Since the establishment of the new Mexican Antitrust and Competition Commission (COFECE), and as a result of the reconstruction of the antitrust and competition regulatory regime in Mexico, merger review practice has undergone noteworthy and fortunate growth and development in the country. The number and complexity of transactions reviewed by the competent authorities during recent years have required higher levels of rigour in their scrutiny and analysis, as well as remarkable levels of knowledge of the relevant industries and markets.
Naturally, such relevant and expeditious progress also resulted in high-level arguments and sophisticated negotiations that drove both authorities and practitioners to thoroughly study the merger control legal mechanisms. In Mexico, merger remedies have special relevance and are considered the most advantageous tool for both authorities and involved entities to safeguard the competitive performance of markets while enhancing their natural movement and development in complex cases.
Particular characteristics of merger remedies in Mexico
In Mexico, merger remedy negotiation can be initiated (1) by the interested entities, who can offer them at any time from the notification of the merger to the day prior to the matter being resolved by the Plenary of Commissioners, or (2) at the request of the authority, if it considers that a concentration might give rise to an anticompetitive effect. In the latter case, under the Mexican Antitrust Law (MAL), COFECE is obliged to inform the involved entities of the risks that have been identified, to enable them to offer merger remedies that may correct such anticompetitive effects.
In the Merger Guidelines, COFECE has expressed its preference for notifiers to proactively offer remedies. Based on the specific knowledge they have of their corresponding markets, it is fair to assume that involved actors have better tools to design remedies that may effectively eliminate any anticompetitive effect that could be generated by the concentration. This approach offers the companies an opportunity to start the negotiation not only on the type of remedies to be offered but also on the whole execution and monitoring procedure.
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’. While the parties may only change their remedies and scope once after merger remedies have been filed, COFECE may, at any time during the authorisation process, request additional information or take actions it considers advisable to acquire all the elements for analysing the conditions presented.
Another innovation under the MAL is the interview or oral hearing that economic agents have access to during the merger authorisation process. The competition authority encourages agents to contact the public officers of the mergers office to determine whether the case merits certain information, if this is in doubt.
Pursuant to international doctrine, merger remedies can be classified into two main types: one focusing on the structure of the market and the other addressing the conduct of the concentrated company (behavioural remedy). Typically, structural remedies will involve the sale of tangible and, preferably, existing assets by the concentrating companies. A behavioural remedy usually tends to regulate the concentrated entity’s post-merger conduct in the corresponding market or markets.
With respect to the substance of the remedies, it seems that, similar to that seen in many other jurisdictions, in Mexico COFECE has a preference for structural rather than behavioural remedies, or, at least, for a combination of these. From an authority’s perspective, structural remedies are notoriously more practical, particularly if, when analysing them against behavioural remedies, their immediate and direct effect, execution time and the low costs that they represent for the authorities are considered. When fashioning the remedies, it also needs to be considered that the trend in Mexico is usually for structural remedies to address concerns raised by horizontal mergers, and these are often complemented with behavioural remedies.
Behavioural remedies, on the other hand, can resolve different problems, such as those caused by vertical transactions, cross-directory (i.e., 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. The inconveniences of behavioural remedies, and the reason why authorities tend to avoid them, are the substantial costs that they represent (i.e., monitoring the level of compliance by the merged entity), as well as the indirect negative effect that they might have in the relevant or related markets.
In consideration of this, COFECE tends to favour – for timing and efficiency purposes – those remedies that involve an upfront divestiture of assets. However, the process can become complicated when negotiating the fair identification of assets needing to be divested to alleviate its concerns without representing a deterrent for the investment of the potential merged entity. In this regard, COFECE’s approach has been to guarantee that, when divesting a line of business, the potential merged entity passes all the necessary assets – tangible and intangible – on to the buyer, to enable the buyer to effectively compete in the market immediately and on a long-term basis. This explains why, when negotiating remedies, COFECE focuses a significant amount of resources on studying the competition conditions of the relevant and related markets.
Following this principle, COFECE has shown a propensity for the divestiture of existing business assets, including, in some cases, the business’ personnel, clients, operational mechanisms and know-how. Understandably, the participation and permanence of these assets in the related market enhances the fair competition conditions of the buyer. However, when it is not possible to divest an existing business asset for any reason (e.g., it is an asset shared by two or more business lines or segments), the authority’s inclination is for the creation of a company in which all the acceptable sets of assets to divest are combined.
For instance, in the merger between Bayer and Monsanto, in which Bayer was trying to acquire the assets of Monsanto’s Mexican subsidiaries, after studying the transaction and the affected markets, COFECE foresaw a potential negative impact due to the presence of several barriers of entry to such markets and the elevated market share of the parties. It entered into a merger remedy negotiation that included the upfront divestment of several lines of Bayer’s business (including the global businesses of seeds and cotton and the vegetable seeds business assets) to BASF (the buyer pre-approved by COFECE).
What is interesting about this case is the territorial scope of the agreed remedies, especially when considering that one of the divestitures agreed was in a global market.
In this regard, it is notable that COFECE has been especially open regarding its coordination and cooperation agreements with other competition authorities in different jurisdictions, particularly the United States and the European Union, and has even mentioned that, without jeopardising its autonomy and independence, in complex cases it compares approaches and issues of common interest with authorities reviewing the same case in other jurisdictions.
There are also some cases in which COFECE determined that combined remedies (structural plus behavioural) were necessary because of the specific circumstances of the cases. Analysing such cases, it can be deduced that the authority’s viewpoint is that behavioural remedies are crucial for merger cases when the transition triggered by the structural remedy requires certain specific post-merger actions from the merged entity to guarantee an effective competition environment for the buyer.
An example of this approach is the case of the merger between the airlines Delta and Aeromexico, in which the transaction consisted of a concentration through a joint cooperation agreement to operate all their flights between the United States and Mexico. Due to the risks spotted by COFECE, based mainly on the market shares of the parties and the barriers to entry, the authority decided to impose a set of conditions. The first was a structural remedy consisting of the divestment of a certain number of slots in favour of their competitors, and the second a behavioural remedy to guarantee the effectiveness of the divestment (i.e., that the acquirers of the slots could exploit them in a competitive environment), which was the prohibition for Aeromexico and Delta to maintain assigned routes in which they were competitors.
Once COFECE evaluates and agrees remedies, it requests an official offering writ with an extensive and meticulous description of the remedies agreed, as well as the verification process (for behavioural remedies). As in many other jurisdictions, the remedies imposed by COFECE are publicly available for consultation, unless the economic agents request and justify a confidential classification.
One of the Mexican authority’s greatest challenges in merger remedy procedures comes after the issuance of the conditioned merger authorisation: the enforcing and monitoring stage. In this regard, Mexico still has a long way to go in terms of crafting viable schemes that avoid costs for the authorities. However, in recent years, the country has seen higher numbers of increasingly improving monitoring schemes agreed between the interested parties and the authorities.
Such was the case in the merger between Continental and Veyance, in which the authority crafted a monitoring scheme under which the merged firm was obliged to retain an independent auditor in charge of grading and reporting the level of compliance of the imposed remedies. The auditor was in charge of supervising the divestiture of the assets in Mexico and the United States.
Another example is the Walt Disney Company/Twenty-First Century Fox case. When the authorities, COFECE and the Federal Institute of Telecommunications (IFT), identified that this concentration involved a potential overlap in the provision and licensing of pay-TV sports and factual channels (including cultural and documentary channels), they decided to approve the transaction subject to the compliance of structural remedies; however, when they could not agree on an upfront divestiture it became necessary to design an enforcing and monitoring post-merger scheme. According to the decision of the IFT, the Fox Sports business shall be managed by an independent administrator, and the divestiture of the business must be executed by an independent party. This case is still ongoing and, considering its nature, it will surely be a watershed in the history of merger remedies in Mexico.
Nevertheless, COFECE has stated in the past that another effective alternative solution for the enforcement of merger remedies is the use of monetary sanctions as deterrents for failing conducts. In this respect, COFECE is empowered to impose a fine of up to 10 per cent of the income of the involved entities for breaching the merger remedies agreed on the conditional authorisation. This is in addition to any divestment order and civil procedures that can also be a consequence of the breach.
Tips for dealing with the regulator
As a result of the constitutional amendment of 2013, a new MAL 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 COFECE (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 part of this new competition legal framework, in October 2015 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 economic agents’ counsel are 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 in reaching a ruling that, no matter the outcome, results from an efficient and organised process. Taking the first step in reaching out to COFECE and maintaining efficient communications regarding transaction updates throughout the procedure is 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 derived from the execution of the transaction. Furthermore, because the notifying agents learn what to focus on and how to explain the lack of competition risks derived from the execution of the transaction through formal (in writing) and informal (through interviews, pursuant to the guidelines) communications, this makes the authorisation process more efficient for all parties. Finally, and most importantly, it is the only opportunity the notifying parties have to acknowledge the authority’s competition concerns and to try to overcome these 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, to make the procedure more efficient and the analysis more expedited, reducing the times for issuing a ruling.
Thus, it is important that the advisers and agents directly involved maintain this constant dialogue with the Commission with regard to the notified transaction. It is also essential, as well as fully and timely responding to any requests, to keep a communication channel open between the Commission and the individuals and business areas of the agents involved, that 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 cases; this can be an interesting driver in the decision the competition authority issues on a particular merger.
In the United States, the Department of Justice and the Federal Trade Commission (FTC) 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 a Hart-Scott-Rodino Act (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 FTC and Department of Justice Antitrust Division have completed their review and have 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.
The above takes on special importance when these notices are issued within periods shorter than the statutory period under Mexican competition law, as the agents involved can submit them to COFECE 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 the FTC, 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 MAL eliminated ordinary appeals, which means 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 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 the possibility of appeal or further exchange of arguments, of the potential competition risks that concern the competition authority.
Therefore, although many think that 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.
Multi-jurisdictional remedy cooperation and coordination
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 having 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 familiarise themselves 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, through a 2015 annual conference, 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.
In recent years, COFECE has emphasised the particular relevance of growing the merger control area. It has stated that this is one of its top priorities, due to the direct impact that it has on the developing markets. Therefore, COFECE has focused a considerable amount of resources on growing its merger control team, and with it the level of scrutiny it places on each transaction, especially on those that show signs of having potential anticompetitive effects.
Considering that in 2019 no mergers were authorised subject to remedies, but that two major transactions were in fact blocked by COFECE, a significant challenge emerges for antitrust counsel in Mexico, and counsel must excel in the development of crafting skills surrounding merger remedies. The goal shall always be to provide clients with the most practical, accurate and efficient representation. It is the role of specialised attorneys to guide both clients and authorities to the most successful outcome that can represent a win–win for the investors and the markets of Mexico. In this regard, it will be crucial to closely follow the outcome of cases providing potential watershed merger remedies in Mexico.
1 Fernando Carreño is a partner and Paloma Alcántara is an associate at Von Wobeser y Sierra, SC.
2 File No. CNT-024-2017, Bayer de Mexico, SA de CV/Monstanto Comercial, S de RL de CV. Final decision available at www.cofece.mx/cfcresoluciones/docs/concentraciones/v5898/7/4312994.pdf.
3 File No. CNT-050-2015, Aerovías de México, SA de CV/Delta Air Lines Inc. Final decision available at www.cofece.mx:8080/cfcresoluciones/docs/Concentraciones/V5325/0/3648710.pdf.
4 File No. CNT-084-2014, Continental AG/Carlyle CIM Agent, LLC. Final decision available at www.cofece.mx/cfcresoluciones/docs/concentraciones/v591/88/1883446.pdf.
5 File No. UCE/CNC-001-20018, Walt Disney Company/Twenty-First Century Fox, Inc. Final decision available at www.ift.org.mx/sites/default/files/conocenos/pleno/sesiones/acuerdoliga/verpubpift110319122canxuce.pdf.
6 The structural remedies agreed can be summarised as (1) the divestiture of the Fox Sports business related to the provision and licensing of sports channels, which includes the divestment of all the necessary assets to maintain it as a viable and independent business from the parties; and (2) the obligation to separate the provision and licensing of the factual channels commercialised by Fox (National Geographic and National Geographic Wild) from those owned by Disney (A&E, History, H2 and Lifetime).
9 File No. CNT-161-2018, Cornershop Technologies, LLC/Shareholder Representative Services LLC/Wal-Mart International Holdings, Inc; and File No. CNT-025-2019, Inmueblemar, SA de CV/Organizacion Soriana, SAB de CV/Planigrupo Latam, SAB de CV.