The Federal Economic Competition Law (FLEC) and its Regulatory Provisions, issued by both the Federal Economic Competition Commission (COFECE) and the Federal Telecommunications Institute (IFT), set forth the applicable procedures and criteria for the transactions that need to be reviewed by COFECE and the IFT before such transactions close or have full effect in Mexico.
Both authorities have issued regulatory provisions that act as regulations to the FLEC in their respective sectors.
In addition to the above, COFECE and the IFT have issued non-binding Guidelines for the Notification of Concentrations (“Merger Guidelines”, which were recently amended to include more input on joint ventures), and COFECE also included a chapter on collaboration agreements and joint ventures between competitors in their Guidelines on Information Exchange Between Economic Agents (the “Information Exchange Guidelines”) as such type of agreements may or may not fall into the definition of “concentration” under the FLEC. It is important to note that such Guidelines are not binding and serve only as a practical handbook for the parties involved in a notifiable transaction (notifiable transactions are defined by certain thresholds, see 2.5 Jurisdictional Thresholds).
There are certain provisions related to antitrust and economic competition in the Federal Telecommunications and Broadcasting Law (FTBL) which impose the obligation on the IFT to preserve the competition in the telecommunications and broadcasting sectors, specifically in relation to the direct or indirect concentration of agents that participate in such sectors.
Competition related provisions are also included in laws relating to specific sectors, such as transport, energy, finance and commerce.
COFECE and the IFT are the competent authorities in antitrust matters in Mexico. The IFT is the relevant competition authority and regulator for the telecommunications and broadcasting sectors, and COFECE is the relevant authority for all other markets.
Under the FLEC, COFECE and the IFT have procedures in place to determine which one is the competent authority in a certain case. In practice, this procedure has resulted in conflicts between both authorities claiming jurisdiction over the same case, such as those involving the digital economy.
There are no other authorities involved in the review process of a merger and the authorities' decisions are deemed to be final. However, these final decisions are subject to judicial review by specialised federal courts on competition, telecommunications and broadcasting, as further explained in 8.1 Access to Appeal and Judicial Review.
If a transaction meets any of the three monetary thresholds in the FLEC, then a notification is compulsory. If a transaction does not meet any of the filing thresholds, the parties may file a voluntary notification.
However, even if a transaction meets a filing threshold, it may also fall under one of the following filing exemptions:
Additionally, the exemption mentioned on 1.2 Legislation Relating to Particular Sectors would also be applicable to the telecommunications and broadcasting sectors.
The transitory articles of the FTBL also set forth an exemption to the ex-ante review of certain transactions in the telecommunications and broadcasting sectors. Such exception applies when a dominant agent exists in the corresponding relevant market and if such dominant agent is not a party of the notifiable transaction. In this case, once the transaction exempted from the ex-ante filing closes, the involved parties still need to submit a post-closing notification describing the transaction and including all the elements required by the FLEC and the administrative provisions applicable to the IFT.
The FLEC provides that parties to notifiable transactions are subject to a suspensory obligation which prohibits them from completing the transaction before receiving clearance from COFECE or the IFT, as applicable. Notably, completion of the transaction under the FLEC before clearance may include fulfilling all the conditions precedent to closing.
Any transaction completed in violation of the suspensory obligation may be considered null and void, and the parties’ may still be liable in administrative, civil or criminal procedures.
The FLEC includes a sanction of up to 5% of the parties’ accruable income if they fail to file a notification of concentration and close such transaction.
COFECE has imposed fines as a sanction to companies for failing to file a notification, either by finding out of a potentially notifiable transaction though its analysis of the national and international press and also in the context of other transactions where it may question how and when the seller acquired the target. The most recent fines are listed in 9.2 Recent Enforcement Record.
Fines are public, included in the non-confidential versions of COFECE’s and the IFT’s decisions available in their websites, and also in press releases and periodical reports published by COFECE.
All types of transactions that involve an acquisition or accumulation of assets or shares are caught by the definition of “concentration” under the FLEC. Such definition states that “[…] a concentration shall be understood as a merger, acquisition of control, or any other act by means of which companies, associations, stock, partnership interest, trusts or assets in general are consolidated, and which is carried out among competitors, suppliers, customers or any other economic agent”.
Other transactions that do not involve a direct transfer of shares or assets may also be caught and a case-by-case analysis of the effects of such arrangements is warranted to confirm whether or not they fall under the FLEC’s definition of “concentration”.
Internal restructurings or reorganisations, as mentioned in 2.1 Notification, are exempted from the obligation of filing a notification as long as it (i) does not involve any third parties that were not part of the pre-reorganisation structure, or (ii) grants control to a shareholder that did not have it before the restructure.
Joint ventures and collaboration agreements between competitors may fall into the FLEC’s definition of “concentration” and thus require clearance following a merger review process.
Other transactions such as donations, inheritances, transfers or rights, and even certain leases may fall into the definition of “concentration” and thus be subject to review.
There is no definition of control in the FLEC or its Regulatory Provisions. However, in its non-binding Guidelines, COFECE refers to the definitions of control included in decisions of Mexico’s Supreme Court of Justice and also the ones included in Mexico’s Stock Exchange Law and the Regulatory Provisions of the Industrial Property Law.
The Supreme Court decisions refer to factual and actual control, and provide for antitrust purposes that control can be (i) actual if it refers to the effective conduct of a controlling company towards its subsidiaries, or (ii) factual when it is potentially possible to carry it out by means of persuasive measures that can occur between companies even when there is no centralised and hierarchical legal link, but there is real influence over the decisions of certain economic agents.
The FLEC has no safe harbour thresholds, so acquisitions of minority or other interests less than control that meet any of the monetary filing thresholds will be caught as a notifiable concentration.
All transactions/concentrations that occur or have effect in Mexico are subject to the FLEC and may be investigated by COFECE or the IFT, regardless of whether they are notifiable or not. If a transaction does not meet any of the monetary filing thresholds, then COFECE and the IFT have the right to investigate them for a period of one year from the date of their closing if they are not believed to be unlawful concentrations, and for ten years if they are believed to be illegal.
Article 86 of the FLEC sets forth three monetary thresholds that trigger the obligation of economic agents to notify concentrations before the investigations are undertaken (the “Notification Thresholds”).
Below are extracts from the Notification Thresholds contemplated in Article 86 of the FLEC and their analysis:
"Article 86. The following concentrations must be authorised by the Commission before their execution:
When the originating act or sequence of acts, notwithstanding the place of performance, are worth within Mexican territory, directly or indirectly, an amount in excess of the equivalent of 18 million daily units of measure and update (unidades de medida y actualización or UMAs)."
This Notification Threshold is based on the value of the transaction (eg, purchase price) expressly allocated to the companies or assets located in Mexico.
To the extent that a transaction provides for the payment of a consideration or purchase price with respect to Mexico and/or if such allocation is equal to or more than 18 million daily UMAs (ie, currently the amount of MXN1,613,160,000), this Notification Threshold would be reached and a pre-merger filing with COFECE or the IFT will be required.
"When the originating act or sequence of acts, imply the accumulation of 35% or more of the assets or stock of an economic agent, whose annual revenues originating in Mexican territory or assets in the country are worth an amount in excess of the equivalent of 18 million daily UMAs."
This Notification Threshold combines two different tests; both tests should be met in order for the obligation to submit a notification of concentration with COFECE or the IFT to be mandatory. This Notification Threshold applies only in the case of (i) an acquisition of 35% or more of the assets or shares of an economic agent, and (ii) if total assets or annual revenues (located/originated in Mexico) are worth more than 18 million daily UMAs (ie, currently the amount of MXN1,613,160,000).
To the extent that: (i) a transaction implies the acquisition of 35% or more of the total assets or shares of a certain Mexican company (directly or indirectly); and (ii) the annual revenues originated in Mexico for the last fiscal year, or total assets located in Mexico of the group to which such a company belongs, exceed MXN1,613,160,000, then this Notification Threshold would be reached and a pre-merger filing with the COFECE will be mandatory.
"When the originating act or sequence of acts imply an accumulation within Mexican territory of assets or capital stock in excess of the equivalent of 8.4 million daily UMAs, and two or more of the economic agents participating in the concentration have annual sales originating in Mexican territory or assets in Mexican territory which are worth, jointly or separately, an amount in excess of 48 million daily UMAs."
This Notification Threshold also combines two different tests: (i) the accumulation in Mexico of assets or capital stock of Mexican companies exceeding 8.4 million daily UMAs (currently MXN752.8 million); and (ii) the total assets located in Mexico, or the annual revenues originated in Mexico of the corporate groups to which the target, seller and purchaser belong to jointly or separately, exceed 48 million daily UMAs (currently MXN4,301.7 million). Both tests should be met in order for the obligation to submit a notification of concentration with COFECE or the IFT to apply.
The value of the UMA is updated every January, with effect from 1 February of each year.
See 2.5 Jurisdictional Thresholds for specific comments on the calculation of each Notification Threshold.
For the calculation of the revenues, the parties shall consider the value included in the general balance of the most recent available audited financial statements.
For the total assets value, the parties shall consider the higher value of either the one included in (i) the “total assets” listed in the general balance sheet of the most recent audited financial statements, or (ii) the fair market value considering assets.
In this regard, if the assets or revenues are calculated in a foreign currency, they shall be converted to settle obligations in foreign currency payable in the Mexican Republic using the exchange rate published daily by the Bank of Mexico in the Official Gazette of the Federation, which is lower during the five days prior to the notification being made. This causes an obvious problem for transactions that may be just below a filing threshold, since the exchange rate may fluctuate between the signing of the agreement and the closing of the transaction. It is advisable for parties in such situations to monitor the exchange rate fluctuations and agree on a course of action on how to handle a potential obligation to file a notification close to the closing of a transaction.
The Notification Thresholds set forth three different filing thresholds (see 2.5 Jurisdictional Thresholds).
The first threshold refers exclusively to the value allocated to the transaction. The second threshold focuses only on the target and covers both direct and indirect acquisitions of Mexican shares or assets. Therefore, the audited financial statements of the Mexican entities being acquired shall be reviewed to determine if the threshold is met or not. The third threshold has two tests: (i) the first test looks only at the Mexican shares and assets being directly or indirectly acquired; and (ii) the second test looks at the Mexican revenue and Mexican assets of both the seller and the buyer on a “group-wide” basis. There is no definition or criterion on what “group-wide” comprises so a conservative approach is usually followed to identify which group entities have presence in Mexico and to determine their revenues and assets for the purpose of this calculation.
Neither the FLEC, the Administrative Provisions nor the Merger Guidelines provide for the scenario of material business changes that may change the figures of a business’s financial statements from the close of its last fiscal year to the date of the potentially notifiable transaction. In such scenarios, it is advisable to carry out a detailed analysis to confirm if the transaction is notifiable or not, given that the guidance is to base such assessment on the most recent audited financial statements available.
Foreign-to-foreign transactions may only be subject to merger control review in Mexico when the transaction involves the indirect acquisition of Mexican shares or assets, and if any of the above Notification Thresholds are met.
Since the Notification Thresholds are monetary-based and look at Mexican revenues, assets and capital stock that could be indirectly acquired in a foreign-to-foreign transaction, if a target has no sales nor assets in Mexico, it is unlikely it would be subject to a filing in Mexico.
There are no market share-based jurisdictional thresholds in Mexico; the FLEC only provides for monetary based thresholds. Please refer to 2.5 Jurisdictional Thresholds for further information.
Joint ventures in Mexico may be subject to merger control if the joint venture vehicle or the joint venture agreements trigger any of the Notification Thresholds.
The Merger Guidelines set forth the following elements to be considered to determine if the parties involved are in the presence of a joint venture subject to a pre-merger filing before COFECE: (i) term; (ii) independence; and (iii) scope.
Additionally, it lists the following types of joint ventures:
Both the IFT and COFECE may investigate any and all transactions that do not meet the Notification Thresholds. The statute of limitation for these specific cases is one year after closing of such transaction.
Notwithstanding the foregoing, if a non-notifiable transaction results in an unlawful concentration, COFECE or the IFT would have a period of one year starting from the closing of such transaction to investigate it. Unlawful concentrations are those that have as their purpose or effect to obstruct, diminish, harm or impede free market access and economic competition.
COFECE and the IFT may not investigate transactions previously reviewed and approved by the authorities, as long as such transactions were closed in the same terms and conditions as they were notified, and no false information was submitted for obtaining the corresponding approval.
The FLEC provides that the closing of a notifiable transaction (including transactions that are voluntarily notified) is subject to a suspensory obligation, prohibiting the parties from completing the transaction prior to receiving clearance from COFECE or the IFT, as applicable.
The wording of the FLEC can be interpreted as a factual distinction between “failing to file” and “gun-jumping”. In this regard, the FLEC includes a sanction of up to 5% of the parties’ accruable income in the event that they do not submit notification of concentration and close such notifiable transaction. The FLEC excludes actual gun-jumping, which would happen if a notifiable transaction is submitted to the relevant competition authority and the parties close the transaction before obtaining clearance.
Notwithstanding the absence of a specific gun-jumping sanction, if such a transaction is one that may be considered illegal under the FLEC, then fines of up to 8% of the parties’ accruable income may be imposed.
A transaction will be deemed illegal if it has the object or effect of hindering, diminishing, damaging or impeding competition and free access to the markets, and COFECE will take as an indication that a transaction is illegal if it confers or increases market power, establishes barriers to entry, or facilitates the commission of cartel conducts or abuse of dominance.
So far, while COFECE and the IFT have fined companies for failing to file, fines for actual gun-jumping involving a notified transaction that closed before receiving clearance have yet to be made public, if they have been imposed to this date.
The FLEC does not include any exemption to the suspensory obligation which prohibits economic agents to close a transaction prior to receiving clearance.
It is not possible to seek a waiver or derogation of the suspensive effect, regardless of the context of the transaction.
In the case of acquisitions of failing firms, the Merger Guidelines expressly acknowledge that there is no specific procedure to process filings of this type of transaction, and they focuses on providing guidance on the type of information and evidence the parties must furnish in case significant market concentration results from the intended transaction. However, no waiver or suspensive effect is granted, given that it is not provided for in the FLEC.
There are no circumstances where the IFT or COFECE may permit closing a transaction with effect in Mexico before clearance is granted.
On a case-by-case basis, the parties may explore a carve-out structure that prevents effects from taking place in Mexico while closing a foreign-to-foreign transaction in Mexico, and discuss the circumstances and the structure with the reviewing authority on the understanding that there is no legal provision that regulates this or provides any guidance on what may or may not be acceptable to the reviewing authority.
Transactions must be notified before any of the following occurs:
Failing to submit a notification before such deadlines would result in a failing to file sanction, as described in 2.2 Failure to Notify.
COFECE and the IFT do not require a specific agreement prior to the notification; the parties may submit a description of the transaction, the type of transaction and drafts of the documentation to be executed, and if applicable, draft of the non-compete clauses to be undertaken by the parties.
There are no prohibitions regarding a filing to be made even where there is nothing in writing, however, the description of the transaction is highly important, as COFECE has imposed fines on agents that carry out the closing in different ways than those described in the notification. For example, if COFECE approved a transaction in which “X” company of certain economic group would perform certain actions, and in the end “Y” company of the same group performed them, this has led to the imposition of fines as the closing was different from the one described in the initial notification.
Therefore, the parties must be extra careful in providing a detailed description of the transaction and cover all the possibilities regarding closing, and always include all the available information in their submissions.
The filing fees are set forth in the Federal Duties Law which is updated every year. For 2020, the applicable filing fee to be paid is of MXN196,347.00 (approximately USD9,800).
Proof of payment of the filing fees must be included with the initial filing of the notification.
Under the FLEC, all parties to a notifiable transaction are obliged to file the notification.
COFECE’s criteria is to have all the signing parties to the main transaction documents as filing parties to the notification. Guarantors and special purpose vehicles may be excluded from this if previously discussed and agreed with COFECE.
If a transaction involves several sellers or acquirers belonging to the same economic group, the transaction may be notified by the entity or individual controlling such group, on the understanding that COFECE and the IFT may require any member of the group involved in the transaction to adhere to the notification process.
A filing must include a series of documents that are required by the FLEC. Absence of such documents will result in a Request for Basic Information being issued and, failure to submit such required information, will result in the dismissal of the filing.
The documents and information required by the FLEC may be aggregated into three main categories of documents and information:
It is important to keep in mind that COFECE or the IFT have the authority to request additional information and documentation, which they systematically do, with respect to the parties and/or the transaction.
In this regard, in transactions with overlaps, and in addition to market-specific information and economic and competition related documents and information, COFECE and the IFT generally requests additional information, such as:
Likewise, both COFECE and the IFT allow the parties to provide photocopies of all documents, except for the powers of attorney that evidence the authority of the persons submitting the notification, which shall be submitted in original. If the power of attorney is granted abroad, then it must be legalised or apostilled in order to be acceptable for COFECE. If the power of attorney is granted in a country that is a signatory party to the (i) Protocol on Uniformity of Powers of Attorney which are to be Utilized Abroad, of the Organization of American States dated 2 February 1940; and/or (ii) the Inter-American Convention on the Legal Regime of Powers of Attorney to be Used Abroad, of the Organization of American States dated 30 January 1975, then the requirements and provisions of such international treaties must also be observed. Finally, it is not necessary to formalise such powers of attorney before a Mexican notary public.
Documents must be filed in Spanish; if in a foreign language, they may be filed if accompanied by a professional translation of their relevant sections into Spanish.
Finally, it is worth noting that since the end of January 2020, the merger review process with COFECE is now exclusively made through an e-filing system (referred to as SITEC), so every document is submitted electronically and the original power of attorney is shown to the case team in a physical meeting held between them and the parties’ competition counsels.
In the event that the parties do not at least submit the information and documentation specified in Article 89 of the FLEC, COFECE or the IFT will serve a Request for Basic Information requiring the parties to submit the missing information.
If the order is not duly addressed, the notification will be dismissed and deemed as not submitted, and the parties would be required to start the notification process all over again.
According to public information, during 2019, COFECE dismissed ten filings, which included certain filings for missing information and other reasons, such as COFECE not being the competent authority.
The party that submits false information or false claims could be fined for an amount up to the equivalent of 175,000 UMAs, which for the year 2021 would be MXN15,683,500 (approximately USD784,000), and which does not exclude possible criminal prosecution for perjury. The penalties are not public, so there is no way of knowing if they have been applied in practice.
There are no formal review phases as in other jurisdictions. The equivalent to a Phase I review period begins with the initial filing, but the authority’s term to adopt a decision only stars once COFECE or the IFT have a “complete file”. This happens when all the requests for information issued and served by the reviewing authority on the filing parties are duly answered.
In general, it may take six weeks to three months for the parties to complete the file, as it involves answering market and competition related information requests.
The standard review period is 60 business days from the date a file is deemed “complete”. In 2020, transactions with no substantive competition issues were cleared in an average of 20.3 business days (according to COFECE’s most recent published metrics; there is no information in this regard regarding IFT).
In complex transactions, the equivalent to a Phase II review occurs when the reviewing authority may extend for up to 40 business days the standard 15 business day term it has to issue a substantive Request for Additional Information (from the date the parties answered the Request for Basic Information). These Requests for Additional Information usually involve multiple rounds of extension requests by the parties to respond and follow up clarification requests from the authority that prolong completing the file until the authority is satisfied with the responses.
Once the file is complete in such a complex case, the authority has the right to extend its standard 60 business day review term for an additional 40 business days. Complex cases may take up to 100 business days (from the date the file is complete) for a decision to be adopted (which may be well over a calendar year from the initial filing).
When remedies are offered by the filing parties, the review clock stops and resets, and the authority has 60 business days to resolve it. If an amendment to the remedies is submitted, the clock stops and resets again. Generally, the reviewing authority does not use the additional period to adopt a decision, and it works to discuss and issue the decision close to the restarted term.
There is no official pre-notification discussion with the Mexican antitrust authorities. However, in practice, Mexican antitrust counsels usually touch base with COFECE or the IFT on no-name discussions of specific items of interest of a filing or transaction structure.
Both COFECE and the IFT systematically issue requests for “basic” and “additional” information. They can range from simple to extremely burdensome and vary both depending on the specifics of each case, and also on the depth and completeness of:
There is a fast-track review procedure available to the parties of a transaction, which should result in transactions being resolved 15 business days after filing. However, it is seldom used because in practice it imposes a high burden of proof on the parties and additional review obligations on the reviewing authority.
A transaction opting for this accelerated procedure shall be one in which it is “evident” that it has no purpose or effect to diminish, hinder or impede free competition and access to the markets, which are usually those that meet at least one of the following requirements:
As indicated, the filing parties have a high burden of proof, as they must file a complete set of documents and information that clearly provides irrefutable evidence that it is “evident” that the transaction has no adverse competitive effects and meets any of the above scenarios. If any documents are missing or the reviewing authority wants additional information or has any questions on the transaction, then it refuses to process the transaction under the accelerated procedure and transfers it to the standard review process.
In practice, since a transaction with no competition concerns may be resolved “quickly” under the standard review process without imposing such a high standard on the filing parties, it is common to follow this route even if a transaction may qualify for the accelerated process, as preparing an accelerated filing will usually be more burdensome than preparing a standard filing.
COFECE and the IFT have a mandate to block and investigate “unlawful concentrations”, which are transactions that have as purpose or effect diminishing, damaging or impeding competition and free access to the same, similar or substantially related goods and services.
The analysis performed by COFECE and the IFT to determine whether a transaction in an unlawful concentration, and therefore, whether it will be (i) authorised, (ii) conditionally approved, or (iii) blocked, has to consider the following:
When reviewing or investigating a concentration, the following are examples of situations that the reviewing authority will take as an indication of the existence of an unlawful concentration:
All markets where the target entity(ies) are active are subject to analysis and review by COFECE and the IFT, with a focus on the overlap of the parties, and vertical and conglomerate effects also being analysed depending on the specifics of each case.
There is no de minimis level of market share participation under which a relevant market may be considered safe from review in a notification filing.
By interpreting a section of the FLEC, the reviewing authorities require the filing parties to disclose ownership and control of, including interlocking directorates in, competitors and also substantially related products and services, not only by the filing parties and their respective corporate groups, but also their owners and controlling persons, up to the level where a controlling individual or a diluted ownership is found. The scope of this interpretation and the requirements to fulfil the expectations of the reviewing authority are usually matters of great discussion between the parties, their competition counsels and the authorities.
Under Mexican competition law, there is no system of binding local precedent. Therefore, while the authorities do look at past decisions and market definitions when defining markets, they also consider if there is a need to take a different approach in the specific case due to varying circumstances or facts.
If the authority has no precedent in a specific market, it looks at the decisions of other jurisdictions for guidance as long as there are no reasons to have a different market definition (eg, regulatory requirements that could limit a market to a national geographic definition, when it may be international in the rest of the world).
In practice, the main jurisdictions that the reviewing authorities tend to look at are the United States of America and the European Commission.
Both COFECE and the IFT will investigate all the anti-competitive effects that may arise from a specific transaction, including unilateral effects, co-ordinated effects, conglomerate or portfolio effects, vertical concerns and elimination of potential competition.
They also consider if:
COFECE and the IFT will also consider the economic efficiencies if, during the notification process, the parties are able to demonstrate that the adverse competition effects are outweighed by the efficiency gains derived from the transaction and there is a positive consumer welfare effect.
In this case, in order for the reviewing authority to consider efficiency gains, the filing parties must prove that they are directly derived from the transaction, that the adverse effects are continually outweighed by the efficiency gains, and that such gains will result in demonstrable consumer welfare benefits.
COFECE’s mandate in the review of concentrations is exclusively competition related. Other non-competition issues such as industrial policy, national security, foreign investment, employment or other public interest issues are not part of such mandate. If during its investigations other issues such as barriers to entry and essential facilities are identified, it may start a separate process to address potential market structure problems, which would result in recommendations to the executive government (federal or local) to address such market structure problems under the applicable regulatory statutes.
In the IFT’s case, it has both a competition and an industrial mandate relating to the telecoms and broadcasting sectors; it must promote the competition and efficient development of such sectors as it also regulates and supervises the use of the radio-electrical and satellite spectres and telecom networks.
There are separate authorities for non-competition issues, such as foreign investments (the National Commission of Foreign Investments, under the Ministry of Economy), and consumer protection (the Consumer Protection Federal Bureau); however, these authorities and their non-competition issues have no involvement in the adoption of a decision relating to merger review.
There are no special considerations or immunities given to joint ventures for notification purposes or the application of the FLEC.
All types of joint ventures, regardless of whether they are full-function or not, may be subject to merger review if any of the Notification Thresholds are met, for example by the combination of assets; if no thresholds are met, they could also be investigated as potentially unlawful concentrations.
A joint venture or collaboration agreement would be notified if it includes elements that are analogous to a merger, such as the accumulation of assets or shares, the legal or de facto transfer of control of the assets contributed to the joint venture, the possibility of influence or interfering in the other parties’ decisions, the establishment of a long term relationship that would go beyond the usual commercial standards, etc.
In such cases, the reviewing authority will also look at the joint venture and its governing documents and agreements for potential areas of co-ordination between joint venture parents that are competitors or vertically related.
COFECE and/or the IFT may (i) authorise, (ii) conditionally approve, or (iii) prohibit the closing of the notified transaction. In the case of non-notifiable transactions and transactions that failed to file a notification when required to do so, COFECE and the IFT may also order the unwinding of the transaction if it is found to be an unlawful concentration.
If competition concerns arise regarding a notified transaction, such situation is made known to the parties and they have the option to offer remedies to address the concerns.
If the remedies address the concerns, then COFECE and the IFT would impose conditions on the parties based on the remedy offer, on the understanding that they may modify the remedy offer as they consider appropriate.
If the remedies offered by the parties are not sufficient to address the competition concerns, the COFECE and the IFT would prohibit the parties from closing the transaction.
Decisions that impose conditions and prohibit transactions from closing usually include details on the economic and competition law analyses carried out by the authorities on the contents of the case file, which may include not only the information and document submitted by the parties, but also the investigation of the authority and the requests of information made to third parties such as customers, suppliers and competitors (who are not given access to the file, nor are considered part of the merger review procedure). The decision would set forth the theory of harm followed by the authority and analyse all the elements required to conclude that the transaction, as presented by the parties, would result in an unlawful concentration. In the case of conditioned clearances, the analysis would also include a section on how the remedies offered, and as modified by the authority when deemed appropriate, address such competition concerns.
If the reviewing authority has concerns that the adverse competitive effects of a transaction result in it potentially being considered as an unlawful concentration that would be blocked by them, they are bound under the FLEC to inform the parties of such concerns, which allows the parties to offer remedies tailored to addressing such concerns.
In any case, the remedy proposal is discussed with the authority and is ultimately analysed and approved, or modified, by the board of commissioners of the reviewing authority.
The remedy proposal made by the filing parties must be directly related to the correction of the adverse competition effects identified by the authority and they must be proportional to the intended correction.
The most favoured remedies by COFECE and the IFT are structural remedies, and the authorities tend to shy away from behavioural remedies due to the difficulty of their follow-up.
Behavioural remedies, such as prohibiting interlocking directorates or requiring a party to modify the terms and conditions of existing agreements, have faced difficulties in their enforcement.
Any remedies imposed by COFECE and the IFT must be directly related to the correction of the adverse competition effects identified by the authority and they must be proportional to the intended correction; otherwise, the parties may contest them before the Mexican courts.
The parties to a transaction that raises competition concerns are able to include a remedy proposal to the reviewing authority in their initial filing; they are able to offer a proposal before the Board of Commissioners of COFECE or the IFT convenes to vote on the transaction.
As indicated in 5.1 Authorities' Ability to Prohibit or Interfere with Transactions and 5.2 Parties' Ability to Negotiate Remedies, if competition concerns are identified by COFECE or the IFT, they shall inform the parties of the situation in a meeting convened by the technical secretary of the reviewing authority, at least ten business days before the transaction is listed for discussion and by the corresponding board of commissioners.
The parties are served an official communication containing the concerns identified by COFECE or the IFT, the parties then have until one business day after the transaction is listed for discussion to submit their remedies proposal.
In practice, remedies are negotiated with the case team and the technical secretary, and remedy proposals usually tend to reflect the results of these negotiations.
In multi-jurisdictional transactions potentially involving remedies in other jurisdictions, COFECE analyses if the remedies offered abroad address the competition concerns found in Mexico and generally accepts to rely on them if they are already binding on the parties from decisions adopted by the EC and the US antitrust authorities. If divestments and other remedies are needed in Mexico, they then impose their own set of conditions to ensure that the adverse competition effects found in Mexico are duly addressed and corrected, and proper follow-up on their compliance may be carried out in Mexico.
Once the remedies are submitted or amended, the review period to analyse the transaction is stopped and restarts, with COFECE or the IFT having a fresh set of 60 business days to adopt their decision (although they rarely use the whole period to do so). Due to limits set forth in the FLEC, the parties are able to amend their remedy proposal only once, thus once a remedy proposal is submitted, negotiation between the authority and the parties takes place, which usually ends in an agreed amendment being submitted.
When a case file is presented for review and discussion to the Board of Commissioners of COFECE and the IFT, it includes a recommendation from the technical secretary and the case team on the transaction and the offered remedies. It is then up to the Board to accept the remedy proposal and convert them into the set of conditions to be imposed in the decision. In such a determination, the Board may amend the remedy proposal and the recommendation from the case team and technical secretary and impose no remedies, modify some material or non-material elements, or even impose additional conditions to the ones offered by the parties. Likewise, if the Board deems the remedies insufficient, it can decide to prohibit and block the transaction.
When conditioning transactions, the reviewing authority effectively blocks them and conditions a reversal of such blockage to the unconditional acceptance of the conditions imposed in the conditional clearance decision.
This unconditional acceptance does not negate the parties’ right to file an amparo claim against the reviewing authority for breach of their constitutional rights.
The approach depends entirely on a case-by-case basis, but ex-ante remedies are preferred to ex-post remedies.
Non-compliance of the conditions imposed through a resolution may lead to a fine equivalent up to 10% of the parties’ income; COFECE and the IFT may also be entitled to issue an order for divestiture to unwind the transaction in case an ex-post remedy was not complied with.
The process of notification ends with the issuance of a decision by COFECE or the IFT, which is served on the parties after the board of commissioners' meeting in which the resolution was adopted. Likewise, if no decision is issued at the end of the review period, it is deemed that the transaction is approved (afirmativa ficta).
All resolutions are served on the parties and non-confidential versions are publicly available in COFECE’s and the IFT’s website.
COFECE's and the IFT’s analysis of transactions is based only on their competition effects in Mexico.
Foreign-to-foreign transactions conditioned abroad have been unconditionally cleared in Mexico due to absence of anti-competitive effects in Mexico and, conversely, foreign-to-foreign transactions cleared elsewhere have been conditioned or blocked in Mexico due to adverse competition effects being found in Mexico.
Ancillary restraints, specifically non-compete restrictions, are analysed carefully by COFECE and the IFT in the context of the type of transaction and the relevant markets involved. Non-solicitation agreements are not usually reviewed by COFECE; however, they have started investigations on the subject in non-merger cases, which may indicate an interest in reviewing them in merger cases in the future.
Ancillary restrains by themselves are not required to be notified to COFECE or the IFT outside the context of a notifiable transaction.
Third parties have no standing in a merger review process.
Any third party may file a complaint and evidence against a merger, and the reviewing authority will include such information in the case file and decide the weight it will give such complaints.
Third parties that are served requests for information under a merger review process are bound to answer them, but they are also not granted standing in the process.
Reviewing authorities usually contact clients and competitors when reviewing transactions involving relevant overlaps or vertical integrations through the issuance of written requests of information.
Market testing of remedies is possible but not commonly used by the reviewing authorities in Mexico.
The notification content is confidential, only authorised persons may access the notification files; commercial information and business secrets shall be kept confidential even after the decision is served and made public.
The identity of the parties to a transaction is usually made public in the authorities’ websites; under certain circumstances these abstracts may be kept confidential as well.
COFECE and the IFT publish non-confidential versions of their decisions in their websites after they have been served on the parties. In the case of relevant transactions involving conditions or that are blocked, the authorities usually issue press releases on the subject.
COFECE and the IFT often co-operate with other agencies around the globe for all kinds of purposes. The most contacted agencies are the European Commission, the Department of Justice and the Federal Trade Commission, with which they have a relationship not only in the context of merger review, but on competition policy matters.
In order to contact other agencies for the purpose of exchanging information about a specific transaction, they request waivers from the parties for each jurisdiction they desire to contact.
As indicated in 3.1 Deadlines for Notification, there is no appeal procedure in the FLEC for the decisions issued by COFECE or the IFT.
However, parties may contest COFECE and the IFT decisions through amparo proceedings that focus on the protection of the parties’ constitutional rights, which include due process.
The constitutional term for the amparo proceeding is 15 business days from the serving of any governmental resolution. There have been many successful appeals related to imposition and amount of fines.
A recent precedent of successful appeal of a remedy occurred in the BioPappel-Scribe transaction, where a remedy unconditionally accepted by BioPappel waiving its right to request the start of anti-dumping procedures was deemed unconstitutional as it was not directly related to the transaction itself.
Third parties can appeal a clearance decision, however, this has never been done successfully. In the context of the Disney-Fox merger, subsidiaries of Televisa, the largest Mexican television network, have contested such transaction, and public information on such cases indicates the amparo procedures are still ongoing.
There are no recent significant changes to the FLEC or its Regulatory Provisions, nor significant proposals to amend them. However, COFECE recently updated the Merger Guidelines. In this update to the Merger Guidelines, COFECE added elements that it considers in its merger review to clarify:
There have been several cases in which COFECE fined economic agents for failing to file a notification of concentration. During the past five years, COFECE has imposed the following fines.
The most recent conditions imposed were the following.
Authorities are focusing on monitoring Mexican markets and perform the necessary actions to be aware of any concentrations that may be unlawful as well as those which failed to file in time. Additionally, they continue with the defence of their resolutions in the competent courts.
Mexico: Navigating the Perils of Failing to Make a Merger Control Filing
This article aims to contribute to the efforts of international counsel to navigate the merger control process in Mexico. While there are several important questions surrounding those efforts – such as the way in which thresholds are to be applied, expected timing for clearance, information requests and required disclosure, evaluation of overlaps and potential remedies, among many others – such matters are beyond the scope of this note as we intend to focus only on the increased risks that failure to secure competition clearance, or to comply with the formalities of the merger control process, may create.
Merger control in Mexico
In recent years, Mexico has been singled out as one of the most complicated jurisdictions for obtaining merger clearance and even as having caused delays in some multi-jurisdictional transactions. To further complicate things, the Federal Economic Competition Commission (COFECE or Commission), the main competition regulator in Mexico, has stepped up its verification powers in the merger control arena, introducing new variables to this already complicated equation.
The obligation to make a filing in Mexico is triggered if a proposed transaction exceeds certain monetary thresholds, which are relatively low compared to other jurisdictions. Also unlike many other jurisdictions, acquisition of non-controlling and even minority interests, transactions which are purely financial in nature, and indirect acquisitions several corporate layers removed from the country, are still subject to a filing obligation if the aforementioned thresholds are exceeded.
Mexico is a suspensive jurisdiction and, thus, closing a reportable transaction without previously securing agency approval may result in significant fines to the parties and other unintended consequences described below.
Failure to file for clearance and self -reporting
From time to time, transactions that require prior clearance from the competition authorities in Mexico – either the Federal Telecommunications Institute (IFT), together with COFECE, the “Agencies”, in the broadcasting and telecommunications industries, and/or COFECE, in all other industries – are inadvertently closed without having secured such clearance. By failing to so do, the parties to the transaction may trigger a number of unintended consequences, such as potentially defaulting under the approvals representations in the transaction agreements and, more importantly, violating the Federal Competition Act (FCA) and eventually becoming the subject of an investigation by the competent Agency in Mexico.
Closing a reportable transaction without proper clearance is a violation of the FCA and, thus, may result in fines of to 5% of the taxable revenue in Mexico of the parties to the transaction. In cases where the transaction gives rise to competition concerns, the Agencies may, in addition, resort to structural relief under the FCA and order the unwinding of the transaction (or the portion thereof that creates the concern), and even take the position that the transaction is null and void. This position, by itself, triggers a number of questions, as under Mexican law only a court can invalidate a contract, let alone the enforceability problems that such position would have in the context of cross-border mergers.
In light of these dire consequences, parties to non-reported transactions would usually approach the Agencies in order to limit their potential exposure and obtain certainty regarding such transactions. Until a few years ago, COFECE (which has a more robust track record on merger control proceedings than the IFT, which was created in 2013) processed self-reporting of such non-notified transactions under ordinary concentration notification proceedings, in which it ended up granting clearance retroactively and imposing fines for not having notified the transaction in time.
The Agencies have recently decided to create formal proceedings, different from ordinary merger control proceedings, to notify and “self-report” these transactions. This procedure is regulated in the Regulations of the FCA that each of the Agencies has issued and is commonly known as the Verification Incident for Non-reported Concentrations (hereinafter, a VCN).
Discovering that the parties failed to report a prior transaction in the middle of a merger control filing
VCNs, generally speaking, allow the Agencies to look into transactions that should have been notified to them, but were not. While some of the VCNs are the result of a voluntary ex-post filing by the parties, VCNs can also be initiated when the relevant Agency, in the context of an ongoing merger control filing of a proposed transaction becomes aware that a previous reportable transaction conducted by the applicants (or one of them), was not notified to it.
In such cases, COFECE has set a criterion pursuant to which a VCN is initiated to look into this potential violation of the FCA, while the ongoing merger control proceedings are stayed until the VCN is processed and resolved. Once the VCN is resolved, the prior matter retroactively cleared and a fine imposed, the Agency resumes the analysis of the transaction subject to merger control review.
In these cases, in addition to having to navigate the VCN, the parties to the transaction will need to factor into their merger filing timetable additional time to clear the matter, given that, as noted above, the VCN and the merger control file do not run in parallel.
Discrepancies between filing and closing statements
Merger control filings have become increasingly cumbersome and formalistic. One particular step in the process, the closing notice that the parties are required to file after a transaction that has been cleared by the agency actually closes, has recently received much more attention from the Agencies (particularly COFECE) and, thus, practitioners.
When the Agencies find discrepancies between the information provided to them in the course of the merger control proceedings (particularly that dealing with the description of the parties and the transaction) and the information submitted together with the closing notice (for instance, when the acquirer ends up being an entity different from the applicant or a wholly-owned subsidiary thereof or when the perimeter of the transaction differs from the description thereof in the application), the Agencies have the ability to initiate VCNs to investigate whether the transaction actually closed was indeed cleared by it. There are a handful of cases where COFECE has opened VCNs to verify these circumstances.
From a practical perspective, the VCN may create important setbacks to the parties to the underlying transaction as by the time a VCN is initiated, closing has already occurred. The parties are thus burdened with the risks of potentially having closed on a transaction for which clearance was not actually received, thus potentially triggering important questions from a contractual perspective.
While we have summarised the more common grounds under which the Agencies may initiate a VCN, it should be noted that the Agencies retain ample general authority to open these proceedings to look into circumstances or facts which may lead them to believe that a reportable transaction has not been analysed and cleared by them (in addition to the broad powers the Agencies have to investigate illegal mergers, which are those which foreclose competition).
Rules governing VCNs
VCNs are subject to particular specific rules under the Regulations of the FCA issued by the Agencies, which are different to the statutory rules governing merger control proceedings. Below is a description of the most relevant features of the VCN framework.
A VCN may be initiated (i) by a voluntary self-report, (ii) following a complaint by an interested third party, or (iii) ex officio by the Agencies. In the former case, the parties involved in a transaction that has already closed that become aware that the statutory monetary thresholds provided in the FCA were exceeded by that transaction, may submit an initial brief addressed to the Chief of Staff of the competent Agency containing:
In response to the initial filing or following a complaint by an interested third party or ex officio after conducting the relevant investigation, the corresponding Agency will issue a notice initiating the VCN procedure. This opening notice works as a summons to a trial-like proceeding in which the Agency charges the notified parties with having violated the FCA by closing a reportable transaction without having secured prior clearance.
The parties, in turn, will have five business days to respond the opening notice and offer any evidence against the charges made by the Agency. In the case of self-reported transactions, the parties would likely stipulate to the charges and request a reduced fine and retroactive clearance.
To the extent evidence is indeed offered with the aforementioned responses, the Agency will open a twenty business-day period to hear such evidence. Once this term expires, the Agency will grant a five business-day term to the parties to offer closing and final arguments. This window is usually used by the parties to argue the inadvertent nature of the breach, plead their efforts to co-operate and, generally speaking, provide information and documentation with the purpose of limiting the amount of the fines to be imposed.
Before the matter is listed for decision by the Board of Commissioners, the parties may evaluate the convenience of requesting a hearing with the Board of the corresponding Agency with the purpose of pleading directly to the Commissioners (i) the lack of anticompetitive effects arising out of the closing of the transaction; and (ii) the urgency associated to clear such transaction, if any.
Once the aforementioned proceedings are exhausted, the relevant Agency will issue a decision during the twenty business days following the date on which proceedings are closed. This decision will retroactively clear the transaction and impose a fine on the parties to the same.
As noted above, fines can range from USD20,000 to 5% of the taxable revenue of each party in Mexico. It is important to note that fines are imposed on each party to the transaction (not one single fine per event). The amount of the fine is set by the Agencies taking into consideration:
That being said, after reviewing all the fines imposed by the Commission during the immediately preceding two years, the data shows that:
It is important to note that, even if the imposed fines are manageable, they would count as a prior offence if the fined parties are subsequently involved in another VCN, potentially triggering a recidivism consideration and thus exposing such entities to a fine up to twice the amount that the Agencies would have otherwise imposed.
Differently from ordinary merger control proceedings, which are subject to an approximately USD10,000 filing fee, self-reporting and petitioning for a VCN is not subject to filing fees. It is also worth mentioning that while ordinary merger control filings usually take between eight and twelve weeks to be cleared, VCNs, which assume that a violation of the FCA has occurred, may take around six weeks. From a public policy perspective, it would seem fair that an effort be made to have the timeline of the ordinary proceedings come closer to that of VCNs.
As noted above, the Agencies are vested with broad powers to investigate mergers which cause harm to competition. VCN procedures are thus only available if the transaction does not restrict, prevent or limit competition. To the extent the Chief of Staff is of the opinion that a transaction self-reported under the VCN rules may foreclose competition, the matter could be referred to the Investigative Authority of the corresponding Agency, enclosing the petition and all relevant information so that it can decide if a probe is warranted. If the Investigative Authority becomes interested in the matter and decides to investigate, a probe will be launched for presumptive illegal merger and the VCN will be closed by the Chief of Staff.
Investigations into illegal mergers may last up to 30 months and any fines imposed as a consequence thereof will likely be much more severe than those imposed in the VCN proceedings.
Potential trends in VCNs
VCN procedures have been increasing steadily, in part due to the extremely formalistic approach that the Agencies sometimes exercise towards filing proceedings and requirements, and also because of changes in the criteria used to assess filing obligations.
Recently, for instance, COFECE issued its revised Guidelines for the Notification of Concentrations (the Guidelines) on 8 April 2021.
The Guidelines introduce new interpretations of the filing thresholds in the FCA, which in turn trigger the obligation to make a merger control filing before COFECE. Below are some of the more relevant examples of these recent revisions that may lead to slippery slopes in terms of assessing whether a filing is required and, thus, potentially facing VCN proceedings.
Multiple individual purchases
In cases where there are multiple purchasers who individually do not exceed the monetary thresholds set forth in the FCA, the transaction could still be reportable if all the individual acquisitions taken together jointly exceed such monetary thresholds and certain other conditions are met.
Funding rounds for start-ups or other ventures, conversions of debt into equity, restructurings, and several other structures and arrangements will likely require a closer look before a filing obligation is ruled out.
Succession of acts
COFECE had traditionally interpreted this concept as requiring a filing prior to effecting a step in a series of transactions which would cause the statutory filing thresholds to be exceeded. The revised guidance seems to suggest that a filing could be required even before executing the first step in a series of acts or transactions, even if that step does not by itself exceed monetary thresholds, if, and to the extent that, the entities involved in the transaction have knowledge from the outset that the succession of transactions will eventually and necessarily exceed the monetary thresholds.
Deferred performance agreements and variable compensation
In transactions related to deferred performance agreements, the consideration of which is variable and subject to being set at a later date based on a previously agreed formula, the revised guidance recommends that a conservative approach be taken and the maximum possible consideration be used as the basis for assessing the need to make a filing in Mexico.
The Guidelines list a series of collaboration agreements that, even if not intuitively considered a concentration, could lead to a filing obligation before COFECE. Among others, collaborations to consolidate business lines; create networks; consolidate production, distribution and/or marketing areas; buyers’ clubs; and combination of research and development efforts, may be characterised as concentrations by COFECE.
Given these changes, it is imperative that these types of structures, which may in the past have been ruled out as triggering a filing obligation in Mexico, get a closer look and that the parties take a conservative approach when assessing whether they are reportable or not.
Changes to the transaction after filing and closing notices
As anticipated above, other possible triggers of increased VCN procedures are closing notices. Common wisdom would suggest that the Agencies should not be worried about the closing of an approved transaction unless the parties obtained that clearance by filing false, inaccurate or misleading information. Notwithstanding the foregoing, as noted in prior sections, COFECE has made the closing notice into one of the more challenging steps in the course of merger control proceedings.
The parties involved in the transaction have to be mindful that any changes in the agreements, structure and descriptions submitted to COFECE may trigger not only a set of additional submissions to explain such changes, but also the possibility of facing a VCN procedure once a closing notice is filed, should COFECE take the position that the transaction reported and cleared is different to the transaction that the parties actually closed.
In this regard, it is strongly suggested to ensure that the final conditions are identical or very similar to those submitted with the application and the responses to the basic information request (if any) made by COFECE. This is particularly important when it comes to matters related to the identity of the parties involved in the transaction, the perimeter of the target business and the non-compete clause.
Prior M&A transactions involving the acquired business
From a practical perspective, when preparing a merger control filing in Mexico, it is advisable to conduct diligence to make sure that during the immediately preceding ten years, both the target and the sellers have made proper competition filings in Mexico associated with any M&A transactions involving the perimeter of the transaction, as it could be an important setback, at least from a timing perspective, if the relevant Agency took the position, in the middle of a merger control filing, that a prior reportable transaction had been conducted and that the parties had failed to report it.