The Competition Commission of India (CCI) on Thursday approved the acquisition of Larsen & Toubro’s (L&T) electric and automation (E&A) business by Schneider Electric India and MacRitchie Investments.
The Ministry of Corporate Affairs (MCA) in a statement, however, noted that the acquisition could lead to lesser competition in the market. Therefore the CII has ordered the acquirers to reserve a part of L&T’s installed capacity to offer white labelling services to third party competitors.
The approval is subject to modifications that are aimed at eliminating the likely anti-competitive effects of the proposed acquisition.
“The Commission found that Schneider and L&T are the first and second leading players in terms of sales and distribution reach in the low voltage (LV) switchgear industry in India. Their consolidation would inter alia lock a large part of the LV switchgear distributors and other downstream players with the combined entity, thereby making it difficult for new players to enter the market,” said the MCA statement.
“Thus, the Commission was of the view that the acquisition of E&A business of L&T would reduce competition and confer the combined entity the ability to increase price.”
The facility to manufacture products for third parties would be “available in respect of five high market share LV switchgears, which are generally used together in LV panels”.
Under the white labelling services, the third party competitors can take L&T products on a reasonable price for selling under their own brand, for a period of five years, as per the official statement. Subsequently, these competitors can get access to the technology of white-labelled products to manufacture them, for the next five years.
“To open up their distribution network to competitors, Schneider would revise its commercial policies and remove de facto exclusivity in distribution agreements. Further, Schneider would not discontinue L&T products and not increase their average selling price, for a period of five years,” it said.
MCA said that the remedies ordered by the CCI were expected to allow business expansion of competitors in the five white-labelled products to thereby leverage their brand position in the overall LV switchgear business.