Originally published in Urguay Antitrust, Volume 6, Issue 9, December 13, 2007.
At the end of July 2007, the Uruguayan government enacted the Ley de Libertad de Comercio y Preservación de la Libre Competencia or Trade Freedom and Free Competition Preservation Act, which came into effect in early August and marked the beginning of a new era for antitrust in Uruguay.
As it is still in its infancy, the antitrust act may yet be regulated and refined through decrees and regulations issued by the government, which has 120 days from 20 July to produce the regulations. At the time of writing, no regulations have been released.
The antitrust act repeals almost all previous regulations related to anti-competition matters and will cover all persons (legal entities and individuals, public or private, national or foreign) except for the limitations established by law owing to reasons of general interest.
The main purpose of the antitrust act is to ensure that the markets function without distortion and according to free-market principles of supply and demand.
The act focuses most intently on anti-competitive conduct. Section 2 provides that the abuse of a dominant position is prohibited, as well as all practices, behaviour or recommendations, both individual and concerted, aimed at or having the effect of restricting, limiting, hindering, distorting or preventing current or future competition in the relevant market.
To assess these practices, the enforcement agency may take into account whether they generate economic efficiency gains for the individuals, economic units and companies involved, the possibility of obtaining them through alternative means and the benefit transferred to consumers. This means that the anti-competitive conduct listed under section 4 of the act will still be analysed by the competent authorities under the 'rule of reason' criteria with no per se anti-competitive conduct, as is the case in other jurisdictions.
Concepts such as 'relevant markets' and 'dominant position' – which were not included in previous legal provisions – have now been defined. We anticipate that this will be very useful in the application of the antitrust act, as the definitions guide the law's interpretation and regulations.
Control Of Economic Concentrations
'Economic concentrations' are generally defined as operations that modify the relationship among agents operating in the market, and that affect or may affect the ownership of the companies operating in a certain market sector or of certain assets, the number of companies or the independence of their administrators, etc, and which could modify or affect the market structure. For these reasons, economic concentrations have been the subject of regulation in most jurisdictions with competition laws.
Article 7 of the act establishes that any act of economic concentration must be notified when certain thresholds are met. The second paragraph of this section provides that potential acts of economic concentration are "those operations which imply a modification in the control structure through: mergers of companies, acquisition of shares, quotas or participations, acquisition of business as an ongoing concern, total or partial acquisition of corporate assets, and any other type of legally valid agreement which imply transferring the control of all or part of the economic units or enterprises".
Such economic concentrations (provided that they meet the thresholds, as defined below) must be notified to the competition authority, the Comisión de Promoción y Defensa de la Competencia, 10 days prior to closing. Thus it will be crucial to determine the moment when the transfer of control (which triggers the obligation to notify) is effectively achieved and this determination will depend, among other things, on the terms and conditions and type of economic concentration under analysis. Through this act, for the first time in Uruguay, a system of notification is being introduced.
In this context, the aim of the notification is not to obtain a clearance for the transaction (which is only required in cases where a 'de facto monopoly' is in place, explained further below), but to notify the antitrust commission about the occurrence of an economic concentration that meets the thresholds: thus, the antitrust commission could not object to the deal. In other words, the point of this notification is to make the agency aware of such economic concentration so it gains knowledge about sectors of the economy in which it could be more likely that anti-competitive practices or abuse of a dominant position may take place.
According to section 7 of the act, notification filings are mandatory when one of the following conditions are met:
- When, as a consequence of the operation, a market share equal to or higher than 50 per cent is reached. This alternative does not take into account the volume of the economic concentration, but the market share participations of the parties involved or, more precisely, of the resulting structure. The implementation of this criterion aims to cover certain transactions that would probably cause relevant changes in the market structure. To determine whether a company has a certain market share, the relevant market should be determined by the parties involved.
- When the gross annual turnover in Uruguayan territory of the group of participants in such an operation, in any of the last three accounting years, is equal or superior to 750 million indexed units (equivalent, as of August 2007, to approximately US$50 million). This is a much more objective and precise criteria than the one mentioned above, which requires the previous assessment of the relevant market (a definition that is normally debatable).
There are some exceptions to these thresholds, contained in section 8. The transaction does not have to be notified in these cases:
- the acquisition of companies in which the buyer is the holder of at least 50 per cent of the shares;
- the acquisition of bonds, debentures and debt securities, or any other debt instruments issued by the company, or the acquisition of non-voting shares;
- the acquisition of a sole company on behalf of a foreign company that did not previously possess any assets or shares in other Uruguayan companies;
- the acquisition of companies, declared bankrupt or not (mainly in financial distress), with no activities in Uruguay during the previous year.
Section 9 of the act requires prior mandatory filings in those cases in which the economic concentration operation ultimately results in a de facto monopoly. Unfortunately, the legislation does not make clear what is meant by a de facto monopoly. This issue will probably be clarified by future regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.