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This article has been written by Bhumika Saishri Panigrahi pursuing the Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.


In January 2020, Gurugram-based start-up Zomato purchased Uber Eats India in an all-stock deal for $350 million (2485 crore). Uber also received a 9.6% share in Ant Financial, Alibaba’s online food delivery and restaurant finding platform. Because this is an acquisition rather than a merger, Uber Eats will cease to operate as a separate platform, with all of its customers being routed to Zomato. Employees of Uber Eats were not absorbed by Zomato, which meant they would be laid off if Uber did not take them on in other verticals.

Zomato’s latest UberEats acquisition isn’t the first of its sort. It has grown its business by purchasing 13 start-ups in the food delivery industry, including Runnr, which mostly operates delivery fleets. Zomato has a fleet of 150,000 vehicles, 60 percent of which are provided by its recent acquisition, Runnr. The relevance of fleet delivery systems in the sector cannot be overstated, since a larger number of ground partners means greater reach and delivery speed. For delivery caps, speed is essential since it attracts customer happiness. Zomato acquired Runnr, the next stage in the food delivery app industry, which is fleet runners, in a typical example of vertical acquisition in the same service offering cycle. Acquisitions like these are frequently welcomed because they make corporate operations easier and result in a win-win situation for both parties. 

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However, the same cannot be said about competitor acquisitions, especially as market consolidation becomes more likely. Uber’s delivery partners will be redirected to Zomato as a result of Zomato’s acquisition of UberEats. This move further strengthens Zomato’s position in the South, where Swiggy continues to reign supreme. With UberEats’ profitable operation, all companies experienced an increase in cash burn as they sought to attract clients by giving competitive discounts, which often resulted in cash loss. Now that competition has been restricted to primarily two competitors, the food delivery business is garnering interesting consequences for the future. 

The acquisition’s legality

Mergers and acquisitions involving the transfer of control, shares, assets, or voting rights between two companies are bound by the requirements and objectives of the Competition Act, 2002, which aims to regulate practises that are likely to have a significant adverse effect on competition in India. Section 5 of the Act defines a combination as the purchase, merger, or acquisition of one business by another. The necessity to control mergers and acquisitions stems from the fear that the new company’s dominance and market share will be abused by using its capacity to manipulate pricing and eliminate competition in the relevant market. 

Horizontal mergers have the greatest potential to directly diminish market competition because the number of competing firms decreases and the emerging corporation gains more effective market control. By virtue of Section 6 of the Act, any combination that is likely to have an AAEC on competition within India is void. In determining the effect of a combination on the relevant market, the Competition Commission of India examines the following elements : 

  1. The combined entity’s market share and the extent to which the combination may generate entry barriers 
  2. The existing level of countervailing power in the market;
  3. The likelihood that the combination will enable the parties to have a significant and long-term impact on the market price;
  4. Effective competition in a market that is likely to last;
  5. If there are any disadvantages to the combination, the relative advantages or benefits of the combination must outweigh the disadvantages. 

Appreciable adverse effects of the acquisition 

The market impact of a combination must be determined by examining the consequences on the market’s major stakeholders. The contested merger will largely affect competitors, customers, and food-supply establishments. Customers of UberEats will transfer to one of the two dominating companies in the food delivery market now that UberEats has been removed from the list of dominant entities. This would result in Swiggy and Zomato’s market share increasing, even more, creating a duopoly situation. Furthermore, the corporations will be able to influence the market price and non-price aspects. 

Due to the high investment costs required to break client loyalty, this duopoly presents significant hurdles to entry for new competitors in the meal delivery sector. 

Furthermore, because of the competition for delivery partners, the new organisation must be able to offer competitive perks to these partners. Because Swiggy and Zomato will be able to provide better services at lower costs to their clients and better incentives to their delivery partners as a result of their market dominance, any new entry in the market will find it difficult to compete. 

Because one of the objects of the Competition Act is to protect the interests of customers and ensure that they are not exploited by an entity or a group of entities abusing its market dominance, the effect of combinations on customers is a well-established factor to be considered when assessing the legality of the same. The consumer benefits from fierce market competition since competing firms aim to provide as many prices and non-price offers as possible, and the situation is close to equilibrium because the firms will earn a normal profit. 

Aside from the customers, the combination will have a negative influence on the businesses that provide the food. Restaurants are unable to disengage from delivery apps since they account for a significant portion of possible orders. As a result of the market consolidation, eateries will have even less bargaining leverage, as they will have no choice but to use Zomato and Swiggy. Restaurant owners have been financially exploited by meal delivery apps over the last decade, as they have been pressured to offer the maximum amount of discounts and other deals allowed by law. 

Restaurants launched and implemented a Zomato Gold Logout Campaign in response to the deteriorating scenario and dwindling revenue. Restaurants will be further exploited as a result of the formation of this duopoly since competition for exclusivity and terms of profit sharing and commission amongst meal delivery applications would be reduced. As a result, the merger is anticompetitive because it would enhance the two companies’ market share, giving them the potential to exploit their power. 

The only defence available for combinations that are anticipated to have negative market impacts is that the benefits to other stakeholders outweigh the negative impact on the relevant market’s competition. The current merger saves UberEats from going bankrupt and gives Zomato and Swiggy a higher market share, but the weights cannot be determined solely from the standpoint of the aggregators. The two companies would be able to subordinate pricing decisions and rights of other stakeholders as their market dominance grew. 

UberEats takes care of everything

An examination of the alternatives to this acquisition reveals how this move endows Zomato with the power to control the meal delivery business, at least for the time being. According to most market observers, this decision appears to have turned the tables firmly on UberEats after examining the possibilities accessible to both sides. With this decision, Uber has bought a 10% share in one of India’s largest food delivery businesses, which is growing at a rate of up to 150 percent. UberEats was also able to reduce its losses. UberEats was predicted to lose INR 762.5 Cr ($107.6 Mn) between August and December 2019, according to Ministry of Corporate Affairs filings. UberEats has benefited the most from this deal because it has been able to have its cake and eat it as well. It maintains a presence in the food delivery industry through Zomato but does not experience the same level of losses or financial burn as it did previously, allowing the company to expand in other directions. 

Zomato has a little window of opportunity to maximize its client acquisition, and it has taken advantage of it. By offering a three-month free subscription to Zomato Gold, it has widened its net in order to convince users to stick with Zomato rather than go to Swiggy. However, Zomato’s real increase begins after three months. The aggressive discount battle between Swiggy and Zomato is unlikely to continue, as the market remains consolidated with only the two providers with one much fewer rival. As a result, it becomes simpler for both firms to persuade restaurants to keep their commitments, as deliveries account for a significant portion of restaurant revenue, and with only two entry points, their relevance rises, providing both delivery apps more bargaining leverage. 

In the end, Zomato essentially paid for not only its own expansion but also Swiggy’s. Someone had to bite the bullet in order to consolidate a market like this one. Zomato might have continued to manage UberEats through its own interface, while managing decision-making, as an alternative to an all-share takeover. However, for a variety of reasons, that would not have been a cost-effective option. 

The app’s trademarks, goodwill, and patents would have been purchased by Zomato, putting Uber in a key position for price control. The starting point would have been a price much higher than the amount bargained for. Furthermore, Uber would have had a greater degree of control over the business while without offering a higher profit share. Customers would have to be sold twice as many discounts on both Zomato and the Uber Eats interface, resulting in this amalgamation. As a result, in the long run, this alternative was not viable. 

As a result, while this acquisition gives delivery apps more power, it also bears a striking resemblance to the trajectory of ride-hailing applications. Ride-hailing apps have undergone a similar transformation. Ola purchased TaxiForSure, which is a comparable precedent. All the while, by compelling the original ride-hailing vehicles– the individual taxi/auto taxi unions/auto unions– to comply with the rules imposed by these applications, the original ride-hailing vehicles– the individual taxi/auto taxi unions/auto unions– are steadily losing control. It wouldn’t surprise me if the same thing happened in the food delivery sector. In fact, this course has already been set. 

What is the significance of CCI’s investigation? 

According to a Zomato spokeswoman, the CCI is looking into the basics of the purchase. In India, major players have made acquisitions, such as Facebook’s acquisition of WhatsApp, Flipkart’s acquisition of Myntra, and Ola’s acquisition of TaxiForSure. All of these mergers and acquisitions between commercial behemoths have a significant impact on India’s competitive landscape. Because all of these large firms with a large client base have a significant impact on the market while undertaking the acquisition process. As a result, CCI must investigate the situation in order to promote fair competition in the market, while keeping in mind CCI’s fundamental goals of prohibiting anti-competitive practices and safeguarding consumer interests. 

The Commission is simply collecting information to establish if Zomato’s acquisition of Uber Eats is anti-competitive in nature, which is relevant because the draught Competition (Amendment) Bill, 2020, which has yet to be ratified by Parliament, affirms the evaluation of such transactions. Anti-competitive Agreements are defined in Section 3(1) of the Indian Competition Act, which prohibits organisations and businesses from entering into agreements that are likely to “have significant adverse effects on competition within India (AAEC).” Section 3(2) also declares void any agreement that violates Section 3(1). 

According to the Act, agreements, including cartels, are deemed to have AAEC if they I directly or indirectly determine sale or purchase prices; (ii) limit production, supply, technical development, or provision of services in the market by geographical allocation; or (iv) result in bid-rigging or collusive bidding. Because the acquisition of Uber Eats by Zomato is a contract between two companies that are in the same stage of development, it falls under the category of “horizontal agreements,” which the CCI will evaluate to see if it is anti-competitive. Such an acquisition should be scrutinised closely because the expansion of the client base as a result of the purchase could lead to the corporation or firm functioning independently of market forces, affecting competitors and consumers in its favour.  Because the nature of market rivalry has altered with the advent of new tech giants, the Competition (Amendment) Bill assures that asset size and revenue are not the only benchmarks of evaluation; rather, their client base is to be scrutinised as well. This investigation by the CCI is significant because it has the potential to have a significant impact on all future acquisitions of this sort amongst the market’s major players. 

According to the new Draft Bill, the CCI has chosen to scrutinise and examine such purchases since they may be harmful to competition in India. Because acquisitions increase the number of customers and market share in the relevant industry, they may discourage existing players and force them into significant losses, resulting in a decline in the number of participants in the market. This could eventually lead to the acquirer establishing a dominant position and, potentially, abusing it in the market. Furthermore, such an analysis of these acquisitions is to verify that, as a result of the acquirer’s large-scale business, no new entry barriers are formed in the market for new players with a tiny customer base, high entry costs, and a lack of marketing and technical know-how. The development of such entry hurdles could lead to unfair competition and the potential misuse of market dominance by a few major companies. 


Because of the aforementioned impacts of the contested combination on meal delivery competition, the acquisition of UberEats by Zomato must be deemed illegal under Section 6 of the Competition Act. The negative repercussions of the combination can be seen in all of its stakeholders, including market competitors, consumers, delivery partners, and restaurants. The availability of choice and bargaining power for other stakeholders has dramatically decreased as a result of the formation of duopoly and dominance by two firms in the relevant market. With the current trend of tech giants from many sectors trying to combine and acquire in order to develop a significant consumer base and grab a large market, CCI’s role to investigate and scrutinise such agreements grows. This is due to the danger of organisations and firms capturing a huge market, becoming dominant, and perhaps abusing their position to gain a competitive advantage. As a result, with the arrival of new technologies and changing market norms, managing such high-value mergers and acquisitions becomes increasingly important in order to foster and sustain market competitiveness. The Competition Act of 2002’s Preamble and goals require that such transactions be regulated. 



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