Merger Control 2019 Comparisons

Last Updated July 12, 2019

Law and Practice

Authors



Galicia Abogados, S.C. has a comprehensive and sophisticated competition and antitrust practice, the services of which range from ordinary merger control filings to critical and complex antitrust matters, including challenged M&A transactions, cartel and other antitrust investigations, leniency applications, complaints before the competition authorities seeking relief for anticompetitive behaviour and general advice on day-to-day antitrust and competition law issues. Galicia features a competition and antitrust group that combines talented practitioners with considerable legal backgrounds in other disciplines and sectors, which in turn allows the firm to better respond to the needs of its clients. Along the same lines, working closely with its litigation department in court proceedings involving competition cases has been of particular importance in ensuring a comprehensive and strategic provision of services to its clients.

The core of Mexican antitrust law is comprised by the Federal Competition Act (Ley Federal de Competencia Económica or FCA) and the Regulations (Disposiciones Regulatorias) thereof, issued by the Federal Economic Competition Commission (Comisión Federal de Competencia Económica or COFECE). Merger control across all industries (except for telecommunications and broadcasting, as explained below) is regulated by these two pieces of regulation.

The telecommunications and broadcasting industries, however, are not subject to the regulations issued by the COFECE but rather to industry-specific competition regulations (Disposiciones Regulatorias en Materia de Competencia) issued by the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones or IFT).

Both the COFECE and the IFT have issued merger control guidelines for the types of merger control proceedings with which they are respectively concerned. These guidelines are not binding but rather work as orientation tools for practitioners and economic agents filing before the agencies. Along the same lines, both agencies have issued technical criteria relating to market concentration indexes and the ways in which both agencies generally look at market participations as prima facie evidence of concerns (or absence thereof).

As noted in 1.1 Merger Control Legislation, above, merger control in the telecommunications and broadcasting industries falls within the jurisdiction of the IFT and is therefore subject to the regulation and guidance issued by it, although the relevant proceedings are still subject to the FCA, except for the limited provisions in the Federal Telecommunications and Broadcasting Act (Ley Federal de Telecomunicaciones y Radiodifusión) that relate to merger control proceedings in the telecommunications and broadcasting industries.

Mergers and acquisitions involving entities which in turn hold licences, authorisations or permits may require a separate filing under the applicable laws governing such licences, permits or authorisations before the competent issuing agencies.

Along the same lines, certain industries and sectors are still subject to foreign investment restrictions (airlines, airports, motor carriers and broadcasting, among others). Likewise, a majority participation of foreign investment in an entity with assets in excess of certain thresholds published on a yearly basis by the Foreign Investments Commission (Comisión Nacional de Inversiones Extranjeras) is subject to prior approval by the Commission.

These filings are, however, regulatory in nature and do not entail an antitrust review.

The COFECE is the main enforcer in antitrust matters, with merger control jurisdiction across all sectors and industries except for broadcasting and telecommunications. Conversely, the IFT is an antitrust enforcer solely for these two industries, over which it also has merger control jurisdiction. While the COFECE lacks regulatory powers (beyond the FCA), the IFT is both a regulator of the telecommunications broadcasting industries and an antitrust enforcer in them.

Both the COFECE and the IFT are collegiate autonomous constitutional entities, meaning that neither is attached to any branch of government and that they are both empowered with technical and administrative autonomy.

The decisions of both agencies are generally non-appealable, except for those which finally adjudicate a matter (for instance, those which object to a transaction or condition the same to certain remedies). These decisions are subject to judicial review by the federal courts specialising in competition, telecommunications and broadcasting matters.

The FCA contemplates both compulsory and voluntary notifications. A filing is mandatory if a transaction exceeds at least one of certain statutory monetary thresholds set forth in the FCA (described in detail in 2.5 Jurisdictional Thresholds,below), regardless of whether the transaction presents competitive concerns or not. Voluntary filings, on the other hand, can be made even if the statutory thresholds are not met. Voluntary filings are not common and would generally only be made if the parties thought that a substantive competition concern may arise out of a transaction, even if the transaction does not give rise to a mandatory filing.

The FCA exempts certain types of transactions from pre-merger clearance. Such exemptions are narrow and not general in nature. The FCA does not exempt from antitrust clearance acquisitions or sales in the ordinary course or acquisitions or sales of financial assets, which may be the case in other jurisdictions. Also, the FCA does not require that a transaction entails the acquisition of a business or a going concern to trigger a pre-merger filing requirement; as stated above, the mere acquisition of assets the value of which exceeds one of the monetary thresholds triggers the obligation to obtain clearance from COFECE.

Exempted transactions under the FCA are:

  • acquisitions of less than 10% of the outstanding capital stock of publicly traded corporations, that do not vest with the acquirer the right to appoint directors or officers of the issuer, or to otherwise control the issuer or influence its main policies;
  • corporate restructurings in which all the relevant parties are under common control or otherwise form a part of the same economic group, provided that no third party participates in the relevant transaction;
  • increases in ownership interests in entities already controlled by the acquirer;
  • transfers of assets to trusts controlled by the transferor; and
  • certain investments made by investment funds which are purely speculative in nature.

Additionally, Article 9 of the transitory provisions of the FCA provides that, as long as a preponderant agent exists in the telecommunications or broadcasting sector (as applicable), transactions among concession holders (other than the preponderant agents) that would otherwise require antitrust clearance under the FCA are not subject to prior IFT clearance if and to the extent that they fall below certain market concentration indexes and meet certain criteria.

The FCA provides that the parties to a reportable transaction must refrain from closing the transaction until the COFECE and/or the IFT, as applicable, have cleared it. Accordingly, reportable transactions must be notified to the competition authorities before:

  • the agreement(s) documenting the transaction(s) is/are perfected pursuant to applicable law or, if subject to conditions precedent, before these are satisfied;
  • ownership and/or control over the target is acquired (under law or de facto); or
  • in the case of a transaction comprised by different steps, before any of the monetary thresholds mentioned in 2.1 Notification, above, is exceeded.

If a reportable transaction is closed (de jure or de facto) without previously obtaining clearance from the relevant agency (the COFECE or the IFT), the parties involved in such transaction face fines of up to 5% of their taxable revenue in Mexico. These fines are made publicly available by the agencies on their respective websites. Additionally, the FCA states that agreements executed in violation of the prior clearance requirement are unenforceable.

In 2017, the COFECE fined certain financial entities and trust managers approximately USD60,000 for closing a transaction which was different to that which had been cleared by the agency. For the first time, the notary public that formalised the transaction was also sanctioned with a fine of approximately USD445,000. While in this case the relevant transaction was closed in terms and conditions which were different than those authorised by the agency, the COFECE took the position that the parties had closed a transaction without obtaining its prior clearance.

Recently, the COFECE sanctioned a local and an international player in the dairy products industry for closing a transaction in 2012, without having notified the same to the COFECE. While the resolution is not public yet, the COFECE issued a press release stating that the fines had reached approximately USD400,000 in the aggregate. Along the same lines, two Mexican banking institutions each received fines of approximately USD38,000 for closing a transaction in 2017 without notifying the transaction until September 2018.

A concentration (that is, a transaction that may be subject to a merger control filing) under the FCA is any merger, acquisition of control or any transaction or act pursuant to which companies, partnerships, shares, equity interests, trusts or assets generally are put under common ownership or combined. Thus, any type of transaction that results in any of the aforementioned effect may trigger a filing requirement. Among others, mergers, acquisitions, swaps of assets, capitalisations and joint ventures are typically notified to the agencies to the extent that filing thresholds are exceeded.

Along the same lines, acquisitions of stock of publicly traded entities and corporate reorganisations that do not squarely fall within the exemptions described in 2.1 Notification, above, are also subject to prior clearance if and to the extent that they exceed the monetary thresholds described in 2.5 Jurisdictional Thresholds, below.

Likewise, actions that result in the acquisition of control over certain assets, even if the transactions are not strictly speaking transfers, such as the conversion of non-voting stock to common stock or the replacement of a beneficiary of a trust or the replacement of a general partner or manager of a fund, may also trigger a filing requirement.

Neither the FCA nor its regulations includes a definition of 'control'. However, the merger control guidelines issued by the COFECE make reference to the definitions of control used in certain precedents set by the Supreme Court and in other Mexican statutes, such as the Securities Market Act and the Regulations of the Industrial Property Act. These resolutions, laws and regulations consider that control exists when the relevant person or entity:

  • can impose, directly or indirectly, decisions in the shareholder meetings or equivalent body of a company;
  • can appoint or remove the majority of the members of a company’s board;
  • holds rights which allow it to, directly or indirectly, vote with more than 50% of the shares of a company;
  • determines, directly or indirectly, the management, strategy or main policies of a company, either through the ownership of shares, a contract of by any other means; and/or
  • has the capacity or the right to appoint high-level executives such as directors, managers, relevant executives or main representatives of a company.

Thus, while the acquisition of a majority of the voting stock of a corporation is certainly deemed an acquisition of control, the acquisition of minority stakes (or even non-equity interests) may still be considered as acquisition of control if it falls within at least one of the examples set forth above.

The statutory thresholds set forth in the FCA are the following (assuming for all amounts an exchange rate of MXN19.35 per USD1.00). If any of these thresholds is exceeded, a filing requirement will be triggered.

  • Price allocated to Mexico – if the price allocated to the Mexican assets or entities involved in the transaction exceeds approximately USD78 million.
  • Assets/sales of target in Mexico – if the transaction results in the acquisition in Mexico of at least 35% of the total assets or capital stock of an economic agent the total assets or sales in Mexico of which are in excess of USD78 million.
  • Assets/capital stock of target and assets/sales of participants in Mexico – if the transaction results in the acquisition in Mexico of assets or capital stock in excess of approximately USD36 million, provided that the joint assets or annual sales in Mexico of the economic agents involved in the transaction amount to at least approximately USD209 million.

These thresholds apply to all industries and sectors.

Pursuant to prevailing criteria of the agencies, the threshold calculations shall be made based on the amounts established on the most recent audited financial statements of the involved entities. If the parties do not generate audited financial statements, the calculations shall be made with current internal financials. To the extent figures in the relevant financial information are expressed in a currency different to the Mexican peso, the same shall be converted to pesos pursuant to the official exchange rate published by the Mexican Central Bank (Banco de México).

The COFECE applies the first threshold exclusively to:

  • transactions involving only the acquisition of Mexican companies or assets; and
  • global or international transactions in which the parties have allocated (in the relevant acquisition agreement or during the negotiations) a portion of the price or consideration specifically to the Mexican companies or assets.

The value of assets or stock that shall be considered for the calculation of the aforementioned thresholds is the book value or the commercial or market value (ie, price), whichever is the higher. In the case of the third threshold as applied to the acquisition of shares, the COFECE would, for instance, look at the higher of the price paid for such shares and the pro rata value of the underlying assets of the target. If and only to the extent that such shares have a book value on the records of the seller, the COFECE would look at this book value.

The first threshold is calculated based on total consideration, in the case of domestic transactions, and consideration allocated to the Mexican portion of the deal (ie, the shares of the Mexican entities or the Mexican assets within the perimeter of the transaction). For the second threshold, the relevant entity to look at in the case of a share deal is the target, or the seller in the case of an asset transaction, to determine if 35% or more of the shares or assets of the target are being sold. If so, then the Mexican assets and turnover of the target or seller must be looked at in order to assess if the second prong of the test is met.

As to the determination of qualifying sales (turnover), the statutory language in the FCA only requires that sales in Mexico be considered in relation to the monetary threshold. While the statute provides no further description or definition of what qualifies as sales in Mexico, the COFECE has provided guidance by stating that generally, sales originated in Mexico are considered to be those which are invoiced in Mexico. Also, the COFECE has issued guidance with respect to third-party sales, noting that to the extent sales are made through independent distributors who import and distribute products of the target in Mexico, and these distributors are not part of the target’s own distribution system, the sales of the former should not be attributed to the target and therefore are not taken into consideration for purposes of notification thresholds.

For the third threshold, the analysis is twofold. First, the Mexican assets and turnover of all the economic agents that participate in the transaction (that is, the seller, including the target, and the buyer), must be looked at. It should be noted that the economic agent concept will capture the Mexican assets and turnover of all entities that control, or are controlled by, or are under the common control of, the seller and the buyer. Second, if the aggregate value of such assets or turnover exceeds the first prong of the test, then the value of the assets or shares being accumulated in Mexico, as well as the amount of the capital stock of the acquired Mexican entities, must be looked at. If any such number exceeds the second prong of the test, a filing will be required.

In order to assess if the second prong of the test is met, the relevant figures are thus the capital stock (capital social) of the target, the book value of the shares of the target or the Mexican assets being sold as reported in the financial statements of the seller and the price paid for the assets, as the agencies would look at this as a proxy for commercial value. Also, in share deals, if no book value exists for the shares being purchased, then the COFECE would, for instance, use as a proxy the amount resulting for weighing the underlying Mexican assets of target against the percentage that the acquired shares in the target represent of its outstanding capital stock.

Pursuant to the FCA, an economic agent is any individual or entity, with or without a corporate nature (even non-profit organisations), as well as any government entities, associations, business chambers, professional associations, trusts and any other form of participation in economic activity.

Generally speaking, transactions involving foreign entities which have no assets and/or sales in Mexico are not subject to merger control clearance. While the FCA does not necessarily require physical or legal (ie, by way of a subsidiary) presence in Mexico to trigger a filing, either the ownership or control of assets located in Mexico or the existence of sales originated in Mexico are required to trigger a filing.

Foreign-to-foreign transactions are therefore subject to merger control in Mexico only insofar as the filing thresholds described above and their specific conditions are met.

As noted above, the thresholds set forth in the FCA are solely monetary and there are no market share thresholds. A transaction will therefore be subject to a merger control filing if and to the extent that the aforementioned thresholds are exceeded, regardless of the market shares of the parties before or after giving effect to the transaction.

As noted in 2.3 Types of Transactions, above, joint ventures qualify as concentrations and may therefore require prior clearance to the extent the aforementioned filing thresholds are exceeded. There are no distinctions regarding which types of joint ventures may or may not be subject to a filing.

The Mexican competition agencies are empowered under the FCA to investigate all transactions except for those which were notified to and cleared by them. The statute of limitations to exercise these powers is ten years in the case of transactions that exceeded filing thresholds, and one year in the case of transactions that were not subject to a merger control filing, measured in each case after the closing or consummation of the relevant concentration. As noted in 2.2 Failure to Notify, above, failure to notify a reportable transaction may result in fines of up to 5% of the taxable revenue in Mexico of the involved parties.

The FCA also prohibits illegal concentrations (ie, concentrations that harm competition). Should the agencies conclude that a transaction qualifies as an illegal concentration, the economic agents engaging in the transaction may be fined up to 8% of their taxable revenue in Mexico and may be ordered to effect a total or partial divestiture of the illegally acquired assets.

Reportable transactions may not close until after the COFECE and/or the IFT, as applicable, have cleared them (see 2.2 Failure to Notify, above). This is a statutory mandate of the FCA and cannot be waived or exempted. Also, as noted above, parties that consummate a transaction without previously getting clearance could face significant fines for gun-jumping.

See 2.1 Notification, 2.2 Failure to Notify and 2.12 Requirement for Clearance Before Implementation, above, on gun-jumping risks. Also, parties that implement a transaction before getting clearance may run into information-sharing risks. It is important to note that the FCA punishes as a per se offence the exchange of competitively sensitive information between competitors. The parties to a horizontal merger that implement the merger before obtaining clearance and exchange competitively sensitive information to that end may therefore risk facing a cartel investigation, especially if the proposed transaction is not ultimately cleared and closed.

There are no exemptions to the suspensive effects of pre-merger filings under the FCA.

As noted in 2.14 Exceptions to Suspensive Effect, above, there are no exceptions to the suspensive effect of the FCA on reportable transactions. Carve outs, on the other hand, are neither permitted nor prohibited under the FCA. Unlike what occurs in other jurisdictions, neither the FCA nor its regulations set forth any procedure regarding carve outs or the authorisation thereof by the competition authorities.

It is thus left to the parties to determine if, with respect to a particular transaction, a carve-out is feasible so as to allow global closing while at the same time adequately ring-fencing Mexico in a way that the aforementioned gun-jumping and information-sharing concerns are properly addressed.

In practice, the parties to a global transaction that will effect a closing around Mexico usually discuss the process with the agencies as well as the steps being taken to address the concerns described above.

There are no specific deadlines for the notification of a transaction, but as the FCA mandates a suspensive effect on reportable transactions, a filing must occur and clearance must be obtained prior to closing  (see 2.2 Failure to Notify, above).

The FCA only requires that the parties to a reportable transaction include, as part of their filing, drafts of the agreements or deeds pursuant to which the proposed transaction will be effected. Accordingly, the parties could notify a transaction even before having signed binding agreements. In practice, even term sheets are admissible as long as the same allow the agency to adequately assess the proposed transaction. It should be noted, however, that filing before final agreements are signed, will require the parties to ensure that the final terms of the executed agreements do not materially differ from those included in the drafts attached to the filing. Should the relevant agency determine that the transaction closed on terms which are different from those originally notified to it, it could take the position that the parties closed a transaction not authorised by it and fine them (see 2.2 Failure to Notify, above).

In certain cases, the parties may file even in the absence of an agreement, as long as the relevant features of the concentration are adequately set forth in the application. For example, if the filing requirement is triggered by a proposed hostile takeover or a capital injection, among other things.

Both the COFECE and the IFT collect filing fees. The filing fee for 2019 amounts to approximately USD9,500. Evidence of payment thereof must be attached to the relevant filing, or the filing will not be accepted. As filing fees are collected through a contributions payment system managed by the Federal Tax Service, payments must be made by entities with a Mexican taxpayer registration.

Under the FCA, both sellers and buyers have the burden of notifying a reportable transaction. Accordingly, failure to so do may result in fines for both parties (see 2.2 Failure to Notify, above).

As to the persons that must make the actual application, the merger control guidelines issued by the competition authorities require that the parties directly involved in the relevant transaction submit the application. While in principle such parties are the buyer and the seller, the COFECE has, for instance, taken the position that the parties involved in the transaction are those that execute the agreements that document it. The parties to complex transactions in which multiple entities execute the merger, purchase or similar agreement are therefore often required to justify to the agencies that only some of such entities are relevant for purposes of the filing.

Pursuant to the FCA and its regulations, the information provided in the application or attached to it must include:

  • a description of the parties to the notified transaction;
  • a notarised copy of the public deed containing the power of attorney granted to the legal representatives of the parties making the filing;
  • a copy of the organisational documents of the entities involved in the filing;
  • audited financial statements of all the parties involved in the transaction as of and for the most recently ended year;
  • a description of the ownership and capital stock of each entity involved in the transaction, identifying the controlling party (or parties) thereof, before and after giving effect to the transaction;
  • a copy of the draft of the agreement or similar instrument by means of which the transaction will be effected;
  • a description of the transaction and its objectives;
  • a description of any non-compete clauses or agreements;
  • a description of the products or services produced or rendered by each party involved in the transaction and a list of the main distributors or competitors of each such entity in Mexico;
  • a schedule setting forth the location of the plants or premises of each entity involved in the transaction and a list of their main distribution channels;
  • a description of any entity involved in the transaction that owns or controls another entity which overlaps with any other party involved in the transaction (in the case of a short-form filing, the brief must include a certification that the entities involved in the transaction do not overlap); and
  • market share information of each entity involved in the transaction.

In the case of a short-form filing, in addition to the above, the parties making the filing must submit an analysis that establishes that it is evident that the transaction will not have an anti-competitive effect on the relevant market.

In principle all information attached to a filing must be in Spanish; however, documents not originally in Spanish may be filed together with a Spanish translation of the relevant sections thereof, and the COFECE and/or the IFT may also require that full (or even certified) translations be filed. Other than the powers of attorney of the representatives of the parties making the filing (which must be apostilled or legalised if granted abroad and notarised before a Mexican notary public), photocopies of the documentation set out above will suffice for purposes of making a filing.

If the competent agency believes that the application lacks one or more items required under the FCA, it will issue a formal request for basic information. Basic information is any information of the type set forth in 3.5 Information Included in a Filing, above, that should have been included in the application. The relevant agency has a window of ten business days following the filing of the application to issue such a request, and the parties will have an equal term within which to produce the required information. If the parties fail to comply with this request, the application will be rejected. Conversely, upon fulfilment of the request, the agency will turn to the substantive review of the application. While rejection of applications is not common, it does happen.

As noted in 2.11 Power of Authorities to Investigate a Transaction, above, agencies cannot investigate transactions already cleared by them. The only exception to this estoppel is if the applicants provided misleading or inaccurate information to the agencies with their filing. Additionally, to the extent that the information is not only inaccurate but also false, the party that made false statements or included falsified documents in a filing may face criminal prosecution.

A resolution on a short-form filing must be issued within 15 business days of the date of the relevant filing, whereas resolutions pursuant to long-form filings are due within 60 business days (extendable for an additional 40 business days) from the date on which the relevant filing is made, or the additional information requested (if any) by the COFECE or the IFT is submitted. The analysis of cases where significant overlap exists or that are otherwise complex usually takes far more time depending on the particulars of each case. The maximum statutory period of review is 100 business days after a filing is made or the additional information requested (if any) by the COFECE or the IFT is submitted.

The process generally flows as follows:

  • Following an application, the competent agency will either accept the filing or, if it believes that the application lacks one or more items required under the FCA, it will issue a formal request for basic information (basic information is any information of the type set forth in 3.5 Information Included in a Filing, above that should have been included in the application). The relevant agency will have a window of ten business days following the filing of the application to issue such a request, and the parties will have an equal term within which to produce the required information (extendable for an additional ten business days). If the parties fail to comply with this request, the application will be rejected. Conversely, upon fulfilment of the request, the agency will turn to the substantive review of the application.
  • Within 15 business days of the fulfilment of a basic information request or the date of the application (if no basic information was requested), the competent agency may require additional information (ie, any information of any type which the competent agency, after having initially reviewed the application, deems necessary to issue a resolution on the application). As is the case with basic information requests, the parties will have an equal term (extendable for an additional 15 business days) to produce the required information and, should they fail to comply with the request, the application will be rejected.
  • Following fulfilment of an additional information request or the admission of an application (assuming no basic or additional information is required), the filing is deemed perfected and the 15 or 60 business-day clock described above starts ticking. If the relevant agency fails to render a decision within this timeframe (as extended, if applicable), it is statutorily deemed that the agency has no objection to the transaction and the parties may proceed to close it.

The FCA does not contemplate pre-notification discussions or informal fillings, as might be the case in other jurisdictions. The parties, however, may meet with staff of the competent agency in order to discuss a potential filing. In practice, such meetings take place and staff may provide guidance or orientation, but this is provided on an off-the-record basis and does not bind the agency in its formal review. While the general rules of the FCA require that staff treat such meetings and the information provided and the matters discussed in the same with confidentiality, as no regulation of these pre-filing discussions exists, no specific rules are provided.

Requests for information are common during the review process. Under the FCA, the authorities are entitled to issue at least two different requests for information: a basic information request and a subsequent additional information request (see 3.8 Review Process, above). The basic information request is usually made in all proceedings, whereas the additional information request is normally reserved for those transactions that require a more detailed or specific analysis of the transaction. Generally speaking, these information requests can be lengthy and burdensome on the parties.

In addition to the foregoing formal requests, informal requests are usually made to address outstanding questions of the agencies after they have reviewed the responses to formal information requests.

It is important to note that there is no phase II or similar concept in the FCA. As mentioned in 3.8 Review Process, above, the agencies usually require that the parties submit basic or additional information after a filing is made. Such requests are customary and should not be understood as an indication that a particular matter has been subjected to a more in-depth analysis.

Under the FCA, a 'short-form filing' is available to the extent that it can be established that it is evident that the relevant transaction will not have an anticompetitive effect in the relevant market. Thus, the notifying parties need to explicitly state in the application that they wish for the transaction to be analysed under short-form proceedings and that it is evident that the transaction does not entail any competition risks. It should be noted that the COFECE and the IFT apply this threshold strictly. A short-form filing is therefore generally only available when the notified transaction does not result in overlapping (note that potential competitors may also be considered to overlap with target). If this cannot be established, then a long-form notice is required. From an information perspective, the difference between short and long forms is not relevant. As a result, short-form filings are seldom used even if in theory they could lead to a faster clearance. When in doubt, a long-form filing is usually preferred as making a short-form filing that is later rejected by the COFECE or the IFT may significantly delay clearance.

The parties will generally have the opportunity to engage in informal conversations with staff and will also receive feedback on their submissions as well as any requests for information that are issued. It is therefore recommended that parties that wish to expedite their filings try to approach the authorities as soon as their filing is made in order to explain any concerns they may have and answer requests for information as thoroughly and expediently as possible in order to accelerate the review of the agencies.

The substantive test set forth in the FCA is whether a proposed transaction has the intent or effect of diminishing, harming or foreclosing competition. To apply this test, the agencies will:

  • define one or more relevant markets affected by the proposed transaction;
  • analyse the structure of such markets;
  • assess any potential anticompetitive effects of the proposed transaction; and
  • weigh the same against tangible procompetitive effects.

In the end, the relevant agency will ponder if the proposed transaction is likely to create or reinforce market power.

Generally speaking, the agencies will focus on the products/services in which the parties overlap, and will start a market definition exercise from there. In addition, the FCA allows the agencies to also assess the effects of the proposed transaction on closely related markets.

Once the markets are defined, the relevant agency will conduct a market concentration analysis pursuant to its criteria on the matter. Generally speaking, the criteria issued by the agencies state that a proposed transaction will not be deemed prima facie as problematic in a specific market if at least one of the following tests is met after giving effect to the transaction:

  • the Herfindahl-Hirschman Index (HHI) is lower than 2,000;
  • the delta in the HHI is lower than 100; or
  • the HHI is between 2,000 and 2,500, the delta in the HHI ranges between 100 and 150, and the resulting economic agent (in horizontal mergers) is not among the four largest players (in terms of market share).

There is no de minimis overlap or market size below which the agencies would automatically clear a transaction.

The agencies do take into consideration their own precedents and will generally follow these, although the COFECE has in a number of cases departed from precedents of its predecessor (COFECO). To a certain degree (generally moderate), the agencies may become interested in precedents from the US or the European Commission, especially if these deal with the specific transactions under their review. As court precedents in Mexico do not provide much guidance on critical aspects of merger control review (relevant market, market definition, substitution, market power), their impact on the agencies’ decisions is also moderate.

Generally speaking, the main concern is the creation and exercise of market power. While this will in all cases require the agencies to take potential unilateral effects as their starting point, it is common for them to also look at potential for co-ordinated effects (especially in concentrated markets). In certain transactions posing specific antitrust concerns, the agencies have focused their analysis on vertical effects, portfolio effects or access to inputs.

As noted in 4.1 Substantive Test, above, the agencies are required to weigh efficiencies, but the standard applied is, in practice, that the parties must evidence that such efficiencies will actually materialise and that they will be transferred to, or will have an impact on, the end consumer. This is a cumbersome standard which, in turn, does not apply to the agencies (as these only have to show that competition could be lessened).

The authorities do not normally consider in their analysis non-competition concerns such as national security, industrial policy, foreign investment or employment. The applicable laws and regulations will only require the competition authorities to look into such matters insofar as it is required for purposes of analysing whether these could be considered as barriers to entry or otherwise associated with competition concerns. The IFT, however, being not only an antitrust enforcer but also a regulator, may certainly take into consideration telecommunications and broadcasting policy arguments. This is a clear advantage over the COFECE, which usually struggles with these considerations in the context of transactions that take place in regulated sectors or industries.

Joint ventures are not subject to a specific competition regulation or standard. In practice, however, the agencies normally look at these ventures considering not only the effects on the affected markets but also the possible impact thereof on other markets in which the partners engage, even if such markets are the subject matter of the joint venture. Specifically, the agencies assess if the proposed venture facilitates collusion or anticompetitive information exchanges between the partners, especially if the same are or may be considered competitors. To mitigate these risks, the parties would generally be well advised to have contractual language that evidences the existence of adequate firewalls. Depending on the duration and other characteristics of the joint venture, the agencies may pursue this with different degrees of scrutiny.

As noted above, Mexico is a suspensive jurisdiction and therefore a reportable transaction may not close before the same is cleared by the competent agency. The FCA empowers the agencies to plainly object to a notified transaction, in which case the transaction may not go forward, or to grant its conditional approval of the transaction, in which case the transaction may only close if and to the extent that the parties accept the conditions or remedies imposed by the agencies.

The FCA requires that the agencies convey to the parties if, after completing their analysis, they have competition concerns related to the transaction. If so, the authorities will let the parties know of these concerns during a formal meeting to take place at least ten business days before the matter is scheduled to be discussed by the Board of Commissioners of the relevant authority. The parties may then propose remedies, which may include behavioural and/or structural remedies, and which will restart the clock for the purposes of the authority issuing a resolution.

In practice, the agencies share their concerns during the course of their analysis of a transaction and staff will usually communicate these as they are identified, giving the parties a chance to discuss before a report is handed to the Commissioners. If staff are satisfied with the explanations and arguments of the parties, they will propose the plenum that the transaction be approved. If staff are not persuaded, they will likely ask for remedies. If the parties accept these, their report to the Commissioners will include the conditions and their recommendation to approve the transaction subject to them. To the extent that they do not accept the conditions proposed by staff or do not agree with them, they can ask to have an audience with the Commissioners and express their views. If the parties are unable to persuade the agency, formal notice along the lines stated above will be given stating the concerns identified by the agency and opening a window to the parties to propose remedies. The agency will then make a final decision and any conditions will be imposed on a 'take it or leave it' basis.

Under the FCA, remedies must be directly tied to the competition concerns identified in the review process.

There are two types of remedies contemplated in the FCA:

  • structural remedies, which may entail divesting overlapping businesses, rights, equity interests or other assets to third parties; and
  • behavioural remedies, which may entail abstaining from carrying out specific actions, modifying or eliminating terms or conditions from certain arrangements, allowing access to competitors to certain facilities or services, or having to deal with competitors.

When the remedies demanded by the agencies are structural in nature, ex-ante fixes are usually required whereas ex-post transfers are seldom accepted.

Among others, behavioural remedies imposed by the agencies have included waivers to the right to appoint representatives to the board of directors of a company, changes to non-compete agreements, waiver of exclusivities, and waiver or withdrawal of anti-dumping claims. Structural remedies, on the other hand, have consisted in conditioning clearance of a transaction to the prior transfer to a third party of a portfolio of products.

The parties are able to begin negotiating remedies with the authorities even if no concerns have been formally identified by them, although the authorities do have the ability to propose remedies on their own. Recent cases and experience show that although the authorities will analyse remedy proposals made by the parties, they will generally request adjustments to the same in order to adequately address the competition concerns that they have identified. The specifics of the proceedings for remedy proposals are addressed in 5.2 Parties' Ability to Negotiate Remedies, above.

The authorities are far more inclined to accept ex-ante divestitures, as they are generally reluctant to accept ex-post remedies that would require them to supervise the actual divestment. If and to the extent that an ex-post divestiture is accepted, failure to comply with this may result in principle in administrative fines and sanctions, and may even result in the unwinding of all or part of the transaction (although the practicalities associated with this may make such a scenario implausible). Not complying with an ex-ante remedy, on the other hand, would only mean that the parties would be unable to close the main transaction.

The authorities will issue a formal decision which either objects to the closing of a transaction, or consents to it (either unconditionally or subject to remedies). Such a resolution is notified to the parties through their common representative, whereas a 'public version' (ie, a redacted version of the decision suppressing confidential information) thereof is made publicly available through the website of the relevant agency a few days later.

The requirement for remedies or rejection of transactions is not based on whether or not the transaction is a foreign-to-foreign transaction, but only on the merits of the case vis-à-vis competition issues that arise in Mexico. Accordingly, global transactions which have been cleared in other jurisdictions have in fact been conditioned in Mexico when the agencies have identified concerns specific to the Mexican market. In other cases, global transactions conditioned elsewhere have been cleared in Mexico.

The authorities will normally request to review all ancillary agreements and restraints (including non-compete and non-solicitation arrangements) as well as exhibits and annexes related to a particular transaction. Therefore, ancillary restraints are also evaluated in light of the relevant transaction and its effects over the relevant markets. Separate notifications for ancillary restraints are due only in very specific cases such as cross-participation opinions related to the hydrocarbons industry.

The merger review process is not open to parties other than the applicants. In other words, only the applicants have standing. Having said that, third parties (customers, NGOs, associations suppliers, among others) who have an interest in the transaction may file briefs and evidence before the relevant agency, which in turn may decide whether it takes such information into consideration or not. Additionally, should the agency wish to obtain additional information, it may issue information requests to any third parties to corroborate the statements made by the parties or define the relevant markets and the implications of the transaction.

The authorities normally contact third parties in complex cases or in those where not much information related to the relevant market is available. The authorities usually make such contact by means of a formal request for information. In the case of remedies, the agencies have authority to contact third parties to test the feasibility of the remedies that are being proposed, but these powers are seldom used.

The notification file is strictly confidential and may only be accessed by the parties to the transaction. However, an extract of the transaction is published on the website of the relevant agency once the application is admitted. This extract contains only the name of the parties and the date when the transaction was filed.

Once a resolution is issued and notified to the parties, the relevant agency publishes a 'public version' of the resolution on its website.

The authorities generally co-operate with those of other jurisdictions. The COFECE, for instance, is in constant contact with agencies from other jurisdictions, particularly those of the US and Europe. Their co-operation involves not only general policy matters but also sharing of information related to a particular transaction. In such cases, the authorities will require the parties to produce a waiver so that they can share and receive information related to the filings the parties have made in other jurisdictions.

As noted in 1.3 Enforcement Authorities, above, final decisions of the agencies are subject to judicial review by the federal courts specialising in competition, telecommunications and broadcasting matters. The parties to a transaction that are not satisfied with a resolution may therefore petition for judicial review through an amparo claim. Such a proceeding will require the parties to state the constitutional rights breached or violated by the agency during the course of the merger control process and/or the resolution. 

Amparo claims must be filed within the 15 business days immediately following the date on which the relevant resolution is notified to the parties. Once the amparo claim has been accepted, a constitutional hearing needs to be scheduled within the next 30 business days, on the understanding that constitutional hearings may be rescheduled and postponed as required by the relevant federal specialised judge. Afterwards, there is a period of 90 business days counted from the day on which the constitutional hearing took place for the relevant federal specialised judge to issue a resolution. In practice, however, amparo proceedings take around 16 months after the filing of the amparo claim to be adjudicated, including appeals before such federal courts.

Currently, there are important amparo claims related to pre-merger filing proceedings in the retail industry challenging decisions of the COFECE to object to certain transactions or reject applications. The effectiveness of the amparo proceedings in the context of merger control filings is limited, however, as the parties will usually have few or no incentives to challenge a decision and undergo the amparo process considering the amount of time and effort required to challenge the decisions, and the usually pressing timing of the transactions.

Third parties may not in principle challenge a clearance decision by means of an amparo proceeding unless extraordinary circumstances arise. There does not seem to be a particular case in which these circumstances have arisen.

Currently, there are no proposed changes to the FCA being discussed. There are continued efforts from the agencies to issue guidance and regulation on certain critical issues, such as the recent effort by the COFECE to launch a public consultation concerning a process to assert legal privilege before it. This consultation appears, however, to have fallen into stagnation.

As noted in 2.2 Failure to Notify, above, the COFECE has fined a number of entities and even a notary public for failing to notify reportable transactions. Along the same lines, as noted in 5.8 Prohibitions and Remedies for Foreign-to-foreign Transactions, above, the COFECE has conditioned global transactions which gave rise to competition concerns in Mexico, even if these were not conditioned elsewhere or were subject to different conditions. Among others, a global swap of animal healthcare and consumer healthcare businesses was conditioned by the COFECE due to concerns specific to the Mexican market, whereas recent global combinations in the paid television and content distribution markets were looked at by the Mexican agencies from perspectives which were different to those of the enforcers in other jurisdictions.

An important trend in competition is that the agencies, and especially the COFECE, are focusing on competition concerns in pre-merger efforts, such as information exchanges and gun-jumping. At the same time, the COFECE is especially interested in combinations in certain industries, such as transportation, pharmaceuticals and oil and gas, as it believes that these markets are key to the economic development of the country.

From a practical perspective, a concern that commonly surfaces in merger control filings, especially before the COFECE, is the burdensome requests for information that the agency issues, which usually extend far beyond the scope of the relevant transaction. Along the same lines, the protection of legal privilege and the observance of due process in merger control proceedings is a common concern of practitioners.

Galicia Abogados, S.C.

Blvd. Manuel Ávila Camacho #24
7º Piso. Col. Lomas de Chapultepec,
C.P. 11000, México, D.F.

+52 (55) 55 40 92 00

contacto@galicia.com.mx www.galicia.com.mx
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Law and Practice in Mexico

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Galicia Abogados, S.C. has a comprehensive and sophisticated competition and antitrust practice, the services of which range from ordinary merger control filings to critical and complex antitrust matters, including challenged M&A transactions, cartel and other antitrust investigations, leniency applications, complaints before the competition authorities seeking relief for anticompetitive behaviour and general advice on day-to-day antitrust and competition law issues. Galicia features a competition and antitrust group that combines talented practitioners with considerable legal backgrounds in other disciplines and sectors, which in turn allows the firm to better respond to the needs of its clients. Along the same lines, working closely with its litigation department in court proceedings involving competition cases has been of particular importance in ensuring a comprehensive and strategic provision of services to its clients.