the current acquisition of shareholding taking the total shareholding in CDC, does not raise any competition concern and would not lead to any material change in control in CDC or lessening of competition in the relevant markets. “The proposed transaction is hereby authorized.”
In the subject transaction, matters that may fall outside the scope of the Commission’s purview remain subject to the applicable laws, CCP order added.
Copyright Business Recorder, 2023
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