Merger Control in Uruguay American Bar Association- South American Regional Conference Buenos Aires, March, 2007 Guyer & Regules Juan Manuel Mercant

 There is no merger control system in Uruguay and therefore no cases involving this matter occurred.  Notwithstanding, on May 2, 2006 the House of Representatives passed a Bill under the heading “Libertad de Comercio y Preservación de la Libre Competencia” (Free trade and Competition Bill) that regulates matters concerning competition and antitrust (hereinafter the “Project”). The Project is now being studied by the Senate.  The Project incorporates provisions designed to obtain a merger control mechanism and in some cases previous authorization of certain type of economic concentrations. 1.Introduction. Free Trade and Competition Bill.

2.Economic concentrations. Definition.  Section 7 of the Project establishes that those operations that may involve a modification of the structure of control of the participating enterprises through: mergers of corporations, the acquisition of shares, quotas or stakes, acquisition of business as an on-going concern, total or partial acquisition of corporate assets, and any other type of legally valid agreements which imply transferring the control of the total or part of the economic units or enterprises, shall be deemed potential acts of economic concentration.

3.Notification or Authorization Procedures. Analysis Notification 3.1.1Operations that need to be notified: (a) When, as a consequence of the transaction, participation equal or higher than 60% of the relevant market is acquired or increased. Inconvenient criteria. (b) When the annual gross turnover, in the Uruguayan territory, of all economic units or enterprises involved in the transaction, on any of the last three accounting periods, were equal or higher than 1, Indexed Units (US$ 64, approximately) Opportunity for notification. Previously or within 30 days after closing (transfer of control).

3.Notification or Authorization Procedures. Analysis. (cont.) 3.1.3Post control by the Enforcement Agency. Periodic Information. In order to monitor the market conditions, the Enforcement Agency would be authorized to request periodic information to the enterprises involved in the notified transaction Faculties of the EnforcementAgency.  The Project has not established a time limit for the Enforcement Agency to issue an opinion on the notified transaction nor what it could do.  Consequently, it seems that the Enforcement Agency would simply have to acknowledge the existence of said transaction and in no case could question it (unless considers that the operation falls under Section 8).  The Executive Power is commissioned to establish the form and contents of the notifications.

3.Notification or Authorization Procedures. Analysis. (cont.) 3.2. Authorization. Only in the case of the “de facto monopoly”. Only one participant in the market?  In those cases in which the act of economic concentration implies creating a “de facto monopoly” previous authorization from the Enforcement Agency is required. The Project does not explain what must be understood by “de facto monopoly”.  However, we believe that the expression “de facto monopoly” has been used as contrary to a “legal monopoly” and wants to refer to a monopoly situation (from an economic point of view), that is, the market structure where there is only one participant and there are no substitutes near to all consumers for the relevant products or services.

4.Consequences of omitting to notify and/or request prior approval.  Section 7. Formal Breach. Fines non defined.  Section 8 simply provides that “in cases where the economic concentration implies the creation of a “de facto monopoly”, such process should be approved by the enforcement agency with no references to the consequences both of rejection or of omitting to request,the prior approval.  Based on the absence of any express legal disposition (as in other cases of administrative authorizations under Uruguayan legal framework)indicating that it will be invalid to close a transaction without having such prior approval, we believe that such approval is not a validity requirement but a condition of effectiveness.

4.Consequences of omitting to notify and/or request prior approval. (cont.)  However, the Enforcement Agency may (i) apply penalties arguing that the parties have carried out anticompetitive actions as from closing date, (ii) grant or request a cease order, or (iii) require the parties to conduct their business in such a way that no anticompetitive effects arise. Even a spin off order may not be ruled out.  Originally, the Project contained a specific article which established that previous authorization (in case of a “de facto monopoly”) can be subject to certain conditions required from the Enforcement Agency. (i.e.: assets selling and the obligation to offer to competitors raw material for the production in the same terms and conditions they acquired it.)

5.Divestment Undertakings. (cont.)  Finally, the House of Representatives eliminated this article, so, in principle, the Enforcement Agency will have no power to impose conditions so that to grant authorizations.  Consequently, the Enforcement Agency will be allowed only to accept or reject the proposal transaction.  However, if a transaction is rejected (with an explanation of the grounds) and the parties submit a new request (addressing the problematic issues) the transaction should be approved. This will work as a kind of divestment procedure in practical terms.

6.Conclusions.  It must be taken into account that under Uruguayan Law the government can only act to the extent of the specific powers that law confers.  As of today, no pre-merger control exists in Uruguay.  A kind of pre-merger control (notification or authorization) will be introduced during  Authorization (Section 8). It seems that it is a condition of effectiveness and not a validity requirement.  Divestments? Not expressly established but possible in practical terms.