TP20070216235312.ppt

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Merger Control in Uruguay
American Bar Association- South American Regional
Conference Buenos Aires, March, 2007 Guyer
Regules Juan Manuel Mercant
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1. Introduction. Free Trade and Competition Bill.

• 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.

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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.

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3. Notification or Authorization Procedures.
Analysis.

• 3.1. Notification
• 3.1.1 Operations that need to be notified
• When, as a consequence of the transaction,
  participation equal or higher than 60 of the
  relevant market is acquired or increased.
  Inconvenient criteria.
• 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 1,000.000.000 Indexed Units (US
  64,246.000 approximately).
• 3.1.2 Opportunity for notification.
• Previously or within 30 days after closing
  (transfer of control).

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3. Notification or Authorization Procedures.
Analysis. (cont.)

• 3.1.3 Post 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.
• 3.1.4 Faculties of the Enforcement Agency.
• 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.

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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.

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• 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.

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• 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.)

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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.

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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 2007.
• 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.

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