Tips for dealing with the regulator

As a result of the constitutional amendment of 2013, a new Mexican Antitrust and Competition Law was issued, which included several improvements to competition regulation in Mexico, especially in connection with the pre-merger filing procedure. One of the purposes of those improvements was to make the procedure more efficient and effective.

In practice, dialogue, interaction and communication between the Commission (at all levels) and the economic agents involved in any procedure have become crucial. This points to the important role played by the economic agents’ local counsel during the pre-merger filing procedure.

As a part of this new antitrust legal framework, in October 2015 the Mexican Antitrust and Competition Commission (COFECE) issued a non-binding document that provides guidelines for the preparation, submission and follow-up of merger notices in Mexico (the Merger Guidelines). In the Merger Guidelines, the parameters for the interaction and dialogue between the Commissioners and the counsel of the economic agents is also currently regulated. This leads to the primary practical tip for dealing with the competition authority in Mexico: beginning a dialogue. Beginning a dialogue with the authority from the first moment the parties confirm the viability of any transaction that could have effects in Mexico is essential to reaching a ruling that, no matter the outcome, results from an efficient and organised process. Taking the first step to reach out to COFECE and maintaining throughout the procedure efficient communications with regard to the updates of the transaction is, in our opinion, the best way to ensure a fair ruling.

Several benefits arise from the interaction between the agents involved and the authority. The authority has the opportunity to more fully understand the specifics of the transaction, and in most cases it is advisable to create a communication channel between the business operations areas of the agents involved and the authority. In addition, the agents can focus the scope of the merger filing by explaining the possible efficiency gains or lack of competition risks with the execution of the transaction. Furthermore, it makes the authorisation process more efficient for all the parties, since the notifying agents learn from such formal (in writing) or informal (interviews, pursuant to the guidelines) communications what to focus on and how to explain the lack of risks in the execution of the transaction. Finally, and most importantly, it is the only opportunity the notifying parties have to acknowledge the authorities’ antitrust concerns and try to overcome them by preparing exceptional remedies focused on diminishing (or, if possible, eliminating) any anticompetitive effects that the transaction or merger could have on Mexican markets.

COFECE has shown that it is willing to keep the channels of communication open to avoid complications and delays in resolving the matters presented to it. Therefore, it is essential that the advisers and economic agents make an extraordinary effort to support the authority in the analysis of the transaction, and to provide it with all the information and documentation available in order to make the procedure more efficient and the analysis more expedited, shortening the times for issuing a ruling.

In this respect, the Commission, through the Merger Guidelines, has established the following with regard to communications, interactions and interviews with parties to a merger filing:

7.8 Communication between COFECE and notifiers

The Commission maintains a policy of openness, dialogue and communication with the Economic Agents that give notice of a merger, or those that wish to do so. In this regard, the notifiers can request, at any time, a meeting with the public officers of the Technical Secretary, the Mergers Office or the Commission Plenary. For this, article 56 of the Bylaws stipulates the basic rules that shall be observed when public officers of the Commission other than the Commissioners meet with the Economic Agents to address their matters:

• There must always be at least two public officers present;

• The meeting requests will be made by institutional email containing the identification of the case file, the Economic Agents or legal representatives requesting the meeting, the people who will attend, the public officers with whom they wish to meet and the purpose of the meeting; and

• The public officer will keep a record of the meeting in order to include it in the record of the Commission, and it shall indicate a date and time for the meeting and inform the petitioner by institutional email. Because of the usefulness they have shown in terms of making COFECE’s analysis and the presentation of the information by the Economic Agents more efficient, the Commission recommends that a meeting be requested with the DGC, through the email address indicated in the contact section of this Guide, before presenting a merger notice, during the procedure and before presenting any proposal for conditions.

For its part, the Commissioners can address matters with the Economic Agents only by interview.

Article 25 of the LFCE states that for this purpose the following formalities shall be followed:

• All the Commission Agents must be called, but the interview may be held with the presence of just one of them.

• In each interview a record shall be kept indicating the place, date and time of initiation and conclusion of the interview. Furthermore, the complete names of all the attendants and the matters addressed shall be recorded. This information will be published on the web site of the Commission.

• The interviews will be taped and stored electronically, optically or with any other technology. These recordings will be considered reserved information and will be available to the other Commissioners.

Thus, it is important that the advisers and areas directly involved maintain this constant dialogue with the Commission with regard to the notified transaction. It is also essential, apart from fully and timely responding to any requests, to keep a communication channel open between the Commission and the individuals and areas of the agents involved who know the technical and operative specifics of each transaction, including sales and purchase departments, administration, finance, accounting, manufacturing and even marketing or human resources. The agents’ representatives must act as mediators in this dialogue, to address any and all doubts of the authority with regard to the companies, business specifics, products, services, strategies, plans, historic data or any other information and, in general, with regard to the market or markets on which the merger could have effects.

The agents should seek to keep the authority duly informed of any modifications to the documents (contracts, agreements, covenants, relations, corporate structure or any other documentation) or information delivered. As has been seen in recent cases in Mexico, the Competition Authority can be very sensitive to these matters, and therefore it is advisable to always keep the authority informed as to the status of the transaction (including all agents involved and the relationship between the parties to the transaction). Furthermore, in cases impacting multiple jurisdictions, it is also highly recommended to give notice to the Commission on the status in other jurisdictions; sometimes the agents involved have privileged access to analyses or rulings issued in other jurisdictions that could be highly beneficial to present in the pending ones; this can be an interesting driver in the decision the competition authority issues on a particular merger.

Another practical recommendation applies especially in the case of mergers that occur in various jurisdictions, but also for transactions that have no overlap. In the United States, the Department of Justice and the Federal Trade Commission can conclude from a preliminary study that a merger will have no effects on free competition or trade in the country. This allows such authorities to issue early termination notices. Early termination notices, pursuant to the FTC’s website, may be requested by any person making an HSR filing, as explained below:

Any person filing an HSR form may request that the waiting period be terminated before the statutory period expires. Such a request for ‘early termination’ will be granted only after compliance with the rules and if both the Federal Trade Commission and Department of Justice Antitrust Division have completed their review and determined not to take any enforcement action during the waiting period.

In some instances, after a Request for Additional Information and Documentary Material has been issued, the investigating agency will determine that no further action is necessary and terminate the waiting period before full compliance with the Second Request is made.2

The above takes on special importance when these notices are issued within periods less than the statutory period under Mexican competition law, since the agents involved can submit them to the Commission as additional evidence, and this may facilitate the process and allow the competition authorities under any jurisdiction to exchange impressions on the transaction. In addition to facilitating the procedure, this can expedite the ruling and ensure consistency in global rulings (of course, taking into account the transaction’s regional particularities). To the extent the authorities exchange impressions and points of view, they can rule as consistently as possible.

In this respect, Debbie Feinstein, former director of Federal Trade Commission, has outlined that the ‘[w]aivers enable more complete communication and coordination among the competition agencies, which expedites the review and leads to well informed, consistent decisions – for all the competition enforcers.’

As an additional consequence of the reform, the new law eliminated the ordinary appeals, which means the economic agents no longer have an opportunity to further inform the Commission of the positive effects a merger may have on a Mexican market or markets. In particular, the reform eliminates the possibility of the agents to file through this appeal a justification and explanation of the possible consequences of the notified merger based on an analysis of the ruling of the Commission.

Now, the agents involved are informed formally, once and without possibility of appeal or further exchange of arguments, of the potential competition risks that concern the competition authority.

Therefore, although many think the ordinary appeals were systematically abused and used to delay the proceedings, they also gave the economic agents the opportunity to identify and then address the specific concerns of the competition authority. Now there are interviews between the authority and the agents involved, but the issues the authority may raise in such interviews are not necessarily those it would ultimately cite in the authorisation procedure.

This also illustrates the importance of initiating and maintaining constant communication with the merger authority, seeking to identify its concerns and in this way be able to address all the risks through the preparation and presentation of remedies that eliminate any anticompetitive effects that may result from the transaction. This is not to say, however, that the filing of merger remedies ensures that the authority will not find additional risks from the merger that could affect the markets.

In addition to the above, to have the shortest response time possible and avoid requirements for additional information, it is vital that all the formalities of the competition law be addressed when filing the authorisation brief, consulting the relevant areas of each agent involved and those who are well informed about the transactions. Presenting clear and concise information, without gaps, will avoid contradictions in the briefs that only increase the work for the authority and agents involved.

Characteristics of merger remedies to Mexico

Under the new competition law, if the competition authority detects that a merger represents risks to the competitive process, it must inform the economic agents of the risks it has identified at least 10 days prior to the date on which the matter will be listed for the ruling of the Plenary so that it can file the merger remedies that correct those risks to competition.

This new obligation, which comes from the 2013 amendment, is regulated under article 90 of the new Competition Law, whose parameters are regulated under article 21 of its Regulatory Provisions, which provides that such communication to the parties shall be made through a ruling of the Commission, summoning the notifying parties so that the Technical Secretary can inform them of possible risks to the competitive process that have been detected.

For these purposes, the Technical Secretary issues a ruling summoning the notifying parties to an interview. In this interview the Secretary tells them the possible competition risks identified. The period to rule on the authorisation or denial is interrupted the day on which the notifying parties present any proposal of remedies or any modification thereto, which means the counting of the period begins again.

In cases in which the notifying parties have presented remedies at the time of presenting their authorisation brief, they are granted the opportunity to make modifications or additions to their initial proposal for remedies. However, under Mexican Competition Law this modification can only be made once and before the matter is listed for the Plenary meeting.

It is also important to mention that in Mexico the authority is sensitive to any changes to the information and documentation presented through the merger notice. Therefore, it is important that the agents file any update made to any instrument, contract, agreement or any other document presented through the merger notice, even after it is authorised and until the closing occurs. Furthermore, under Mexican law parties are required to file a transaction closing writ to inform the authority of the closing of the transaction. The fines imposed for not observing this requirement are very high under Mexican jurisdiction.

As previously explained, for merger remedies to cover all substantial concerns of the authority, it is essential to maintain a dialogue with the competition authority, and ‘the sooner the better’. Under the competition law the agents involved have the right to present the conditions from the time at which the authorisation request brief is filed and until one day after the concentration is listed to be discussed by the plenary.

Once merger remedies are filed it is important to note that while the parties may only change their remedies and scope once, the Commission may, at any time during the authorisation process, request additional information or take the actions it considers advisable in order to have all the elements to analyse the conditions presented.

The mergers regulation in Mexico seems to encourage the economic agents to present motu propio the merger remedies that, based on the specific knowledge they have of the market, they think will eliminate any anticompetitive effects that could be generated. This is because they have greater understanding of the form the merger remedies may adopt, and therefore how they are able to minimise the merger impact without affecting the competitive process. This in turn permits them to develop and draft the compromises they see as viable and reachable for their business.

Another innovation under the competition law is the interview or oral hearing the economic agents have access to during the merger authorisation process. The competition authority encourages agents, in case of doubts about the relevance of certain information, to contact the public officers of the Mergers Office to determine if the case merits it.

With respect to conditions, the competition authority in Mexico tends to impose structural conditions and behavioural conditions together. In this respect, under the competition law in Mexico and as established in the Merger Guidelines, the conditions may be classified under two types: behavioural and structural. The Merger Guidelines define behavioural conditions as those referring to the obligation to behave in a certain manner. The structural conditions are those that seek to change the structure of the market, such as the transfer of assets to third parties.

The conditions may also be classified as prior and subsequent. According to the Merger Guidelines, the prior conditions are those that must be met in order for the economic agents to carry out a transaction. In the case of subsequent conditions, the economic agents can carry out the transaction and comply with the conditions in a later stage.

Regarding the above, in Mexico structural conditions are usually imposed to remedy problems derived from horizontal mergers, and they may be complemented with behavioural conditions. Behavioural conditions can resolve different problems, such as those that arise in vertical transactions, criss-cross directory (for example, when board members, shareholders or executives participate simultaneously in two or more companies) or when the transaction can give rise to coordinated behaviour in other markets. In this way, the Commission evaluates the conditions proposed to determine if they correct the negative effects that the merger could have and may accept them or impose other conditions to ensure the competitive process. As in other jurisdictions, the conditions imposed by the Commission are public, unless the economic agents request and justify their classification as confidential.

If the competition authority issues a favourable ruling for a particular merger, subject to compliance with conditions intended to prevent possible anticompetitive effects that could arise from the notified merger, the economic agents must evidence that they will carry out the acts necessary to comply with them and that the merger acts will not produce any legal effects until the authorisation is obtained, unless the ruling so authorises. In this regard and in contrast to other jurisdictions, the economic agents must comply with the conditions under which the authority has authorised the merger within the time period indicated in article 90 of the law. Otherwise, they must give notice of the transaction again in order to be able to carry it out. This translates into the obligation of the agents involved to comply with the conditions before the transaction is closed.

Another new particularity of the 2013 reform was:

the strengthening of the system of sanctions that inhibit anticompetitive behavior . . . that the COFECE can order the divestment or sale of assets, rights, partnership interests or shares of economic agents as a specific sanction in cases of recurrence of anticompetitive practices or if other corrective measures are not sufficient to resolve the competition problem identified. This will be done only in the necessary proportions to eliminate anticompetitive effects and observing the essential formalities of the procedure, thereby safeguarding legal due process.3

In this respect, regarding conditions in merger authorisation procedures, Section IX authorises the Commission to impose a fine of up to the equivalent to 10 per cent of the income of the economic agent for violating the conditions established in a merger ruling, in addition to being able to order the divestment.

The reform’s strengthening of the law was also expressed by permitting the authority to impose criminal sanctions for non-compliance with and violation of the competition law in Mexico.

Finally, as discussed in the first section of this chapter, there is no longer an opportunity to refute the authority’s determination of the effects of a merger.

Multi-jurisdictional remedy coordination and timing considerations

Section 7.7 of the Merger Guidelines in Mexico provides the following:

7.7 Collaboration with authorities of other countries.

The Commission has established various collaboration agreements with competition authorities of other countries. In the framework of those agreements, it is possible for the public officers of the Commission to hold conversations with their counterparts in other jurisdictions on general aspects of a particular merger. The commission preserves the confidentiality of the information it receives in its proceedings and does not disclose it to other authorities, unless it has the consent of the Economic Agents involved to share the information with them.

In its strategic plan for 2018–2021, the Commission reports to have 78 conventions and agreements with different national and international authorities, which allow it to develop collaboration activities in the national and international sphere. The Commission has also expressed its growing interest in encouraging communication between authorities of different jurisdictions.

There are collaboration agreements between authorities not only for the study of mergers but also in all concurring procedures and investigations, making an expedited and efficient ruling possible.

In addition to the collaboration agreements that the authorities can execute, the exchange of ideas by the competition authorities through international organisations such as the Organisation of Economic Co-operation and Development (OECD) and the International Competition Network (ICN) is relevant. This is expressed on the ICN website:

the ICN provides competition authorities with a specialized yet informal venue for maintaining regular contacts and addressing practical competition concerns. This allows for a dynamic dialogue that serves to build consensus and convergence towards sound competition policy principles across the global antitrust community.

The ICN is unique as it is the only international body devoted exclusively to competition law enforcement and its members represent national and multinational competition authorities. Members produce work products through their involvement in flexible project-oriented and results-based working groups.

These organisations may not work on specific cases or transactions, but rather they organise annual meetings and seminars for the exchange of ideas on competition parameters, taking advantage of technology and using the internet, teleseminars, webinars and conference calls, so that under different jurisdictions the competition authorities may be familiar with the best global competition practices and recommendations.

For example, the ICN and OECD have recurring initiatives to encourage and incentivise the cooperation between competition authorities in relation to mergers. In this respect, the ICN currently has a merger working group, which recently, through an annual conference for 2015, presented a practical guide on mergers, and more recently it has published a Merger Remedies Guide, which, together with the Practical Merger Guide, delineates the best international practices for the design of merger remedies.

Finally, with regard to multi-jurisdictional cooperation on merger remedies, it is our belief that in Mexico, even though enormous and extraordinary results and improvements with regard to global cooperation have been shown by the competition authorities, there is still a tendency to lean towards the ‘role of the merging parties’, as the European Commission defined it in one of its competition policy briefs, the role of the merging parties understood as to facilitate cooperation between different agencies, in particular when cooperation requires aligning the timing of the review processes and exchange of confidential information. Therefore, the early and constructive engagement of merging parties is very important for successful inter-agency cooperation.

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