Jio uses LTE or Long Term Evolution technology to provide high-speed internet access with high definition voice quality. Jio is pioneer in India when it comes to telecom technology innovations, and has been instrumental in creating a strong patent portfolio. A profitable business strategy is based upon innovative products and services along with meaningful patent protection for such innovations. Over the span of last few years, the changing landscape of patent registration in India specifically regarding software patents has resulted in an evolving patent regime resulting in more effective patent portfolios that are built to withstand challenges and deliver results. With a view to achieve such goals, patent attorneys work closely with innovators using extensive legal knowledge, industry experience, and cutting edge technology expertise to meet these challenges. Patent attorneys understand that to effectively navigate a growing patent landscape, it is crucial to anticipate changes and prepare all work product with a futuristic approach. An effective engagement with patent lawyer helps in handling various stages of the patent process, including, patent prosecution, patent drafting, patent opinions and searching, patent invalidation, and patent litigation.
Among various patents filed by Jio with the Indian Patent Office, one of the interesting patents is titled as “system and method of natural language processing”, which discloses a natural language dialog system capable of determining a correct meaning of the words detected by the speech recognition, thereby leading to better chat experience for the users. The application number of this patent is 201921011067. In recent months, Jio has received funds from multiple new investors in return of allotting minority equity stakes in the shareholding.
The extensively typical authorities for PE investors in the Indian context are the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI), and Foreign Investment Promotion Board (FIPB).
This corporate deal falls within the ambit of the Companies Act. The Ministry of Corporate Affairs notified S.230 of the Companies Act, 2013, and some amendments to the Companies (Compromises, Arrangements, and Amalgamation) Rules, 2020 (“M&A Rules”) that govern this type of minority stake. The Amendments dictate that a ‘Takeover Offer’ can possess a ‘Compromise’ or ‘Arrangement’ as per S.230 and while ‘takeover offer’ has not been interpreted in the Act, the Amendments exhibit that it pertains to the acquisition of shares carried by the Minority Shareholders. Taking the current example in question the company expanded Rs.4,546.80cr from TPG against 0.93% share sale and Rs.1,894.50cr against 0.39% to L Catterton, another PE firm. This corporation particularly funds fashion retail enterprises and aids Jio Platforms’ policy of morphing from the telecom industry to a tech-empire that additionally sells products for daily use.
The list of investors in Jio includes Facebook, KKR, Vista Equity Partners, Abu Dhabi Investment Authority, Mubadala and General Atlantic and if we look at S.230(11) and its proviso, listed companies have to follow the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for takeover offers. The Regulations contemplates a compulsory offer to be brought about to public shareholders for the accession of shares, voting freedoms, or jurisdiction in some conditions. All 10 agreements are liable to authorized clearances and particularly Facebook is plausible to endure rigid scrutiny for its interests over net neutrality.
Other procedural laws that govern such transactions include:
(1) The Majority Shareholders proposing a takeover offer gives birth to filing an application with the NCLT for authorizing the takeover. The offer must be ratified by the NCLT as part of S.230.
(2) A statement of the Registered Valuer mandatorily must encompass some parameters about the valuation facets of the target business, which has to be introduced. The report must lay down the outstanding price spent by any individual for the accession of the target company’s stakes in the recent 12mos.
(3) The Majority shareholder must possess or open a bank account and deposit one-half of net appreciations of the takeover offer in the account.
Another reflection is the CCI permission for investments in Indian businesses whose aid or turnover price traverses the prescribed limits and where no legal immunity is accessible. An application pursuing CCI permission must be formulated in 30 days from a binding commitment being enforced, or from the transmission of the goal to attain to a Government authority where no consensus has been reached. To illustrate an example, in 2014, the CCI exacted a fine of Rs. 3cr on Tesco. Tesco postponed filing the notice with the CCI nearly 73dys after its transmission to the additional controllers.
There are a lot of hurdles that the Private Equity firms face in terms of structure of the investments in the portfolio companies. These amount to various hurdles that make both the buyouts and the traditional LBOs difficult. The Reserve Bank of India also prohibits the Indian banks from granting loans for purchase of shares in Indian companies. It also limits the bank exposures to the capital markets. The Foreign Investment Promotion Board (FIPB) prohibits the Foreign investors from borrowing from the Indian banks to purchase securities of Indian companies. All the foreign investment firms need to obtain permission from FIPB for establishing foreign owned holding companies in India. It mandates FIPB approval if the foreign owned holding company decides to purchase shares of Indian companies. The Companies Act, 2013 prohibits companies to leverage their assets to raise investments. Companies Act, 1956 as well as 2013 prohibits public companies from providing financial assistance to any person for purchase of shares.
The new coalition between Reliance Jio and Facebook will allot enormous advantages for India’s minor industries and Kirana-stores via Jio-Mart’s hyperlocal contribution, lending them entry to a digitalized ecosystem. WhatsApp Pay can agitate the payment ecosystem were delivering money is similar to transmitting a message. The adverse aspect of this is that it can generate a data Frankenstein of kinds, conveying a micro proficiency of numerous shoppers. The widespread notion is that the additional capacity of Facebook, an outlet where advertisers can target individuals founded on their concerns, and the user’s data will be rendered public.
There are numerous problems here. Firstly, the powerful network impacts digital outlet economies. Second, the pertinence of quantity and mixture of data as a crucial characteristic to furnish high-quality assistance and how that fulfills as a competitive benefit. Third, whether the sheer assortment of both kinds of user data (WhatsApp and Jio) will authorize the recent agency to accomplish a role that cannot be duplicated by adversaries steering to foreclosure of the market.
The accomplishment of the business prototype of several two-sided basic outlets like Google, Facebook, and Uber among others relies on compiling user information. The information as input can be utilized to bring ad-revenue or enhance inner algorithms for the paid aspect of the platform. The capacity of data analytics conveys an important active benefit to the advertisement-driven industry model. By prohibiting the stock of user data, a powerful actor can advantageously prohibit its adversaries from increasing critical mass that is vital to remain attainable in a digital market.
Very often, large digital enterprises are not restricted to furnishing just one or two aids. They give an entire spectrum of entry to various regions with an ecosystem of services that are manufactured to operate concurrently. The objective of the makers is to mainly lock-in their consumers and lock-out the opponent. This is achieved by establishing a value proposition for their consumers and making it hard for them to vacate the fold due to the elevated switching expenses.
In advanced jurisdictions, data leveraging has been deemed as a severe antitrust problem and several regulators have sanctioned both Google and Facebook. Two recent examples of the competition examination of data-driven demands are the European Commission’s ruling in a paradox of Google in the Android licensing case, and Bundeskartellamt’s litigation against Facebook. Both judgments were related to anti-competitive foreclosure, leveraging technology, with the vigor to unlawfully obtain data to achieve a benefit over the adversaries. The Competition Commission of India (CCI) is furthermore analyzing the Google-Android trial for abusive and anti-competitive restrictions in Google’s licensing exercises of its Operating System by inflicting circumstances on mobile manufacturers like the Google Search app.
Taking Jio’s instance, it wanted to capitalise funds and therefore sold out minority stakes to big PE giants such as TPG, L Catterton etc. The Competition Commission of India has clearly formulated under the Act that the purpose of its existence is to promote competition and protect the Indian markets against anti-competitive practices. It also prohibits anti-competitive agreements and abuse of dominant position. These are the simple reasons why the CCI regulates mergers and acquisition in the first place.
Jio platforms have witnessed great participation in minority stakes in them this year in 2020. It is evident that Facebook has acquired 9.99% of the stakes of Jio. It is also very evident that both these companies are competitors in different business ventures such as WhatsApp and Jio Chat, Ajio and Facebook Marketplace, Jiopay and WhatsApp pay and JioTv and Facebook Watch. The combination of these companies seem to destroy the fair competition in the market in some of the business ventures that they currently run. Furthermore, Reliance Industries also plans to integrate Jiomart and Whatsapp to integrate Small and Medium scale ‘kirana’ or ‘rashan’ shops, which seems to be an attempt to enter into the new market by using the dominant position of whatsapp. Therefore CCI plays a critical role in determining the result of the mergers and acquisitions.
A foreign airline, Etihad Airways PJSC pursued to attain a 24 % equity interest in Jet Airways (India) Limited, which is a domestic airline. During the proposed undertaking, foreign airlines were authorized to capitalize on up to 49 % of the equity interest of Indian airlines liable to FIPB authorization. Even so, Etihad chose to capitalize only 24 % in Jet because it didn’t want to accelerate the available bid regulation specified by SEBI for the accession of better than 25 % equity share or resulting in custody. SEBI originally opened the agreement dictated that prima facie there seemed to be no alteration of custody and that Etihad was not an individual acting in concert (PAC) with the promoter group of Jet.
However, SEBI withheld its right to reexamine its role if any other controller agreed that Etihad was developing custody over Jet. Thereafter, FIPB and the CCEA assigned their authorization to the enterprise. Individually, the CCI authorized the agreement asserting that the agreement was not liable to have a noticeable negative effect on competition in India while reporting that the agreement founded Etihad’s joint supervision over the assets and undertakings of Jet.
Indian controllers repeatedly survey the prevailing policy framework in light of the financial climate and strive to formulate the enterprise administration more investor-friendly and smaller protectionist. The new and lasting regulatory attitude is more conscious. With the operationalization of the CCI, an additional controller is dominating the agreement, and this also provides to broadened timelines for the culmination of the agreement. Regulators can formulate system modifications overturning prior stances, and to that degree, there is a degree of unpredictability. PE investors therefore would do well to steer carefully and create trivial contractual precautions before lunging into an investment in India.
Indian oil-to-telecoms global Reliance Industries amassed aggregate of Rs. 6,441.3crs from the contract of two shares in its digital component of Jio Platforms. The multinational investment firm, TPG must purchase a 0.93 percent interest for Rs. 4,546.80cr, while the PE firm L Catterton will pick up a 0.39% share for Rs. 1,894.50cr.
Of the prime ten current investors, L Catterton, TPG and Silver Lake wield an interest below 1%. All these agreements are prone to regulatory approvals and have to fulfill the aforementioned legal provisions of various authorities as per their industry. Regardless of the stake of the investor, some transactions need regulatory scrutiny, due to the sector of operations, the number of investments, and various other circumstances or considerations because due diligence is key in any transaction.
L Catterton, the world’s substantial consumer-targeting PE firm, will invest Rs 1,894.50cr in sales for a 0.39% share in Jio Platforms, a record 10th enterprise in the Reliance Industries (RIL) digital department. After that, General Atlantic, Silver Lake (twice), Vista Equity Partners, KKR, Mubadala Investment Company, and ADIA and TPG have lined up for interests in Jio.
The TPG accepted option asset firm intends to capitalize on Rs. 4546.80cr in Jio Platforms which summarizes to 0.93% equity share in the Platforms on an entirely diluted rationale. L Catterton on the other hand, which is the world’s substantial consumer-focused PE firm, intends to donate Rs.1,894.50cr in the platform for a 0.39% share on a diluted rationale.
US PE fund Silver Lake and its co-investors will settle in an enhanced Rs. 4,546.80cr in the Reliance Industry’s digital component Jio Platforms. The interest appears beyond the Rs. 5,656cr Silver Lake devoted to Jio Platforms. Silver Lake’s current investment bestows Jio Platforms, which keeps Reliance’s telecoms organ Jio Infocomm and its streaming apps, an investment price of Rs. 5.16 lakh crores, in an authorized filing, and brings Silver Lake’s share to 2.08% from just beyond 1%.
Let us understand the reasons behind the psyche of the sellers and buyers of minority shareholders and why it is necessary for the regulators to keep a check on it. Though some of the investments are only for 0.1% stake in Jio platforms, even that requires regulatory approvals. The seller of the shares i.e. Jio platforms want to sell their minority stakes for the reasons being that they want to raise capital in terms of settling their debts, the desire for specific expertise. For instance, facebook brings in a big name and three big markets such as whatsapp, marketplace and facebook/instagram as social media platforms. Another reason being the desire for the credibility that an independent professional investor can bring such as TPG, L. Catterton are really big names of investors in the global economy.
Considering both the perspectives, the buyers are interested in buying the minority stakes for the reasons that are obvious in nature. First, it is mainly because there is very less competition for buying the minority shares rather than majority shares. The competition between the buyers often relate to factors other than price such as credibility. Secondly, the buyers offer credibility in the financial markets and specific expertise relevant to the priorities of the company in question therefore TPG and other minority stakeholders have the expertise in the telecom sector.
When the reasons for the sellers and buyers are all self-motivated, it is a dire need for the government approvals to be regulated because otherwise large giants such as TPG and Jio together can destroy the competition in the market. When small investments in the company can make them owners of that part of the company, these minority shareholders also have the veto rights and voting rights to make decisions that can change the functioning of the company. Therefore, it becomes all the more important for the government to regulate these mergers.
The Indian industry has never witnessed such a huge amount of M&A deals in the past as in 2019-2020. These developments in the financial sector should also reflect in the economy but due to covid-19 the effect of these deals is not visible to us immediately. Reliance and Facebook’s deal will benefit hundreds of millions of small and medium sized businesses as it will open them to customer access worldwide. This will in turn lead to deepening India’s digital presence. Online payments and transactions will be more frequently used as Whatsapp pay might be used for these transactions bringing huge business for both Jio and Facebook.
While all this looks fancy, it raises brow towards the data-privacy issues. Whatsapp has over more than 400 million users and Jio has about 390 million users. The percentage of data collected will be more than even thought of and the purpose for which it will be used is unimaginable for the kind of commercial gains it can bring is absolutely enormous. Although through this deal JioMart could become a huge e-commerce website and one spot to shop destination, it has a million chances of disrupting healthy competition in the market and likelihood of having an AAEC.
Deals such as that of Jio platforms with other PE firms have deep implications on the Indian market and the decision of regulatory authorities such as CCI, SEBI, RBI etc will decide the fate of Indian markets.
Regulatory compliances become crucial for the foregin PE firms because there are thresholds and guidelines according to which investments can be made. Foreign PE firms cannot invest in Indian companies through their Indian subsidiaries. The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI), and Foregin Investment Promotion Board (FIPB) are the main regulatory authorities dealing with the Private Equity investors in the Indian context. The Companies Act, 2013, deals with the corporate part of the Mergers and Acquisitions. Specifically, the Companies (compromises, Arrangements, and Amalgamation) Rules, 2020 (M&A Rules) govern the RIL and Facebook type of minority stake deals.
Competition Commission of India plays an important role in scrutinizing and regulating mergers and acquisitions. It takes into account the possible hazards to the fair competition in the market and whether a merger and acquisition will have an appreciable adverse effect on the competition (AAEC) in the market. The classic case of Etihad and Jet Airways portray the difficulties in obtaining consent of the regulators for a minority shareholding. It inscribes a lesson that even a 0.1% shareholdings require the approval of the regulators. It is because even such small shares give the minority shareholders the right to make decisions in the company. Therefore, last but not the least M&A deals require a lot of regulatory sanctions. These sanctions have to be obtained step by step. Therefore, it is time consuming and requires patience and due diligence.